Q3 2022 Scorpio Tankers Inc Earnings Call
[music].
Okay.
Hello, and welcome to the Scorpio tankers incorporated third quarter 2022 conference call.
Now I'll turn the conference over to Mr. James Doyle.
Corporate development and I are please go ahead sir.
Thank you for joining us today welcome to the Scorpio tankers third quarter 2022 earnings conference call.
On the call with me today are Emmanuel Laura Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief Operating Officer, Brian Lee Chief Financial Officer, while our Central Nielsen commercial director.
Earlier today, we issued our third quarter earnings press release, which is available on our website Scorpio tankers dotcom.
The information discussed on this call is based on information as of today November <unk> 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 <unk> Dot Gov.
Call participants are advised that the audio of this conference call is being broadcast live on the Internet and is also being recorded for playback purposes. An archive. The webcast will be made available on the Investor Relations page of our website for approximately 14 days.
We will begin in a short presentation today. The presentation is available at Scorpio tankers Dot com on the Investor Relations 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 do you have an additional question. Please rejoin the queue now I'd like to introduce our Chief Executive Officer Emmanuel anywhere.
Thank you James and good morning or afternoon, everyone.
Thank you for taking the time could be with US today are this has been a great quarter for Scorpio tankers. The company has generated its largest quarterly profit in the company's history.
Significant cash flows from a strong rate environment are transforming the balance sheet.
And improving the quality of Scorpio tankers as an investment.
Our capital allocation prioritizes the balance sheets as we've said before.
Year to date, we have repaid over $720 million in debt.
Since June we have given notice to exercise the purchase options on 23 leased vessels.
We will reduce our debt by almost $1 billion. This year and in addition, we have returned capital to shareholders primarily through our buyback program.
Since July we have repurchased $220 million of our common shares at an average price of $38 and 56 seconds.
The company will continue to reduce its leverage maintain a strong liquidity position and opportunistically repurchase shares.
Fourth quarter earnings have started strongly we have booked $45500 per day for 52% of the available days on the quarter.
We continue to see global refined product inventories remain near historic lows and supply remains very much constrained.
So the thesis of a changing refinery landscape, increasing exports and ton mile demand is actually playing out.
Our customers expect these current market conditions to be sustained.
This is evidenced by the increase in time charter rates and activity.
The rate at which customers are willing to commit are higher but importantly, also the period to which they are willing to commit is longer.
We continue to agree with our customer views and as significant shareholders. We're excited about the constructive outlook for product tankers and remain committed to creating long term shareholder value.
Hum.
I'd like to thank you for your continued support.
And I will now pass it over to James who is going to go through a brief presentation.
James.
Thanks, Emmanuel I tried a place.
Since March the refined product tanker market has been resilient breaks.
Rachel Oscillated between 30 and $60000 per day, even during seasonally weaker periods such as refinery maintenance.
While our thesis and outlook remains the same it would be remiss of me to say that the confluence of factors a degree to which those factors are impacting our markets is unprecedented.
Now in place.
Refined product demand continues to increase as the global economy reopens from the COVID-19 pandemic. However for several quarters demand has outpaced supply leading to a period of significant inventory draws.
July 2020 in United States as drought over 400 million barrels of crude oil and refined product globally distillate inventories have increased over.
Decreased over 200 million barrels and have not been able to build since 2020, despite lower jet fuel demand and higher refinery utilization.
With demand expected to increase through 2023 refinery output will need to increase to meet incremental demand well inventories growing demand and high refinery output are all constructive drivers for quite a tanker demand.
Slide 10 please.
Since March seaborne CPP exports have remained above pre pandemic levels and more recently I'm trend at 500000 to one 2 million barrels a day above 2019 levels.
With inventories near historic lows, the ability to supply incremental demand inventory draws is limited unless product tankers now more than ever are being used to supply more immediate demand.
The global supply demand mismatch.
Refined product has less to do with Russia's invasion of the Ukraine and more to do with refining capacity closures configurations and dislocations.
New refining capacity will help to alleviate global shortages, but it won't be easy and will require increased demand for product tankers.
Slide 11 place.
While seaborne X product exports and increased so as the distance those cargoes to need to travel.
As ton mile demand increases that some capacity is reduced as supply tightens.
And the changes in the global refining system that had large impacts on ton mile demand, namely in two ways first new export oriented refining capacity, which is still closer to the wellhead and further away from the consumer.
We have seen less in the middle East and we will continue to see it over the next few years.
Second when refining capacity closes investments further away from the consumer after refinery closes to maintain demand and often needs to import some of the lost production, we have seen a lift in Australia.
All scenarios have led to significant increases in ton mile demand have structurally changed global trade flows it's difficult to change refining capacity in the short term, but new capacity coming online in the middle east as needed and beneficial for ton mile demand.
If Russia defined exports are diverted from Europe , the market could get even tighter.
That's helpful.
As of October European imports of Russian refined product had declined from $1 1 million barrels per day to 800000, Washington until recently, we have not seen a major shift in Russia in refined products going to Europe , starting February 5th any vessels transporting ration will find product sold at a price above the predetermined price gap.
Will be prohibited from European insurance and finance.
It's unclear what the price cap will be and there are so many details to be worked out.
In the event Russian exports to Europe , our rerouted to different regions, there would be a substantial increase in ton miles every replacement scenario require sending each barrel a longer distance.
In the event these barrels of rerouted from Europe and split evenly between the regions and countries in the graph ton mile demand could increase over 6%.
This also excludes the ton mile impact from Europe to replace the lost Russian imports as well as the vessel capacity able to complete these trades.
Slide constraints will remain an issue going forward.
Slide 13 please.
While demand looks robust supply is equally if not more attractive order book is at a record low as 5% of the fleet on order New building orders have been limited meaningful shipyard capacity is not available until 2025 and more than half the fleet will be 15 years and older by 2025.
One assumes minimal scrapping fleet growth will be 1% next year and zero to negative three years, after but using higher scrapping assumptions to account for the fleet age and upcoming environmental regulations. The fleet will likely shrink over the next few years.
Seaborne exports in ton mile demand are expected to increased three 3% and 8% next year outpacing <unk> growth again.
The confluence of factors in today's market are constructed individually historically low inventories increasing demand exports in ton miles structural dislocations in our refinery system.
Potential changes to Russian product flows limited to shrinking fleet growth upcoming environmental regulations collectively they are unprecedented.
Slide 15 place.
Significant cash flows are transforming the balance sheet of the company and improving the quality of Scorpio tankers is an investment year to date. The company has reduced its debt by over $720 million net debt has decreased by almost $1 billion, while we have and we will continue to prioritize reducing our leverage to come.
We repurchased $120 million of its own shares from July to October this year.
At the same time, we have been able to maintain a strong liquidity position and with a fully delivered modern eco fleet, we have limited capex requirements going forward.
Slide 16 please.
Okay.
In addition to scheduled amortization, we are repaying leash and bank debt sale leasebacks are a form of financing. They are similar to bank financing, except the financial institution legally becomes the owner of the vessel during the lease period and most sale leaseback transactions. The lessee has a purchase obligation at the end of ability.
This agreement. This is the same as a balloon payment at the end of the bank granted.
The early repurchase option, but that's all before the end of the lease is equal to the outstanding debt and can include an additional payment to the financial institution for the early termination of the agreement typically up to 2% of the outstanding debt.
After repurchasing the vessel the vessel is unencumbered and it can be refinanced at a later date at a lower LTV and margin.
As we do that.
Our daily vessel principal and interest costs will decline.
As of today, we have completed the repurchase of six sale leaseback vessels, we expect to repurchase 14 vessels in the fourth quarter, which will result in debt reduction of $219 million.
Slide 18 sleeves.
Putting this all together.
Reduce our debt by close to $1 billion this year.
First nine months of the year, we repaid $685 million in debt and a four.
This quarter, we expect to pay $296 3 million in debt.
Slide 19 please.
Scorpio tankers has tremendous operating leverage so far in the fourth quarter. The fleet is booked an average TCE rate of $45000 per day.
The free cash flow sensitivity doesn't go out to $45000 a day in the scrap.
Were to average $40000 per day for the year the company would generate almost $1 2 billion in free cash flow before debt repayment, our wintel over $20 a share in free cash flow.
Certainly exciting times and now I would like to turn the call over to Robert.
Yeah.
Yeah, Hi, everybody. Thanks, very much for joining us and thank you for your continued support I'm just going to speak briefly before we turn it over to Q&A.
These are record earnings as Emmanuel.
Said earlier normally one might think.
But it doesn't really get better from here. However, what is so extraordinary is the third quarter, it's usually a seasonally weak quarter.
Fourth quarter has already as usual started much better than the third.
So yes, it looks like it is going to get better from here.
I would simply suggest not shorting sting.
Just take a look at the cash and certainly not pairing it's against crude being long crude oil tankers.
As we can already see the crude market has moved up shipping oil to China and India.
It's going to only be a matter of weeks or days before India, and China step up the export some product out.
So it may be the crude has moved and recovered a little bit earlier that would be large schools ship. The crude first before refining the product been refining the product.
Strongly expect that that product will start to flow.
Very shortly and that will be break constructive for ton miles.
So that's that's all thank you again very much with Super bullish.
Yeah.
Is moving nicely along too.
And then probably be around $82, a share or so and thank.
Thank you very much we just like to open it up for Q&A now.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the cheese. So Charlie a question. Please press Star then two.
It's time, we will pause momentarily to assemble our roster.
So your first question today is from.
More on naphtha Jefferies. Please go ahead.
Excuse me I'm more knocker your line is now on.
Hey, sorry about that.
On mute yeah.
Just wanted to say congrats on another strong quarter and based on guidance. It looks like things are going to be you know strong yet again are obviously a lot I think the hone in on and talk about but I did want to just really quickly Robert ask you about the comments you just made what were you, saying you think and it'd be fairly soon we'll get to.
Okay.
Moving along nicely towards $82 that menu reward he bought a <unk>.
Number now that is beefing up strongly if you add this quarter you added the next quarter and you have a little bit of.
The increase in values, which youre, having then.
Those niv that up pretty quickly.
Okay. No that's interesting I mean, obviously, that's a very nice right. Paul I was only following some of your own reports talking about what your targets are.
70 or whatever and.
From analysts and they obviously have we've obviously beat most numbers, we've beaten expectations going forward.
And no that's.
Therefore, it's reasonable to think that they won't be long before you could get in in a V of 82 or above.
Yeah, Okay, no exciting exciting.
Wanted to ask about the the LR twos.
<unk> guidance, so far for the fourth quarter is I would say pretty pretty I guess exceptional right 58000 for over half the quarter and I'd say, that's pretty well above maybe the 40 45000, maybe that the market. The quote unquote has averaged them. It's also higher than what you did in the second and third quarter when prevailing.
Rates or at least quotes were higher can.
Can you help us maybe reconcile or maybe just expand a bit on the performance and how we should think about these LR twos going forward.
Loves please.
Yeah, Hi, Omar.
<unk>.
This is pretty much.
The leverage of the <unk> to the people when you look at the market reports because I'm really appreciate when they primarily look at the PC One index route.
Round voyage, just a marker for earnings.
This is Brian much about how the diversity of the cargo base that we're seeing today and the ability of triangulation that a we can see you start taking place.
I can give an example, just from today really we have we've been doing a lot of Ela tools from North Asia down to Australia. They do you know nice 80, 85000 down to Australia, but we are seeing a lot of cargo is not coming out of Australia, as well, where we can do backhaul voyages back into China.
Good back home money as well and were in the past you would previously have Dallas into the AG and I have a lot more balanced around we can see today that all.
<unk> two is the way that we can triangulate out of Asia into the AG The AG to the west the west back to.
Far East has really meant that we've been able to leverage the power of the <unk> two and the earnings obviously you are a testament to that.
Thanks, Lars Yes, that's right trade patterns that continue to evolve and triangulation assist on the rise here.
And one just final follow up I wanted to ask just about the 'twenty three shifts that you've exercised options on the leasebacks you know.
What are you guys thinking about those vessels as you start to take ownership of them do you refinance those with with bank debt to keep them debt free.
Are they sales candidates, but what do you think.
I think I think that where you know the one thing that we can say is were.
Determined to continue to to let's say buy back down more expensive lease finance.
So what we've got the opportunity to do now.
The balance sheets, improving we've got strong earnings.
And as you can possibly.
Accelerate that that event even quicker.
We're getting some very good.
Loan proposition from lenders.
Very good low margin very efficient so you may actually take some of those ships.
And get a credit lines on them in order to.
In combination with the with the cash and the ship ready.
Hum.
Yeah.
Had our option to buy back accelerate further.
And.
We're able to reduce that cost quicker.
Yep.
Got it.
Okay. Thanks, Robert I appreciate it.
Problem.
Alright, cool I'll turn it over.
Okay.
And our next question will come from Jon Chapell with Evercore ISI. Please go ahead.
Thank you good morning.
Lars since you're here, if I can tie together something that James had referenced in the presentation back in June you had mentioned that the impact from you know Russian sanctions or even kind of like self sanctions hadn't really filtered in the market yet most of the ton mile demand was driven by kind of things outside of the war as we approach the.
The.
February 10th for the products actual sanctions I know theres a lot of moving parts, but can you give us any kind of sense as to what impact it's had thus far.
As far as preparations for potential sanctions has a greater impact than it was back in June , but still kind of far from the full impact.
Just trying to get a sense for kind of the next level of disruption.
Hi, John I think there's two things to that I mean, we can see that the.
The Asian refiners are ramping up the export I mean, we can see that the.
The first tranche of export quarters.
Were released.
At the end of September early October Thats coming about and we are seeing.
A record amount of volume coming out of Asia, and a lot of that is Jeff carryover I think we're looking at about 6 million tons in November which is record high that's going to be moving primarily I would imagine to western destinations.
So there's certainly kind of prep work from further a feel that's going to obviously impact ton miles positively.
The problem right now and we're still seeing the same molecules being moved from the Baltic and the Black Sea.
At the same places.
They are obviously doing what they can do up to the fifth of February but we're starting to see the early machinations of the of the cargos moving from Asia into Europe , and we anticipate this to ramp up considerably in November .
I mean, this may be difficult to answer, but you know James said about 6% a ton mile impact if it was evenly distributed across the areas that we would think that cargoes would go and that's pretty consistent with what others. In the industry have said you know what your best guess have we seen half of that 6% already and we've seen less than a quarter of it.
Just a I mean, it's an estimate but just your best guess.
That's a very difficult question to answer Jon I mean.
I read I haven't read that we've seen 8% increased thus far this year and 6%, there's obviously going forward.
We certainly see.
A lot of longer distance voyages, taking place the thing Thats interesting I think for everybody to understand is that is this changes the voyages that you would have done in Europe previously would've taken 10 days on a round voyage from pre masking to Rotterdam. If you wanted to move the same product from Middle East Youre looking at 40 days right. So the math is quite obvious.
Terms of the distance and what is required so.
We will have a big impact as we move into the.
The fifth of February .
So it sounds like Robert might get as Thanksgiving bounce this year, just a bounce or a much higher level.
One more question.
I mean, John Red Robin is simply saying to himself, but whether on all the puts.
63%, 3%, 4% when the market is clearly.
Whether it's in the low nineties in terms of utilization of them all of them. So many percentage just 1% salt to have an exponential.
Kicked.
Kicker on rate structures at that point, yeah, we've seen that in dry containers.
Eloquent tankers to.
Yeah.
Understand it just seems like it's going from strength to strength before we even get to the seasonal impact or the or the full sanctions impact.
Last question and I don't know who wants to take this maybe Brian maybe James.
You've laid out a very clear path for the fourth quarter on the sale and leaseback repurchases as well as the debt repayment will be.
<unk> to 'twenty, three and I'm not asking for a guide or anything, but when you think about 'twenty three and capital deployment.
Is there a target leverage you're aiming for.
I feel like it doesn't need to be mutually exclusive deleveraging with capital returned in the form of buybacks.
But just any type of ideas, we can get to a target leverage before maybe the capital return is kind of accelerated further.
So that one Jim.
At the moment, we're gonna.
We're going to continue just focusing on.
Deleveraging and as Emmanuel said Opportunistically buying back stock you can see that.
You know, we think we've been doing that as we've moved through.
Recently, let's.
Let's say, we move from zero stock to being more aggressive in the third quarter, we don't know exactly what opportunities will be given.
But either way the majority of the cash flow that we will use.
<unk> above 51% is going to be.
That's the cash flow in excess so you know breakeven who's going to be used to repay.
That's at the moment.
I don't think that at this particular point, we want to worry about.
Working out well.
Net debt to gross debt, we want to get too I think that can that can wait for you.
No.
Suddenly for two or three four months is really important to see the type curve that we have here.
We'll pass on that question, Oklahoma and in a moment.
Sure.
Thanks, Robert Thanks Lars.
Yeah.
Our next question will come from Ken.
Bank of America. Please go ahead.
Okay.
Hi, This is Nathan go dialing in for kind of extra.
Just.
I noticed that there were a quite a quite a few vessels going out for three to five year charter out agreements Ah and you know this is a this is a little bit of a step up from second.
Second quarter earnings I'm want to get a sense of managements view of you know.
Still very positive spot market dynamics, but attitude towards contracts product mix, especially heading into 2023.
I think that you know.
Oh go well meaningly spot.
I think that.
On a percentage basis.
Yeah.
With.
With approximately 10% on charter for three years at very strong rates of 90%.
So going into 'twenty, two 'twenty, three where the way and we've been going along steadily so that in two or three charters every.
Couple of months or whatever is the market has moved upwards. So I think that we can.
Say that going into 2023, we're going to probably be somewhere between 85 and 90% as well.
Because you know we're very bullish on.
The actual market and the fundamentals going forward, but at the same time.
There's a lot of benefit and just.
Taking up your secure revenue, especially if we go back to the previous.
Question, Jon Chapell about you know where you are ideal debt levels are.
Part of that is a combination of what secure revenue hub. So if you are.
If you have very good contracts.
Explored for.
Two and a half three year periods, you can you can afford to run with.
Our higher debt level.
Running spot.
And so.
So that's part of what we've been thinking due in part of the reason why we're driving the debt is because we we are running.
Our predominantly vastity predominantly spot free.
<unk> to the moment.
Reason, we're doing that is with so constructive and.
I'm bullish about the period ahead you should.
You should look at something between 85, and 1985 and 90% spot going into 'twenty three.
Great. Thanks, Yeah, and just following up on that clearly the market dynamics are very very favorable on the product side.
But just so we got a more comprehensive picture of all the factors could I get a general sense on how operating costs are.
Have have comps year over year, obviously fuel is a big component of that.
But just maybe against 2021 and how that's contributing to Tcs.
Yeah.
Brian Cam do you want to deal with that one.
Hey, Nathan.
Fuel has increased.
Also.
Vessel operating expenses have increased along the way.
And you see that from our.
Schedule, where we put in our operating costs have gone up it's a normal inflation costs.
Travel.
What happened.
Fuel of course has been it's more expensive now, but its because its in demand and that's good for business. So that's been more than offset by the rise in revenues.
Okay. Thank you.
Our next question comes from Liam Burke of B Riley. Please go ahead, yes. Thank you.
The spot rate environment for the handy still seem to be pretty strong why are they inordinately strong vis vis the other.
The vessels in our fleet.
Robert Yes, okay.
I mean first of all you know if you look at the age profile on the on the Handy fleet. It has a lot older than you would see on any other type of vessels than it is certainly a fleet that over the last couple of years have been decreasing.
So quality units.
The handy fleet is not similar to what you've seen in your malls and yellow twos all other segments.
Theres been a lot of product being moved into into regionally and to be honest.
Normally the third quarter would be a very weak.
Quarter, four Ham DS and we would wait until we get into the fourth quarter and then suddenly we would have a very strong market for the first of the.
<unk> fourth quarter, and the first quarter, but we have generally seen a very strong handy market throughout the year across all regions. It's not only in the continental in the Mediterranean and has also been in Asia. It's also been in the U S. So.
There certainly have been performing extremely well.
Great and on.
On the we've got a lot of disruption with Russia coming up in 2023.
Do you see any change in the.
Customers.
Reluctance to use.
Or is it are over 15 years old. The fact that supply is going to be pretty tight next year.
Robert you want to take this.
Sure.
Okay.
Got it.
No you're fine you go go ahead, if you want to take it take it no no no no go ahead Robert.
But.
It depends where its going to go to and how it's hard to do.
But I think the main message is that I don't see the European and the American men's is changing their behavior.
The that they do.
They're not going to try and save themselves a few dollars.
By taking an older vessel going against their own environmental policies.
Policies.
King risk.
Getting an accident, but you know on the margin sure if the rates go to.
High level, there and then find people and you know.
Going to scramble around to do whatever they can do.
Great.
Thank you.
Can I just go back to the pre previous I'm, sorry, what are we going to see.
No no I'm all set thank you.
I was going to go back to the bank of America area, where they're talking about costs et cetera or is that look.
Obviously the OXXO.
Cost structure is shipping is not immune from.
Inflationary wage pressures et cetera, et cetera, or input pressures, but I think that we.
We've got a very good situation and we have got a very new fleet.
It's been a you know recently dry dock so we have.
We have advanced is there the we call them a genius so.
No less.
Or less concerned about operating costs here.
Companies that have older fleets.
And we also.
In terms of interest rate cost, we're taking down our.
Total debt along the way.
Out of that 500, or so 700.
Convert is enough fixed interest rate cost.
And as Brian said we're.
We're an unusual industry.
In that our revenues are so strong right now.
They are they are overwhelming.
Any increase in Opex costs.
Any.
Increases in interest rates at the moment.
The next question please.
Yeah.
Okay.
Our next question comes from Greg Lewis with <unk>. Please go ahead.
Yes, hi, thank thank you Anne and good morning, and good afternoon, and thanks for taking my questions.
Robert I I did want to ask I guess Johnson's question, a little bit different of a way yeah I know that.
The leverage is coming down.
You know as we think about breakeven.
And and and clearly you've been through good times, and bad times and Anyhow I guess, what I would say is even during the bad times, you were able to maintain the dividend.
As we think about potential for dividend increases as the cycle continues to evolve.
Yeah.
Is it more around total leverage or is there should we be thinking about break.
Vessel, all in breakeven driving that dividend and any potential dividend increases.
Well, we could I mean, it's it's it's.
It's partly to do that Greg, but its also right now right now we clearly have the Sip.
Surplus cash beyond what we consider is on needs to pay down.
Pay down debt because you know in three and a half months, we've used 120 odd million dollars to buy back stock.
It's very simple the with the company trading.
Subsequently at a steep discount to an EV and it's doing so.
Again now.
It's a better.
Better use of funds to buy back stock than it is to pay dividends and it's we're a little older a little bit patient and yet.
We'll have.
Les says.
Is like the free cash shows up.
We'll be in a much stronger position to.
Mike.
Hey.
Pay dividends if that cost.
Take care.
In a secure way not just okay once off dividends and Oh, My God the market foods, and you have to cut that dividend.
Okay great.
And then James I did thank you for that.
The slide 12.
You know I <unk> clear.
Clearly.
It looks like new new volumes are going to be coming out of I guess, the middle East here.
Is there you know.
And then realizing you know global refinery utilization has picked up.
Is there any way to kind of quantify realizing that that numbers are always moving do we have any sense for how much capacity refining capacity as it is in the middle East in terms of like.
You know as we look out into next year when the <unk> when you know when the embargo comes in.
How much more ability is there for increased refined volumes out of the middle East have you guys done any work on that.
Yeah. So I would say you know with <unk>, which is about half of its capacity.
It should get the full capacity the end of this year early next year, it's 400000 barrels on houses or 600000 barrels and then they'll.
Telecom might come on a little bit earlier, you've got probably about one 4 million barrels.
That could come online and definitely one well that's about 600000 barrels of ultra low sulfur diesel is that the market really needs given where cracks are I think you will see them.
These refineries tried to get to full capacity as quickly as possible, but outside of that there's not much.
And I think the only other real region that has spare capacity right now is China.
And we have Lars mentioned seeing an uptick in volumes coming from China.
They will be necessary to kind of balance the scrubber market.
Yeah, and I know a question that I've been getting from at least a few some investors new investors is around.
I think clearly part of the expectation in 'twenty, three and assuming that Russian crude continues to be discriminated against is that maybe they send the Russian crude.
Into China, and then China turns around and exports it.
There's I mean not that.
Realizing that I guess the developed world is buying Russian crude.
Is this is not buying Russian crude I.
I guess once it's refined in China that kind of.
I don't have the good a good word for it but maybe that kind of washes.
That kind of a fair assessment of what could happen.
Ken would you like to answer that.
Sure Greg.
At the moment.
That.
Does.
Sort of relieve further purchasers from from sanctions, but we just don't know at the moment, how things will evolve.
Okay Alright.
Alright, guys. Thanks for the time.
Our next question next question.
Please go ahead.
Hey, thanks.
Can you guys hear me okay.
Yes, Ben.
Okay great.
So first of all in real simple for Brian given all the sale leasebacks that you guys have been or the options that you've been acquiring in the interest rate or.
Debt coming down how should we is there any guidance you can give us on how we should think about it depreciates amendment interest.
On a run rate basis from here, obviously interest rate neutral.
Depreciation is not going to change me switched from one line item to another but it's.
It's going to be in line because that's the new accounting standard that's how it works is if you own the vessel lease investments.
Same in line now.
This is a little bit harder because.
LIBOR in all interest rates have been increasing here so.
So I don't have a number for you right now but it.
Well, we will work on something and put something out but.
That is obviously coming down but interesting interest charges and interest rates are going up.
Okay can we get some more.
Okay fair enough and.
Your of your debt rub your interesting.
Any color as to how much of that is hedged by any chance.
The majority of it slowly we stopped some fixed rate debt out there not just notes.
And we have we also have some.
Leasebacks that are fixed so it's probably exclusive of the notes you take them out it's probably around.
10% is fixed.
Okay.
Alright, and then a little bit more strategically Robert Daniela.
Clearly the company's in a dramatically different position than it was.
Even six months ago, certainly a year ago.
And and it sort of opens options that really werent, even worth contemplating in the past gear.
Given that as you sort of look out into the future.
I am curious now if if you've given any thought to sort of how you envision what scorpio will will evolve into is it something where you sort of see it being the same as it is sort of a spot oriented product tanker pure play could you envision that being more than just product tankers.
Do you see the company as a consolidator or just sort of playing in its mine any any change or lack of change.
That you can sort of foresee developing now that you're sort of on a firm financial footing.
I think what we see as a product market fit.
Okay.
Beginning of break constructed theory of course right now with.
You know the particular moment that conversation it seems to be you know.
Overwhelmingly about Russia for a good reason and what the winter could could provide or not in terms of.
No potential energy prices et cetera, but underneath that the fundamentals are very strong and up until now most of this year. It's been about fundamentally we've got up.
Agent we have a.
Very very few vessels on the water, we have a long lead time too.
Two new buildings.
We don't even really know as an industry.
The engines, we need or what design building.
And we have demand rising and potentially realizing them over the years in terms of ton miles because refinery changes we have with wine is considering to close them.
Areas, where the consumers are due to efficiencies like Europe or environmental reasons like Australia.
We have new refineries opening up in places like sports such as the Middle East.
The longer term future for products for the foreseeable future.
I mean, it's strong.
When it comes to consolidation we have mode.
We've said consistently this year, we have no reason to buy ships. We have no reason to order ships really even willing to.
You may see us.
And the.
In the weeks ahead even.
Sell a couple of the older vessels, we have simply.
Because the price in the market. So I am we have.
Such a dislocation to N V and also.
You know, we would be let's say trimming a little bit the older fleet keeping are awfully.
Page.
Young girls.
As far as we can see that.
At this point.
That market itself has a great teacher and probably.
Hello, healthier futures monk, who only bulk shipping market. So it would be all of the major shipping market surveys.
The next.
He is.
Gotcha. So so no no change in course, then and sort of what I'm hearing.
It's been that.
Of course, yeah.
Okay, perfect and then if I could slip one in just Vince margins on.
The we've heard a lot about diesel shortages and angst about that sort of thing and and also heard about.
The potential for temporary waivers of the U S. Jones Act I'm curious if how you as a international tanker company and somebody who's trading the markets and everything else is that something that you think matters or.
As you know a temporary waiver of the Jones Act because it fix anything or does it have any meaningful impact on your market at all.
Hi, Ben.
I think first of all I think it's an interesting political narrative that takes place always before mid terms in terms of what they want to do.
With product exports et cetera, capping prices at the pump.
I think the likelihood is is very minimal.
Putting a Jones act waiver into place would have a tangible impact positive tangible impact for product tankers in international trade is there'll be more ships that can be even doing that I think the complexity. That's around the politically. It's so great that you know over the last many many years I haven't seen it maybe once before.
A brief moment in time.
And I don't think it has helped very much the American consumer ultimately.
The international markets are tend to be able to be much more efficient.
And I think that the diesel shortages that we've been seeing.
Exacerbated by by the by the Russian situation, but also by the refineries closing down and so on and post COVID-19 with the stock draws have just been a perfect storm.
What we would be seeing is that it's going to be a lot more product that's going to be moving.
Further field as we've been talking about earlier from the Middle East from India and also from Asia.
Gonna be helping us helping out that dislocation.
Alright I appreciate it thank you.
Hmm.
Our next question comes from Turner Holm Clarksons. Please go ahead.
Hey, good morning, gentlemen, thanks for taking the call I, just wanted to step back a little bit and.
And think about what the risks to the market could be here.
We talked about the 6% increase in ton miles from Russia, or those are estimates out there.
Have you ever seen a macro event or unforeseen circumstance, where.
The market has managed to weaken or ton miles have managed to go down despite such a strong driver like what we see out of Russia next year.
Because I'm looking at the Clarkson data for 30 years, and I don't see it.
Sure.
It hasn't been in the past now but.
We've never ever.
No one has ever predicted the thing that take.
Takes you down I'm sure, there's something out there the potential that could happen that would.
Create a demand destruction and usually those didn't know whether it was Saddam Hussein going into Kuwait, whether it was benign.
The 97 Asian currency crisis, whether it was 2001 and go of Lehman Brothers.
Pretty unpredictable things that don't tend to get discussed until they actually happen. So you are correct that there is no.
No historical precedent, but.
But.
That's about as far as I would leave it where we always have a good.
They are little bit humbled and the quantum of the gods and.
At least anticipate that something crazy.
To the negative could happen that we can't think recall, we'll see.
Yeah.
Sure.
To that end I mean, Emmanuel I'll open the call and he was talking about the growing confidence from from your customers as well and that's evidenced by the increase in <unk> and in one year time charter rates I think they're up 70 or 80% in the last six months. Despite the OPEC cuts and if there's anything macro environment.
I mean is that the best way for us to begin thinking about rates for 2023, because it certainly does pretty well.
Okay.
Okay.
It's one way to think about rates because there you've got to.
You know, what you would call a knowledgeable, but possibly putting that money down.
So to the degree the Exxonmobil is willing to play.
You know X y and Z for certain vessels for certain years.
And you know that's an open market bid so.
You'll probably see more than just Exxon doing that rate, you'll see BP shell and you'll see the Cleveland too.
And you know we.
We use that as a base because.
Why shouldn't that though.
People have knowledge its the clean market and that's let's say what's the market.
Yes.
No you can then have your own position to model as to whether or not you are on the chocolate side. So the customers actually when they take it ship in at 35, obviously, we think the market's going to be higher than the 35.
Otherwise they wouldn't be bothering to tightened ship them.
Or you could take a more pessimistic view around that number but it's a solid good base could take.
Hum.
The survey.
You know some kind of indication as a model.
Okay. Thanks.
I'll turn it back.
This concludes our question and answer session. At this time I will now turn the conference back over.
And then Wayne.
And then when I went and Laura Chief Executive Officer. Please go ahead.
Thanks, very much for everybody's time, we do not have any further comment the coal concludes here. Thank you for your time and look forward to speaking to you all in the next days and weeks. Thank you.
Yeah.
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