Q4 2022 Scorpio Tankers Inc Earnings Call

Operator: Hello, and welcome to the Scorpio Tankers Inc, Fourth Quarter 2022 Conference Call. All 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 today's 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.

All participants will be in listen only mode.

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

Conference specialist by pressing the Star case, followed by zero.

After todays presentation, there will be an opportunity to ask questions.

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To withdraw your question, please press star then two.

Please note this event is being recorded.

Operator: I would now like to turn the call over to James Doyle, Head of Corporate Development and Investor Relations. Please go ahead.

James Doyle: Thank you for joining us today. Welcome to the Scorpio Tankers Fourth Quarter 2022 Earnings Conference Call. On the call with me today are Emanuele Lauro, Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer; Brian Lee, Chief Financial Officer; Lars Dencker Nielsen, Commercial Director.

Officer wires Denker Nelson commercial director.

James Doyle: Earlier today, we issued our fourth quarter earnings press release, which is available on our website, scorpiotankers.com. The information discussed on this call is based on information as of today, February 16, 2023 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 Scorpio Tankers' SEC filings, which are available at scorpiotankers.com and sec.gov. Call participants are advised that the audio of this conference call is being broadcasted live on the Internet and is also being recorded 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.

Information discussed on this call is based on information as of today February six 2023 and may contain forward looking statements that involve risk and uncertainty.

Actual results may differ materially from those set forth in such statements.

A discussion of these risks and uncertainties you should review the forward looking statement disclosure in the earnings press release as well as Scorpio tankers, SEC filings, which are available at Scorpio tankers, dotcom and SEC 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 archive 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 to that press.

James Doyle: The presentation is available at scorpiotankers.com on the Investor Relations page under Reports and Presentation. The slides 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. If you have any additional question, please rejoin the queue. Now I'd like to introduce our Chief Executive Officer, Emanuele Lauro.

Best of relations page under reports and presentations. Besides will also be available on the webcast. After the presentation, we will go to Q&A.

Asking questions. Please limit the number of questions, but do you have an additional question. Please rejoin the queue now I'd like to introduce our Chief Executive Officer.

Laura.

Emanuele Lauro: Thank you very much, James. Good morning or afternoon, everyone and thanks for taking the time to join us today. So the fourth quarter was a strong finish to the best year in the company's history. In 2022, the company generated $1.1 billion in EBITDA.

Thanks for taking the time to join us today.

So the fourth quarter was a strong finish to the best year in the company's history in 2022, the company generated $1.1 billion in EBITDA.

Emanuele Lauro: It would have been very, very difficult to imagine this only twelve months ago since the first quarter of 2022 was actually a loss-making quarter for the company. So considering this and considering that we are often asked whether 2023 could be better than 2022, our answer is yes, we do expect this year to be better than 2022. The market fundamentals, which created a strong rate environment remain intact and our outlook has not really changed. If anything, it has improved with recession fears easing and the reopening of the world's second largest economy.

So considering this and considering that we are often asked whether 2023 it could be better than 2022. Our answer is yes, we do expect this year to be better than 2022.

The market fundamentals, which created a strong rate environment remain intact.

Our outlook has not really changed if anything it has improved with recession fears easing and the reopening of the world's second largest economy.

Emanuele Lauro: The company enters 2023 with its strongest financial position in its history and while our capital allocation has prioritized the balance sheet and still does, after reducing our debt by more than $1.2 billion in 2022, we have increased our ability and flexibility to allocate capital. Since July, we have repurchased 5.8 million of our common shares for $256 million.

And while our capital allocation is prioritize the balance sheet and still does after reducing our debt by more than $1 2 billion in 2022 we have increased our ability and flexibility to allocate capital.

Since July we have repurchased five 8 million of our common shares for $256 million.

Emanuele Lauro: Today, we announced the renewal of our securities repurchase program for up to $250 million and we announced also the doubling of our quarterly dividend from $0.10 to $0.20 per share.

And we announced also the doubling of our quarterly dividend from <unk> 20 per share.

Emanuele Lauro: Our strategy remains the same, improve the quality of Scorpio Tankers as an investment and create long-term shareholder value. Consistent with this, as of now, we feel reducing our leverage and repurchasing shares given their discount to company's NAV is the best way to create this value.

He is the best way to create this value.

Emanuele Lauro: In the first quarter, we have booked a fleet spot average of $39,500 a day for more than 60% of the available days and have seen a significant increase in rates over the last two weeks. As significant shareholders ourselves, we are excited about the constructive outlook for the product tanker market and do remain committed to creating long-term value.

For more than 60% of the available days and have seen a significant increase in rates over the last two weeks.

As significant shareholders ourselves we are excited about the constructive outlook for the product tanker market and do remain committed to creating long term value.

Emanuele Lauro: Thank you for the continued support that you have shown us and my opening remarks are over. I will now pass the call to Robert for his remarks. Robert?

Robert Bugbee: Thank you, Emanuele. Thanks, everybody for your support and your interest today. First of all, we are working really hard and as a group and we are having a lot of fun. Headline demand for products is on the rise, and headline supply is flat. As Emanuele said, the fundamentals are improving. 

Thanks, everybody.

You'll support and your interest today.

First of all we're working really hard and as the group and we're having a lot of fun.

Headline demand for products is on the rise and headlines supply is flat.

The manual says fundamentals are improving.

Robert Bugbee: It is a fairly simple story. Ton mile demand is also accelerating beyond the headline demand because of continued refinery changes, which is a long-term theme and now Russian sanctions. Supply continues to be constrained due to a record low order book, regulation, ageing and now inefficiencies as a result of splitting of fleet due to the Russian sanctions.

Because of continued refinery changes, which is the long term theme and now Russian sanctions.

Supply continues to be constrained due to record low order book regulation aging now inefficiencies as a result of splitting the fleet each of them.

Russian sanctions.

Robert Bugbee: Following a simply incredible 2022, we, as Emanuele said, expect 2023 to be even better and we are clearly off to a great start. Thank you very much again. James?

We are clearly off to a great start.

Thank you very much again James.

James Doyle: Thanks, Robert. Slide 8, please. Since March of 2022, the refined product tanker market has been resilient. Rates have oscillated between $20,000 and $80,000 per day. While we will always have rate volatility, the earnings over the last 12 months and recent improvement in rates confirms the strong fundamentals in today's market. Lars is on the call and will speak to the current market dynamics in Q&A, but one question I think we should all be asking ourselves is why do inventories globally remain so low?

Slide eight please.

Since March of 2022, the refined product tanker market has been resilient.

It's of oscillated between 20000 and $80000 per day.

We will always have rate volatility the earnings over the last 12 months and recent improvement in rates confirms the strong fundamentals in today's market.

Ours is on the call.

And we will speak to the current market dynamics and Q&A.

But one question I think we should all be asking ourselves is why do inventories globally remained so low.

James Doyle: Slide 9, please. The simple answer is demand. Global product demand has been robust. For several quarters, demand has outpaced supply, leading to large inventory draws and only an occasional small inventory build and this year, refined product demand is expected to average 1.6 million barrels per day more than 2022. Given low global inventories, increased consumption has been met through imports and the reason why seaborne exports have remained above 2019 levels since March of '22. In December, exports reached record levels at 19.5 million barrels per day and today remain very high at 19.1 million barrels, a period of the year where inventories are supposed to be building. In addition to demand, refining capacity changes have also been a large driver behind higher volumes and lower inventories.

Okay.

The simple answer is demand global product demand has been robust for several quarters demand has outpaced supply leading to large inventory draws envoy an occasional small inventory bill.

And this year refined product demand is expected to average one 6 million barrels per day more than 2022.

Given low global inventories increased consumption has been met through imports and the reason why seaborne exports have remained about 2019 levels since March of 'twenty two.

In December exports reached record levels at $19 5 million barrels per day and today remain very high at $19 1 million barrels.

A period of the year, where inventories are supposed to be building and.

In addition to demand, refining capacity changes have also been a large driver behind higher volumes and lower inventories.

James Doyle: Slide 10, please. Pre-COVID refining capacity is different than post-COVID. While demand is above pre-COVID levels, capacity in certain regions is lower due to refinery closures and changes in the global refining system have 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 and second, when refining capacity closes and thus moves further away from the consumer. Both scenarios have led to significant increases in ton mile demand and have structurally changed global trade flows.

Pre COVID-19 refining capacity is different than postcode that while demand is above pre COVID-19 levels of capacity in certain regions is lower due to refinery closures.

And changes in the global refining system wide impact 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.

When refining capacity closes and thus that's further away from the consumer.

Both scenarios have led to significant increases in ton mile demand and that structurally changed global trade flows.

James Doyle: If you look at refinery capacity changes over the last several years and exclude China, you see an increase in Middle Eastern export capacity and closures in places like Europe, Southeast Asia and the U.S. What you don't see is an increase in capacity in places like Africa, Latin America and Southeast Asia, where demand continues to grow. To put this into perspective, since 2017, China has added 5.8 million barrels of refining capacity and exports have remained relatively unchanged. However, in places like Australia, which closed two of its four refineries, they have increased imports to make up for all the lost production. As ton mile demand increases, vessel capacity is reduced and supply tightened.

You see an increase in middle Eastern export capacity closures in places like Europe , Southeast Asia and the U S.

Don't see it's an increase in capacity in places like Africa, Latin America, and Southeast Asia, where demand continues to grow to put this into perspective since 2017, China has added $5 8 million barrels in finding capacity and exports have remained relatively unchanged.

However, in places like Australia, which close two of its four refineries.

Increased imports to make up for all of the lost production.

Ton mile demand increases that some capacity is reduced supply tight.

James Doyle: Slide 11, please. Our European sanctions already priced into the market. While it's still early and unclear what quantity of exports Russia will be able to maintain over the long term, but what we do know is that after sanctions took place on February 5, Russian refined product volumes declined around 0.5 million barrels a day. Today, they appear to be at normalized levels and we have seen a large increase in Russian exports to Turkey. We also know Europe has stopped importing Russian refined product and there is demand outside of Europe for these molecules. Our view is that it's just starting.

Our European sanctions already priced into the market, while it's still early and unclear what quantity of exports, Russia will be able to maintain over the long term, but what we do know is that after sanctions took place in February is that Russian refined product volumes declined around half a million barrels a day today they appear to be at normal.

Ice levels, we have seen a large increase in Russian exports to Turkey.

So now Europe has stopped importing Russian refined product and there is demand outside of Europe for these molecules RV.

Our view is that it's just starting.

James Doyle: Slide 12, please. If the embargo were priced in, we would expect fewer colors on the Russian export graph and the volumes to be relatively consistent. Over the last two months, we haven't seen either, especially in February, more colors, higher volume.

If the embargo more price than we would expect fewer colors on the Russian export graph and the volumes to be relatively consistent.

Over the last two months, we haven't seen either especially in February more colors higher volume.

James Doyle: We know Europe increased imports from Russia to build inventory before sanctions and has eased imports as a result of slightly higher stocks. But this inventory is not sustained production. We know going forward, Europe needs to replace around 1 million barrels a day of imports that will not be coming from Russia.

The higher stocks, but this inventory is not state of sustained production, we know going forward Europe needs to replace around 1 million barrels a day of imports that will not be coming from Russia.

James Doyle: In short, the benefit of rerouting of Russian barrels is just starting and the replacement barrels to Europe should start to happen over the next few weeks. Almost every single replacement route is longer than the previous route and the new flows will drive a significant increase in ton-mile. Lastly, if you recall, the biggest concern to maintaining Russian export volumes would be constraints on vessel capacity. This is still very much a concern.

Lastly, if you recall, the biggest concern to maintaining Russian export volumes would be constraints on vessel capacity. This is still very much a concern.

If you recall the biggest concern to maintaining rushing export volumes would be constraints on basketball capacity.

So still very much a concern.

James Doyle: Slide 13, please. Vessels, which are in the sanction trades produces the supply of vessels in non-sanctioned trades. But regardless of the gray fleet, the dark fleet, et cetera, two things are clear: new building orders remain well and the fleet is ageing. Today, there are 353 product tankers 20 years and older. By 2026, there will be 815 vessels 20 years and older. As you can see from the graph, scrapping has been minimal for the product tanker fleet, essentially non-existent given that most of the fleet was not built until 2000 and later.

That's also true even to sanction trades produces in the supply of vessels and non sanction trades, but regardless of the grade fleet darkly et cetera, two things are clear.

Building orders remain low and the fleet of Asia. Today, There are 353 product tankers 20 years and older by 2026, there will be 815 vessels 20 years and older.

As you can see from the graph scrapping has been minimal for the product tanker fleet essentially nonexistent given that most of that definitely was not felt until 2000 and later.

James Doyle: To put this in perspective, there were more MR and LR product tankers ordered in 2006 than the total number of MR and LR vessels scrapped since the year 2000. Supply constraints will remain an issue going forward. But putting this all together, Slide 14, please, the biggest thing that's different is that typically, when rates improve, the order book builds and oversupply more than often than demand leads to a decline in rates. In December, clean tanker earnings reached their highest level on record at the same time the order book remained at an all-time low.

Fly constraints will remain an issue going forward.

But putting this all together, Slide 14, please, the biggest thing that's different is that typically, when rates improve, the order book builds and oversupply more than often than demand leads to a decline in rates. In December, clean tanker earnings reached their highest level on record at the same time the order book remained at an all-time low.

The biggest thing that's different is that typically when rates improve the order book builds an oversupply more than often.

Then demand leads to a decline in rates in December a clean tanker earnings reached their highest level on record at the same time. The order book remains at an all time low.

James Doyle: The order book is near a record low of 5.4% of the fleet and using minimal scrapping assumptions that fleet will grow less than 1% per year over the next three years and using higher scrapping assumptions, we can see a scenario where the fleet will shrink over the next three years. At the same time, seaborne exports and ton mile demand are expected to increase 4.2% and 11.2% this year and 3.7%, 8.3% next year, vastly outpacing supply.

And using minimal minimal scrapping assumptions the street will grow less than 1% per year.

Over the next three years and using higher scrapping assumptions, we can see a scenario where the fleet will shrink over the next three years at the same time seaborne exports in ton mile demand are expected to increase four 2% and 11, 2% this year and three 7% eight.

3% next year vastly outpacing supply.

James Doyle: The confluence of factors in today's market are constructed individually, historically low inventories, increasing demand, exports in ton miles, structural dislocations in the refinery system, rerouting, global product flows due to the Russian Ukraine conflict, limited fleet growth and upcoming environmental regulations. Collectively, they are unprecedented.

Rerouting.

The product was due to the Russia and Ukraine.

Conflict limited fleet growth and upcoming environmental.

Mental regulation collectively they are unprecedented slide.

James Doyle: Slide 16, please. Q4 was a strong finish to a great year. During the fourth quarter, though, operating expenses increased to almost $8,300 per day. This is something we take seriously. The higher operating expenses were the result of an increase in certain crewing expenses, repairs and maintenance and spares in stores. The primary increase in crewing expenses was due to a $2 million contribution to our newly established Provident Fund initiated to provide aid and incentivize retirement savings for our seafarers. The Provident Fund, along with our other programs such as Family Health Care Benefits, will help us remain a preferred employer in our industry at a time when expectations for reliability and safety of our vessels, our cargoes and our people couldn't be higher.

Q4 was a strong finish to a great year.

During the fourth quarter, though operating expenses increased to almost $8300 per day.

This is something we take seriously.

Operator.

Spencers were the result of an increase in certain crewing expenses repairs and maintenance and spares and stores. The primary increase in Crewing expenses was due to a $2 million contribution to our newly established Provident fund initiated to provide aid and incentivize retirement savings for our seafarers The Provident fund.

Along with the other programs such as family Health care benefits will help us remain a preferred employer in our industry at a time when expectations for reliability and safety of our vessels are carve outs and our people couldn't be higher.

James Doyle: Other increases in operating expenses were due to the easing of supply chain congestion, deferred repairs and maintenance as well as general inflationary pressures. While these increases are material, they are confined to Q4 and we expect operating costs per day to return to previously guided levels in the current quarter and for the rest of 2023.

These increases are material they are confined to Q4, and we expect the operating cost per day to return to previously guided levels in the current quarter and for the rest of 2023 seven.

James Doyle: Slide 17, please, 2022 was a transformative year for the company. We generated over $1 billion in EBITDA, reduced our debt by $1.2 billion and repurchased $161 million of our own shares. And from July through today, we have repurchased $256 million of our own shares at an average price of $44.21 per share.

2022 was a transformative year for the company.

Generated over $1 billion in EBITDA reduced our debt by $1 2 billion and repurchased $161 million of our own shares.

And from July through today, we have repurchased $256 million of our own shares at an average price of $44 21 per share.

James Doyle: Slide 18, please. Today, we reported a cash balance close to $600 million, which is higher than our December 31st number after reducing our debt by $521 million in the fourth quarter. We announced three new loan facilities for up to $391.5 million in aggregate and as of today, we have drawn on one of these facilities.

Yeah.

Today, we reported a cash balance of close to $600 million, which is higher than our December 31st number after reducing our debt by $521 million in the fourth quarter.

We announced three new loan facilities for up to $391 5 million in aggregate and as of today, we have drawn on one of these facilities.

James Doyle: The proceeds from these facilities will be used to repurchase more expensive lease financing. In other words, the debt repayment schedule on the top right of the page will increase as we draw down on the new credit facilities and repurchase vessels with more expensive lease financing. As Emanuele mentioned, we will continue to focus on improving the balance sheet by both reducing our leverage and borrowing costs throughout this year.

It's Emmanuel I mentioned, we will continue to focus on improving the balance sheet by both reducing our leverage and borrowing costs throughout this year.

James Doyle: Slide 19, please. In Q1, so far, including time charters, the fleet is averaging $38,000 per day. On an annual basis, this would translate to almost $20 per share or a free cash flow yield of over 30%. However, the current spot market is higher than our Q1 guidance and we are optimistic for this year and the future years. These are certainly exciting times. With that, I would like to pass it over to Q&A.

With over 30%.

The current spot market is higher than our Q1 guidance and we are optimistic for this year and future years. These are certainly exciting times with that I would like to pass it over to Q&A.

Operator: 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 keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble the roster.

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 keys.

To withdraw your question, please press star then two.

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

Operator: And our first question will come from Omar Nokta of Jefferies. Please go ahead.

Jeffrey Please go ahead.

Omar Nokta: Thank you. Hey guys. Good morning, good afternoon. Thanks for the update and really congratulations on uncapping a transformative '22 and it looks like, as Emanuele said, '23 may be even better. Wanted to just ask about the balance sheet first. Cash position now is $600 million. Your debt level is now below $2 billion. I know in the past, you haven't really wanted to give targets necessarily on where you want that to be. But just wanted to check on the uses of cash, clearly, it seems just based off of the announcement today, the buyback is front and center. But in general, you took that down from $3 billion -- or over $3 billion at the beginning of last year, you're below $2 billion now. How much further do you want to get that debt level down? And then, once you get to that target, if you're willing to share one, what becomes the use of cash from that point?

Yeah. Thanks for the update and really congratulations on capping a transformative 22 and it looks like as the menu. While he started 23 may be even better.

Wanted to just ask about the balance sheet first cash position now is $600 million. If that level is now below 2 billion I know in the past you haven't really wanted to give targets necessarily on where do you want that fee, but just wanted to check.

Uses of cash clearly it seems just based off of the announcement today the buyback is front and center, but in general you took.

That's down from $3 billion or over $3 billion at the beginning of last year, you're below 2 billion now how much further do you want to get that debt level down and then once you get to that target if you're willing to share one.

What becomes the use of cash from that point.

Robert Bugbee: Okay. You are asking to the heart of what we call Project 82, which is fair and great questions. So I don't think we're ready to give any update. We are very clear that we are willing to have some debt in the company. So we're not going to take it down to zero. We've been very clear that for the time being, we will continue as we've been doing for a little while now, continuing to have paying down debt as a priority.

Our.

I'll speak to the heart of our what we call project 82.

Which is great.

Three questions.

So I don't think we're ready to give any update.

Update Oh, we were very clear that we were willing to.

You do have some debt in the company. So we're not going to take it down to <unk>.

Zero.

We'd be very clear that for the time being we will continue what you've been doing for a little while now continuing to.

Have paying down debt is a priority.

Robert Bugbee: And you can see from the announcement we're swapping -- or we've done so, we've swapped expensive debt for cheaper debt. But I don't think that's inhibited at all at this point what is the best allocation of cash at all. I mean, we have bought back stock quite aggressively. We couldn't buy any more stock than I think we did in December and January with the limitations related to blackout periods for earnings, et cetera. And you can see that the cash account on the balance sheet, the present at $600 million is more than adequate to fulfill that part of the strategy and so if you were to use 100% of cash flow now is derived from the vessels in this market, you've got a very, very healthy situation.

But I don't think that's inhibited at all at this point what is the best allocation of cash.

Cool.

We have bought back stock.

<unk>.

Quite aggressively.

We couldnt buy any more stock and I think we we did in December and January would be would be.

Limitations related to blackout periods earnings et cetera.

Robert Bugbee: And you can see that the cash account on the balance sheet, the present at $600 million is more than adequate to fulfill that part of the strategy and so if you were to use 100% of cash flow now is derived from the vessels in this market, you've got a very, very healthy situation.

President and 600 million is more than adequate T G.

To fulfill that part of the strategy and.

So if you were to use 100% of cash flow now is derived from the vessels in this market.

<unk> got a very very healthy situation.

Robert Bugbee: Obviously, things start to change pretty rapidly at this rate level, the rate level we booked at, not alone in the rate level where we think things are going to and where they are at the moment and we've tried to signal quite early in the doubling of the dividend that we are going to continue with the policy of trying to create value for -- value to shareholders and returning capital to shareholders. Right now, though, you have such a major dislocation between the NAV and the -- and you've got such a lot of cash generated that you're able to basically put the company into a fantastic position very quickly here, if we just continue what we'll be doing.

At this rate level, the right level, we booked at the low and the right level, where we think things are going to and where they are at the moment.

And we've tried to signal quite.

Early in the doubling of the dividend.

No we are going to.

Continue with our policy of trying to create value.

Value for value to shareholders.

Returning capital to shareholders.

Right now, though you have such a major dislocation.

Between the N a V.

And the and.

You've got such a lot of cash generated that you were able to.

You put the company into a fantastic position very quickly here. If we just continue what with what we're doing.

Omar Nokta: Certainly. Yes, thanks, Robert, for that color. And then, maybe just wanted to follow-up maybe a bit on the market before I turn it over. Robert, I wanted to ask or maybe for Lars, there's some talk that we're going to be seeing a heavy refinery turnaround season at least here in the U.S. And I guess, one, just based off of what you're seeing in your conversations with charters. One, do you agree that we are going to see that? And then two, how do you think that impacts the product market?

And then maybe just wanted to follow up maybe a bit on the market before I turn it over Robert wanted to ask or maybe for Lars you know there was some talk that we're going to be seeing a heavy.

Finally turnaround season.

At least here in the U S and I guess, one just based off of what Youre seeing in your conversations with charters.

One do you agree that we are going to see that and then two how do you think that impacts the product market.

Thus. Yeah, Yeah, Hi, Omar well I mean typically. You're building stocks at this point of the year.

Robert Bugbee: Lars?

Lars Nielsen: Yes. Omar, well, I mean, typically, you're building stocks at this point of the year. But as you probably know, that it's only minimal bills that are taking place, in particular in the U.S. And with the demand that's increasing by, I think, about 1.6 million barrels per day, higher this year than last year.

Yeah, Yeah, Hi, Omar well I mean typically.

You're building stocks at this point of the year.

But you know as you probably know that you know it's only minimal bills that are taking place in particular in the U S and you know what.

The demand that's increasing by I think about $1 6 million barrels per day or higher this year than last year.

Lars Nielsen: What we've seen when it comes to turnarounds in the U.S. Gulf, they put forward their maintenance and their turnarounds and today, as in middle of February, we're seeing peak maintenance, which otherwise normally we would see historically typically occurring around April or May. So that obviously bodes well for what we are looking at a very strong April, May, June and going forward on that.

They put forward their their maintenance and turnarounds and today is in middle of February we're seeing peak maintenance, which otherwise normally we would see historically typically occurring around April and may.

So that obviously bodes well for what we're looking at a very strong April may June and going forward on that.

Lars Nielsen: At the same time, there is also a maintenance season in the Middle East that's taking place, and that tends to be around now up to March and in Asia a little bit later for April and May. So it obviously will lead to the argument to a very constructive market as these barrels rebalance globally and pretty much is similar to what we saw last year.

So you know it obviously will lead to the arguments are very constructive market as these barrels rebalance globally.

Much is similar to what we saw last.

Last year.

Lars Nielsen: I think what is really interesting is when we saw how these rates stay softened back in January on the back of the freeze off in the U.S. We saw obviously the stock going up in Europe as what James was mentioning in preparation for the 5th of February cutoff. But also at the same time, we had the confluence of the very early Chinese New Year. So you almost had like all these things happening at the same time and the market obviously drove down with it.

Interesting is.

When we saw how these rates stay something back in January .

On the back of the of the freeze offs in the U S.

So obviously the.

Stop drilling up in Europe is what James had mentioned in your preparation for the fifth of February cutoff, but also at the same time, we had the confluence of these are very early Chinese new year. So you almost have like all these things happening at the same time the market obviously drove down.

With it.

Lars Nielsen: I think we had about 2.7 million barrels of refining capacity that was kind of taken out with the freeze off, follow-on with the refining turnaround that started really in January and as I mentioned, now at its peak. What is really interesting, of course, is that what we've seen is this market suddenly coming so strong at the same time as this turnaround is taking place, which is not normally what you see. So people talk about pockets of strength and stuff like that but what we're seeing today is a fundamental game that's being taking place globally. There's a tighter supply available tonnage across the globe. 

At the same time as this turnaround is taking place which is not normally what you see.

So.

People talk about pockets of strength and stuff like that but what we're seeing today is a fundamental game that's been taking place globally, there's a tighter supply of available tonnage across the globe.

Lars Nielsen: So post-Chinese New Year, as we were anticipating, Asia started ramping up, then the Middle East ramped up, followed by the Mediterranean and the continent and then now finally also in the U.S. Gulf sky rocketing. So today, we are at $40,000 to $60,000 per day on MRs depending on where you are in the region, probably even stronger now in the U.S. Gulf. And it's pretty much the same print as we saw before the freeze off in early December.

As we went dissipating Asia started ramping up in the middle East ramped up followed by the Mediterranean and the continent and then they'll finally also in the U S. Gulf Skyrocketing. So you know today we're at.

40 to $60000 per day on Mr's, depending on what you want the region, probably even stronger now in the U S. Gulf.

And it's pretty much the same print as we so you know.

For the pre salt in early December .

Lars Nielsen: The same thing goes also for the LR2s. Identical market dynamics, we've moved up to a very healthy $60,000 a day if you fix it today. And that's by the way, purely on round voyages and as you obviously know, we don't just do round voyages and we do a lot of backhauls and triangulations, which is a key change in the trading dynamics of LR2s. So, I think the vital point really and what Robert and Emanuele was saying is that there is simply no change in the headline fundamentals, but the rates today are substantially higher today than the Q1 guidance that was given.

Identical market dynamics.

We've moved up to a very healthy $60000 a day if he takes it today.

Uh huh.

By the way purely on round voyages and as you. Obviously know we don't just do round voyages and we do a lot of bad colds and triangulation, which is a key change in the trading dynamics I'll obey lawsuits.

So I think the vital point really.

Now what about the amount of what we're saying is that there's simply no change at the headline fundamentals, but the rates today are substantially higher today in the Q1 guidance that was given.

Omar Nokta: Yes, indeed, very interesting and definitely based off of your guidance, it looks like that January softness we saw effectively a nonevent or maybe just it's no longer relevant. Anyway, well thanks guys. Appreciate the color and congrats again.

Robert Bugbee: Yeah, can I just add for the next caller that I think what was relevant about that January event was just how strong the market actually remained. Despite all that weakness, the basic underlying utilization remain very, very strong. And I think that's a real – that's kind of a little bit of a canary in the coal mine as to, you know, you've got very high utilization out there right now. So it's not about trying to determine exactly what demand is trying to be created, any upward push in demand, whether it's just simply flying planes around the world, is going to push right there. Now the next question, please.

Was just how strong the market actually remade.

Despite all that weakness.

Basic you know under.

Underlying utilization.

The main very very strongly and I think that's the real that's kind of a little bit of a canary in the coal mine too.

You've got very high utilization out there right now so it's not about trying to determine exactly what demand is going to be created. Any upward push in demand, whether it's just simply flying planes around the world. It's going to push like cool. The next question please. Yes.

Any upward push in demand, whether it's just simply flying planes around the world. It's going to push like cool. The next question please. Yes.

It's going to push like cool. The next question please. Yes.

The next question please.

Yes.

Operator: The next question comes from Jon Chappell of Evercore. Please go ahead.

Jonathan Chappell: Thank you. Good morning, good afternoon. Lars, I want to stick with you and just dig a bit deeper on one major issue. So as I am sure you're aware, there was anticipation that February 5th may come and go for the product tanker market in a similar fashion as December 5th for the crude market where there wasn't really a meaningful impact and in fact, rates started to fall off after that. It seems in these early 11 days to be the complete opposite in the product market. So maybe you can just explain the differences in this dynamic with Russia and Europe, crude versus product. And some of the crude routes seem to be quite obvious, China, India. Talk about the complexities and maybe the inefficiencies of the product market and where Russian diesel needs to end up?

Lars I wanted to stick with you and and just dig a bit deeper on on one major issue. So as I'm sure. You're aware there is anticipation that February 5th May come and go for the product tanker market in a similar fashion in December for the crude market, where there wasn't really a meaningful impact if in fact rates started to fall off after that seems.

These early 11 days to read the complete opposite in the product market. So maybe you can just explain the differences in this dynamic with Russia, and Europe crude versus product and some of the crude route seem to be quite obvious China, India talking about the complexities and maybe the inefficiencies of the product marketing and where Russian diesels get signed up.

Lars Nielsen: Yes, sure. James mentioned that product exports after that declined about 500,000 barrels a day from February 6th and pretty much normalized. And I think it's fair to make the point that it is a little bit early still to ask – to precisely kind of assume where the product volumes that are going to be transported, where they're going to go to, and how much this capacity of vessels, how much that's going to be of a constraint.

I'm James mentioned that you know product exports are off the off the bat declined about 500000 barrels a day from February six then pretty much normalized and I think it's fair to make the point that it is a little bit early still to ask to precisely can assume where the product volumes that are going to be transported where theyre going to go through.

And how much this capacity of vessels, how much that's gonna be a constraint.

Lars Nielsen: And I think also what is really interesting to understand is that any vessels that are moving from the normal non-sanctioned business to the sanction trade, be it price cap or be it the dark fleet, how much that will overall kind of reduce supply. The thing that we all can see today is that the product tanker tightness already in play is going to cause further volatility across the board, be it on the Russian stuff or the normal stuff.

The thing that we all can see today that is that the product tanker titles already in play is going to cause further volatility.

The board be it on the Russian stuff or the the normal stuff.

Lars Nielsen: And I think also because there is this tightness, we should expect some periods where Russia or Russian barrels will struggle to find ships due to availability and difficulty loading the products. And on the price cap business, people talk about that, in that chain, there's also difficulty around who finances those vessels, who ensures those vessels, are they going to accept or not accept it? And it's going to be interesting where this reluctance is going to kind of play out.

Noting the products.

Oh, the price kept business you know people talk about that and that change is also difficulty around but we know who finances those vessels, who ensures those vessels or they're going to accept them not accepted and it's going to be interesting you know.

Where this reluctance is going to kind of play out.

Lars Nielsen: So I think really what we are seeing is the Russian barrels is going to try and find homes that are the shortest distance and the shortest distance in terms of their markets, back to the point that James is making in terms of Turkey. We have also seen barrels move to the Middle East. We have seen barrels moving to South America to West Africa. Clearly, all of this is longer haul. I think that as we move forward in these time periods, they will ostensibly have to focus on the east of Suez market more properly and we'll start then to really see the strong impact on ton-miles for Russian products finding these homes. And we are seeing it already. It's quite clear that this is the case.

So.

I think really what we are seeing is.

The Russian barrel is going to try and find homes that are the shortest distance.

The shortest distance in terms of the markets are back to the point that James is making in terms of Turkey. We have also seen our barrels moved to the middle East we have seen barrels moving to South America West Africa clearly all of this is as longer haul I think that as we move forward in these time periods are they will. That's what we have to focus on the east of Suez market more properly. And we will start to really see the strong impact on ton miles for Washington products finding these films. And we. We are seeing it already. You know, it's quite clear that this is the case.

That's what we have to focus on the east of Suez market more properly. And we will start to really see the strong impact on ton miles for Washington products finding these films. And we. We are seeing it already. You know, it's quite clear that this is the case.

And we will start to really see the strong impact on ton miles for Washington products finding these films. And we. We are seeing it already. You know, it's quite clear that this is the case.

And we. We are seeing it already. You know, it's quite clear that this is the case.

We are seeing it already. You know, it's quite clear that this is the case.

You know, it's quite clear that this is the case.

Lars Nielsen: But I think also just as important is Europe needs to import that replacement barrel as we move forward. And they obviously find out that those stocks that they build up over November, December are starting to deplete keeping in mind that 35% of import of distillates used to come from Russia for Europe, and those stocks are pretty much at decades low. So again, we think and believe that this is going to be a huge ton-mile ticket item.

Europe needs to import that replacement barrel as we move forward and you know they obviously find out that those stocks that they build up over in November December are starting to deplete.

Keeping in mind that 35% of the import of distillate used to come from Russia for Europe .

Those stocks are pretty much a decade's loved so you know again.

And then we think and believe that this is going to be a huge ton mile ticket item.

Lars Nielsen: Problem, of course, yes . So, and I think I've mentioned this before, this supply clearly is going to have to come from the Middle East, Asia or the U.S. Gulf. And you look at the distances before and after, and you're looking at a factor increase of 4%.

So and I think I've mentioned this before.

This supply clearly is going to have to come from the middle East Asia or the U S. Gulf.

And you look at the distance since before and after and you're looking at a factor increase of four.

Jonathan Chappell: Great.

Lars Nielsen: And by the way the last point, I think I just wanted to -- you mentioned about how does this compare to crude and I think it's different. Compared to crude, where the, so-called dark fleet has evolved to support Russian exports. They obviously had a big Aframax fleet already there. There has been a lot of stories in the press about all the ships that are being bought to kind of support this particular business. We do not see this happening in the same way, and fashion for the product markets simply because that these ships do not exist to service the sizable requirement, at least effectively because as the ton-mile starts increasing, more ships, obviously, you will require.

And about how does this compare to crude.

And I think it's different.

Patrick crude where you know the so called Dark fleet has evolved to support a Russian exports. They obviously had a big Aframax fleet already there there's been a lot of stories in the press about older ships that are being bought to kind of support. This particular business. We do not see this happening in the same way in fashion for the product markets.

Simply because these ships do not exist to serve as the sizeable requirement.

At least that effectively because as the ton miles starts increasing more ships, obviously you will require.

Jonathan Chappell: Yes, completely understand. Thank you, Lars. For my follow-up, Brian, the debt pay down, I mean, you've identified several times in the last few quarters, the desire to pay off the more expensive leases and you are refinancing them at a much lower cost capital. We can go through and add up all the leases, but I don't -- I am sure they are not all the same as it relates to your ability to prepay them. So, when we think about the potential of paying down the more expensive debt this year, what's a rough number of incremental debt repayment to your current schedule that could come from that 4%, 5%, 6% money?

Completely understand thank you Lars.

For my follow up Brian the debt Paydown I mean, you've identified several times in the last few quarters, the desire to pay off the more expensive leases.

And your refinancing refinancing them at much lower cost of capital.

We can go through and add up all the leases, but I don't I'm sure they're not all the same as it relates to your ability to prepay them. So when we think about the potential of paying down the more expensive debt. This year, what's the rough number.

Incremental debt repayment to your current schedule that could come from that four or five 6% money.

Brian Lee: Jon, that's -- could give you an answer but let's just we're doing it systematically, making sure that we get we do them in order, working with all of our lenders to do this, and making sure we -- you know, we're going to have some debt as Robert said. We're having cheaper debt. We're not going to have every vessel probably financed. But if we do, they're going to be at much lower and much cheaper rates. So I don't have a number for you right now. But I think you'll see as time goes by, as we've done in the last twelve months, we paid down and we'll continue to do that and we're going to chip away at that over a period of time. But we're going to do it – we're doing it systematically. We're just not doing it all at one time. Some – and we'll get back to you as the year goes by.

<unk>.

Could give you an answer but that's just where we're doing it.

Systematically.

Making sure that we get we do them in order.

Working with all of our lenders to do this and making sure. We know we're going to have some Dennis Rodman said, where it would be cheaper debt, we're not going to have that'd be vessel probably.

Finance, but if we do they're gonna be at much lower and much cheaper rates.

So I don't have a number for you right now. But I think you'll see as time goes by, as we've done in the last twelve months, we paid down and we'll continue to do that and we're going to chip away at that over a period of time. But we're going to do it – we're doing it systematically. We're just not doing it all at one time. Some – and we'll get back to you as the year goes by.

12 months pay down and we will continue to do that and we're going to chip away at that over a period of time, but we're going to do it we're doing it systematically we're just not doing it all at one time.

Hum.

We'll get back to you as a bank.

Uh huh.

Jonathan Chappell: Alright. Thanks, Brian. Thanks, Lars.

Robert Bugbee: I'd like to add to that that you know. Obviously, we're super confident about things that we stated we expect to see it to be better. Yeah, but you know we we've. We've got to be aware that where. Still in very volatile times I mean, we saw. Stopped collapsed 247, so what we felt was like not long term leave it in. You got to be able to maintain liquidity and strength through this with the strategy that we're having.

Obviously, we're super confident about things that we stated we expect to see it to be better.

Yeah, but you know we we've.

We've got to be aware that where.

Still in very volatile times I mean, we saw.

Stopped collapsed 247, so what we felt was like not long term leave it in.

You got to be able to maintain liquidity and strength through this with the strategy that we're having.

Robert Bugbee: So as Brian said if we do in a systematic way, we're always going to have a lot of cash on the balance sheet, more than enough cash to make sure we can take advantage of dislocations in a very strong way. And then, we bought over $100 million in 1 month in January and we couldn't even use the full month because we had to stop around the 19th. And at the same time even after all that, we're sitting here with a strong cash position to continue to execute that strategy. So it's as Brian said, you know, it's just going through systematic process that may lead to a slight bit of perfect financial efficiency, but I think it's the best overall.

A lot of cash on the balance sheet.

More than enough cash to make sure. We can take advantage of dislocations in a really strong way no we bought over $100 million than the one months in January and we couldn't even to use the full month, because we had stopped around the 19th.

And at the same time.

Even after all that were sitting here with a strong cash position to continue to execute that strategy.

No. It's it's as Brian says you know just going through a systematic process that may lead to a slight it is perfect financial.

Efficiency, but I think it's the best a little.

Jonathan B. Chappell: Got it. Thanks, Robert. Yeah.

Operator: The next question comes from Ken Hoexter of Bank of America. Please go ahead.

Ken Hoexter: Hey, great. Good morning. So, maybe just to expand on some of the prior answers on the market. James, you talked about 11% ton-mile growth -- demand growth. Maybe talk about assumptions built in there and expectation just in light of that maybe a decelerating ISM domestically and what that can mean for demand levels? And then I'll just throw off the second one which is kind of what we always kind of talk about which is your thoughts now on where the market is. Any thought on increasing your charter out contracts versus your remaining on spot? Thanks.

So maybe just to expand on some of the prior answers on the on the market.

James you talked about.

11% ton mile growth demand growth, maybe talk about assumptions built in there and expectation just in light of maybe a decelerating I S. M. A.

Domestically and what that can mean for demand levels.

And then I'll just throw out the second one which is kind of what what we we always kind of talk about which is your your thoughts now on where the market is any thought on increasing your your charter out contracts.

Versus your remaining on spot.

Brian Lee: Thanks, Ken. So I'll take the first part. It's based on -- the estimates comes from Clarkson's and we've worked and done some comparisons. But it's basically an increase of around 4.2% in overall volume of exports, which I think you can see from what we've seen so far this year seems realistic. Remember, at this time last year, things were starting slow, we were just getting through Omicron. And the other component of that to get to the 11% is 7% in terms of ton-miles. And that's roughly where estimates have been around the impact of Russia. I know we've seen them higher, but I think 5% to 7% is realistic. I think once you get above that, there's not enough capacity in the fleet to actually service that. So this will be a little bit more realistic and the markets are pretty efficient. So I think they will, as Lars mentioned, find a home for these molecules outside of Europe. And then Robert or Lars or Emanuele, if you want to take the time charter question?

It's based on the estimates coming from Clarksons, and we've looked and done some comparisons, but it's basically an increase of around four 2%.

And overall volume of exports, which I think you can see from what we've seen so far this year seems realistic remember at this time last year things were starting slow we were just getting through Aman crop and the other component of that to get to the 11% is 7% in terms of ton miles and Thats roughly.

Yeah.

Where estimates have been around the impact of Russia, I know, we've seen them higher but I think 5% to 7% is realistic I think once you get above that there's not enough capacity in the fleet.

To actually service that so this this won't be a little bit more realistic and and the markets are pretty efficient. So I think they will as far as match them find a home for these molecules outside of Europe .

And then Robin Oh ours are Emmanuel if you want to take the time travel question.

Robert Bugbee: With the time charters, we'll continue to add. But I think it's worth Lars describing what the actual time charter market is doing out there at the moment.

Right.

But I think I think it's worth laws describing.

What the actual time charter market is doing out there at the moment.

Lars Nielsen: Sure. I mean, after the slow period over the holidays, time charter inquiry certainly has returned. And it's interesting to see now again, a number of first-class charters looking to secure long-term charters, long term being anything from three to five years. We have seen those coming through our projects team, and this is both on LRs and also on MRs. As always, certainly provides with a decent leading indicator of what our clients think that the market is doing. But at the same time, as we're moving through this next period sitting a little bit on the fence, I guess, watching the rate complex rise across the board in all regions and across all segments. And at some point, there's a discussion to be had I guess. Yeah.

I mean after the slow period over the holidays are time charter.

Inquiry, certainly has returned and it's interesting to see now again, a number of first class charters looking to secure long term charters long term being anything from three to five years, we have seen those coming through our projects team and this is both on the on our laws and also on there Morris.

As always certainly provides with a decent meeting indicated what our clients think that the market is doing but at the same time as we're moving through this next period.

Sitting a little bit on the fence I guess.

Watching the rates complex wise across the board.

<unk> and across all segments and at some point.

There's a discussion to be had I guess.

Ken Hoexter: Great. And then, I guess just a follow-up. Why are we not seeing orders kick in, right? The container market always gets irrational when you get such an exuberant market and even though it's short market, they over order. We saw it with LNG. What gets your peers or others to start jumping in with orders and putting an overhang on this market. I get that it's 2.5 years before you could get a vessel and order books are full now. But thinking longer term, especially if the growth that James -- that's up over the next few years, you're going to continue in the tightness. So what's holding the market back given the cash flow we're starting to see?

And then I guess, just a follow up.

Why are we not seeing orders taken right the container market always gets irrational when when you've got such a an exuberant market and and even though its shore market. They they over water. We thought with LNG you know what what gets your peers or others to start jumping in with the orders in and putting an overhang on on this market I guess.

It's two and a half years before you could get a vessel in order books are full now but.

Thinking longer term, if especially if the growth that James that's up for over the next few years Youre going to continue on the tightness of why what's holding the market back given the cash flow, we're starting to see.

Robert Bugbee: James?

Emanuele Lauro: Maybe, I'll take the -- sorry.

James Doyle: Emanuel, you go ahead.

Emanuele Lauro: Yes. I was just saying one of the aspect is the propulsion, Ken, that plays a role. You mentioned two asset classes like containers and LNG where it is much easier to go dual fuel, for example, on the propulsion systems, LNG is intrinsically easier and from an infrastructure standpoint, also for containers being liners, it's so much easier to go that way.

Infrastructure standpoint also for containers being liners, it's so much easier to to go that way.

Emanuele Lauro: The technological change that conventional shipping, meaning tankers and bulk carriers are seeing now raises questions on which type of propulsion they -- we should -- owners should put on their new buildings, and this may be one of the aspects why people are not rushing to order. Having said that, should this market continue, we do not expect people to stay in the fence for a lot longer, so you will see orders placed. The good news, as you've mentioned yourself, is that in order to have a ship built on a slot at a reputable yard, you need to wait 2 to 2.5 years. So that plays in our advantage. James, anything to add?

Meaning tankers and bulk carriers or are seeing now raises questions on which.

We start with propulsion. They you know we should owners should put on their new buildings and this may be one of the aspects why people are not Iraq.

Rushing towards there having said that should this market continue we do not expect people do.

Stay in defense for a lot longer. So you will see our orders placed the good news is you've mentioned yourself is that a in order to have a sheep being sort of slots at a reputable yard you need to wait two to two and a half years, so that that plays in our app.

Vantage James anything to watch.

James Doyle: No, that's great. Okay.

Ken Hoexter: Great. Emanuel, Robert, James, Lars and team thank you very much for the answer.

James Doyle: Sure.

Operator: The next question comes from Gregory Lewis of BTIG. Please go ahead.

Please go ahead.

Gregory Lewis: Hey, thank you and good afternoon and good morning, everybody and then, thank you for taking my questions. Brian, I did want to follow up a little bit on Jonathan's question, realizing not getting into specifics, but we do have some of these Chinese or Asian-based asset leasing funding in the company. We've seen obviously, yields or interest rates are higher. Realizing that any refinancing is going to be delivering. So it's going to be a less amount of debt. But any way to think about the actual interest expense savings on that spread as you do some of these refinancing?

Now funding in the company you know we've seen you know obviously, obviously yields are you now.

Interest rates are higher.

Now you know realizing that you know any refinancing is going to be delevering. So it's gonna be a less.

A less amount of debt, but but any way to think about.

The actual interest expense savings.

Yeah, Yeah yeah.

That spread is as you do some of these refinancing.

Brian Lee: Yes, Greg. So the margins are going down from 3.5%, 4% on leases down to 2%. So that's – you do some quick math there. That's a pretty good savings. So if you do $200 million. That's $4 million a year saving. So you see it right there.

The margins are going down from three and a half for them.

Leases down two 2%. So that's you do some quick math, there and that's a pretty good savings. So you do 200 million that's $4 million in your savings. So you see it right there.

Gregory Lewis: Okay, great. I think that was good, just to crystallize that. And then, just thinking a little bit bigger picture on the overall macro, as we look ahead to this year and what's going on with – and I think we've touched – I think you guys touched, danced around a little bit, whether you call it the dark fleet or the gray fleet or as vessels move into that trade, any sense for maybe how many vessels are in that trade, and then just realizing that history changes. But as vessels that go into that trade once they go down that route, is it possible for them to return into the more conventional – I don't know what, regularly trading fleet?

Thinking a little bit you know a bit bigger.

Bigger picture on the overall macro.

As we look ahead to this year end.

What's going on with.

And I think we've touched I think you guys touched danced around a little bit whether you call. It the dark fleet or the other.

Great fleet or.

As vessels move into that trade.

Any sense for maybe how how many vessels are in that trade in and then just you know realizing that history changes, but but as vessels that go into that trade once they go down that route.

Is.

Is it possible for them to return into the more conventional.

I don't know what you know.

Regularly trading fleet.

Brian Lee: What do you think, Lars?

What do you think of us.

Lars Nielsen: It's a really, really good question, Greg. My personal view is that if you look at, at least from the crude side, the type of vessels that have kind of been contracted into the gray or dark fleet or whatever you want to call it, tends to be of a substantially older vintage. We do not know a lot of who these owners are and stuff like that. We do not know what kind of quality standards that they will be adopting to maintain the quality of the vessels. We do know that there are oil majors out there who have put into place that they do not want to see a ship that has been traded in the dark fleet or even in the price cap fleet.

My personal view is that if you look at at least from the crude side. The type of vessels that have kind of been contracted into the gray or dog food or whatever you want to call it tends to be a a.

Substantially older vintage.

We do not know a lot of them, who these owners are and stuff like that we do not know what kind of quality standards are that there will be adopting to maintain the quality of the vessels.

We do know that.

One of the majors out there who have put into place that they do not want to see ship that has been treated in the dark fleet or even in the price cut fleet.

Lars Nielsen: So in my view, if we kind of analog take over what happened on the crude on to the products, I think it is quite a good argument to say that most of those ships, we will not see again because of the age, because of who's been trading them, et cetera. And if anything, it's going to be extremely difficult to get them back into the kind of top-tier kind of tradable fleet in my view.

<unk>.

Kind of I don't know if take over what happened on the crude onto the products I think it is quite a.

A good argument to say that most of those ships, we will not see you again.

Because of the age because of who's been trading them et cetera, and if anything it's going to be extremely difficult to get them back into the kind of top tier kind of tradable fleet.

My view.

Gregory Lewis: Okay, great. Thank you very much for the time guys, everybody.

Lars Nielsen: Thank you. Yeah.

Operator: The next question comes from Frode Morkedal of Clarksons Securities. Please go ahead.

Frode Morkedal: Hi, everyone. I have a question on the ship. So when I compared the one year. Or three year charter rates to a modern vessels. Let's say a five year old vessel. It seems to translate to the really strong cash on cash returns so a lot. You have tons of 5% for a one year, 16% return or a three year charter. Which is way higher than the usual 10, 12% Dimitar side. So. This in my book would probably support plus 30% increase due. Others. So my question is why haven't we seen that. And they thought.

I have a question on the ship.

So when I compared the one year.

Or three year charter rates to a modern vessels.

Let's say a five year old vessel.

It seems to translate to the really strong cash on cash returns so a lot.

You have tons of 5% for a one year, 16% return or a three year charter.

Which is way higher than the usual 10, 12% Dimitar side.

So.

This in my book would probably support plus 30% increase due.

Others.

So my question is why haven't we seen that.

And they thought.

Robert Bugbee: It hasn't -- well, I think it hasn't happened, I think values were really rocketing up before Christmas generally. And then everything got into this hiatus in January and early February and as Lars described, he said, look, we've had the holidays, but now the charterers are getting back to really getting going. And the underlying rate structure is going up.

It hasn't happened I think values were really rocketing up before.

Christmas generally and then you know.

Everything got into this hiatus N.

January and early February and has lost described he said look.

We've had the holidays, but now the charterers are getting back to to really getting going and the underlying rates start to is going up so.

Robert Bugbee: So the calculations and dynamics you're showing, they are there. So the expectation would be that you would start to -- on that old correlation, you would start to see ship values move upwards again. So I see that you had a little bit of a gap there and a little bit of a shake up with the combination of the holidays where generally not many deals happen and in the rate structure and the uncertainty surrounding the markets in the first part of the year is one explanation. Anybody else have any thoughts?

Charlie.

That's so the expectation would be that you would start to.

On that old correlation you you would start to see ship values move upwards again.

But it said that you had to.

You know a little bit of a gap, there and a little bit of a shake up with a combination of the holidays with.

Generally not many deals happen and then the.

The rates start to and the uncertainties surrounding the.

Markets in the first part of the year.

It was one exploration anybody else have it.

Any thoughts.

Emanuele Lauro: I think, Frode, I agree with Robert. It's a yet rather than it hasn't happened, true. But if you are yet there, I think it's catching up fairly fast. The liquidity in the market has been absorbed as well from a transaction -- in a transaction basis, let's say, on the fact that the Russian elements play definitely a role. But with the expectations linking to what we were discussing before on the time charter front that we see period rates increasing further and consolidating first and increasing further, we do expect asset appreciation to follow pretty shortly.

In the transaction basis, let's say on on the fact that the Russian elements play definitely a role.

But we'd be expectations linking to what we were discussing before on the time charter Frank that we see.

Period rates, increasing further and consolidating first and increasing further we do expect asset depreciation to follow pretty shortly.

Robert Bugbee: It is the same as stock appreciation too. I mean the market is only sort of now just getting back to reality that the first half of the first quarter is in a disaster, and there's no way there the analyst figures or investor assumptions have caught up to the reality of what Lars is describing of the actual spot market today. So we've got both the sides of the asset valuation and it's got some catching up to do, the shipments and the equity value.

So now just getting back to reality.

The first half.

After the first quarter isn't a disaster.

No there's no way that the.

Analysts figures or investor assumptions are.

Caught up to the reality of what laws is describing of the actual spot market today.

Because you've got both sides of the asset valuation has got some catching up to do the ship and the equity values.

Frode Morkedal: Yeah, okay. Thank you for the color.

Thank you for the color.

Robert Bugbee: Sure.

Operator: The next question comes from Ben Nolan of Stifel. Please go ahead.

Benjamin J. Nolan: Thanks. Well, for my first question, one of the -- I think one of the interesting dynamics that I haven't really heard a lot about and I am curious, maybe, Lars, if you give some color on this. Especially this time of the year, ice-class tonnage is pretty important for, well, anything in the Arctic, but especially the Russian volumes, you guys have a bunch of ice class handy size vessels, few MRs. How are you seeing that play out? Is it -- do you think that's an element perhaps behind potentially some constraint in Russian volumes just not being able to get through the ice if they can't get their hands on equipment or any color that maybe you could add on that?

Russian volumes you guys have a bunch.

Of our ice class handy size vessels few mr's.

How are you seeing that play out as it E N. A D. Do you think that's an element, perhaps behind a potentially some constrained and in Russian volumes, just not being able to get through the ice if they can't get their hands on equipment or.

Any color there maybe you can add on that.

Lars Nielsen: Yeah, hi, Ben. Interestingly enough, it has had such a little impact this year compared to the years prior. Clearly, not doing Russian business anymore for kind of the normal ship owner has meant that a lot of the ice ports are rendered useless in that sense. We know that a lot of the ships that were bought for the crude side had ice class attached to it. Have also heard anecdotally, and I'm not 100% sure if this is true or not, but that the Russians have also kind of eased in some of their ice restrictions that they've had in the past, where ice class vessels with a lesser degree of ice class have been allowed to call Russian ports. Another point to where I'm a bit nervous when it comes to what is the standards going to be safety-wise as these ships move into the dark fleet.

Interestingly enough. It has had such a little impact this year compared to the U S trial.

Clearly not doing a Russian business anymore for kind of the the moment ship owner has meant that a lot of the.

Ice ports are rendered.

Not just us in that sense.

We know that a lot of the ships that were bought for the crude side had ice class attached to it.

I've also heard anecdotally and I don't I'm not 100% sure. If this is true or not but that the Russians have also kind of.

Even some of the ice restrictions that they've had in the past where.

Ice class vessels with a lesser degree of ice plants had been allowed to Colin rusch imports.

Another point to where I'm a bit nervous when it comes to what is the stance is gonna be safety wise as these ships move into the dark meat.

Benjamin J. Nolan: All right, interesting. And just maybe associated with that, what kind of premiums are -- is the -- our vessels with ice class notations earning relative to similarly-sized vessels at the moment, if you can maybe flesh that out?

That out.

Lars Nielsen: So for a normal tanker post 5th of February, pretty much zero. Okay.

Pretty much zero.

Benjamin J. Nolan: Okay. And then, for my second question, a little bit more of a strategic question as it relates to capital. You guys have, in the past, used your shares when they were more similar or when they were closer to NAV as a currency to consolidate the fleet. It's been a while since you've done any of that. Actually, if anything, you have sold assets in recent years.

For my second question.

A little bit more of a strategic question as it relates to capital.

You know you guys have in the past.

Yeah.

Used your shares when they were more similar or when they were closer to N. A V as a currency to consolidate the fleet its been awhile since you've done any of that actually if anything I'm sold assets in recent years.

Benjamin J. Nolan: But once again, the shares, I think probably are still a little bit below NAV and as you say, the asset prices are rising, but that gap is not nearly as wide as it was. I am curious whether or not, just strategically, how you're thinking about things. It doesn't really -- if you -- I guess, if you would say we don't -- right now, we don't really care what our share price is. We're just not looking to consolidate the market or maybe not, if the math works and that's --

That gap is not nearly as wide as it was.

I'm curious whether or not you just just strategically how are you thinking about things that you know it doesn't really if you're maybe I guess, if you would say and when we don't right now we don't really care, what our share prices. We're just not we're just not looking to consolidate the market or.

Or maybe not you know if if the math works.

Robert Bugbee: I get the question. Look, first of all, we do think that the stock is still heavily discounted. We've talked about the rates. We've talked about the potential movement in prices to both of those things are going to indicate already is still trading below NAV now. So I'd mentioned in the last quarter that we'd expected get into April or whatever the NAV would be at least $82. And I don't have any reason at the moment to think that that won't happen.

I guess the quick question.

Well, we do we do think that the.

Stock is.

To heavily discount could you know you talked about the rate sweep.

We've talked about the potential movement in pricing to both of those things are going to indicate.

It's still trading below its still trading below NAV now so.

I had mentioned in the last quarter that we'd expected you know get into April or whatever the N V would be.

You know at.

At least $82.

And I don't have any reason at the moment to think that that won't happen.

Robert Bugbee: We've just gone through a dialogue of last time the spot rates are higher, charter rates are going up. And Frode has pointed out the absolute historical correlation that normally happens between the time charter rates and values to expect that to pursue. But as it comes to – I mean, we just don't have a desire to buy anything. I mean there's no public fleet that can compare to our fleet. The only sort of nick you could put against the company on a comparative basis is we've, in the past, had more leverage. The way we're going, we're going to have not only the newest fleet, but we'll probably have the least leverage on our fleet. And that will give us lots of different avenues.

So the spot rates are higher charter rates are going up in the photo has pointed out the absolute historical correlation good normally happens between.

The time charter rates.

So we expect that to.

Let's see but as it comes to.

No I mean, we just don't have the desire to buy anything.

I mean, there's no publicly that can compare to all fleet.

The only to the knick he could put against it.

Company on a comparative basis.

We've in the past had more leverage the way, we're going we're going to.

I have not only the newest fleet, but we'll probably have the least leverage on all on our fleet and that will give us lots of different avenues.

Robert Bugbee: The age of that fleet means we don't have renewal issues. None of our ships are grinding in the short term towards 16 years old. And there is really no benefit we would get from paying someone else a premium to do anything. The best fleet in the world is we're buying the best fleet in the world, have been buying the best fleet in the world. And you might stop acquiring so much equity if you start to trade at or near NAV. But the desire is to, as Emanuele pointed out at the beginning, we're significant owners of the company. And we're alongside all of you as shareholders and we want to focus on the returns first. So, there aren't any targets, there is nothing. There is zero work being done on looking at targets or other companies or individual ships.

Nonetheless ships are.

Grinding too.

Short term towards <unk>.

16 years old.

And there's really no benefit we would.

Get Trump trying from paying someone else a premium to do anything you know the best fleet in the world.

Is we're buying the best fleet in the world have been buying the best reach in the world.

And.

You know you might stop acquiring so much equity and if you start to trade.

At or near N V, but.

The desire is to it.

Yeah.

As Emmanuel pointed out at the beginning you know with with significant owners of the company.

And we're alongside all of you as shareholders and we want to focus on. The returns first. Oh. There aren't any target nothing zero work being done on. I'm looking at Tom. Targets or other companies or individual ships. Targets or other companies or individual ships.

The returns first. Oh. There aren't any target nothing zero work being done on. I'm looking at Tom. Targets or other companies or individual ships. Targets or other companies or individual ships.

Oh. There aren't any target nothing zero work being done on. I'm looking at Tom. Targets or other companies or individual ships. Targets or other companies or individual ships.

There aren't any target nothing zero work being done on. I'm looking at Tom. Targets or other companies or individual ships. Targets or other companies or individual ships.

I'm looking at Tom. Targets or other companies or individual ships. Targets or other companies or individual ships.

Targets or other companies or individual ships.

Benjamin J. Nolan: Alright.

Robert Bugbee: So the use of proceeds would be quite -- it would be difficult in an equity offering.

It would be difficult and.

Equity offering.

Benjamin J. Nolan: Sure. Very clear. Appreciated. Thanks, Robert.

Very clear I appreciate it thanks Robert.

Multiple: [Operator] The next question comes from Liam Burke of B. Riley FBR. Please go ahead. [Liam Burke] Thank you. You announced in your release this morning a $250 million securities buyback, which would include the senior secured debt. How do you balance the buyback versus the debt reduction in that program?

The next question comes from Liam Burke of B Riley FBR. Please go ahead. Thank you you announced in their release this morning, a $250 million securities buyback, which would include the senior secured debt. How do you balance the buyback versus the debt reduction in that program.

How do you balance the buyback versus the debt reduction in that program.

Robert Bugbee: Well certainly, up to now, it's been a pretty easy calculation to be buying back the -- dealing with the actual strategic part of unwinding the leases has been the first priority and buying back stock. I mean, we've shown the average prices we were buying stock in January were still around $50. So the return on what do you use your capital was, was it simply better to buy the stock at, what we perceive the discount to the future NAV. Forget the present, it's also the future short-term NAV would be. And the bond, however attractive individually because of the interest rate, might have been to acquire them. Buying back one million or two million would be -- in the market wouldn't really matter much. And tendering for the bonds themselves wouldn't till that time of being worth it when you weigh it up against the actual price that you were able to buy stock.

Yeah.

Well the.

Up.

Suddenly up to now it's been a pretty easy calculation the wind back the.

Dealing with the actual strategic part of unwinding the leases being the first priority.

And you know buying back stock I mean, we we we've shown the.

The average prices, we were buying stock in January was still around 50, so a little bit.

<unk>.

Return on what do you use your capital was was it simply better to buy the stock at.

What we perceived discount to the future the future N. A V forget the president is also the future short term many of you would be.

And the bond.

However, attractive individually because of the interest rate might be tomorrow to being to acquire them.

Buying back one 2 million would be. You know in the market wouldn't really matter as much. And tendering for the bonds themselves wouldn't. But until that time, it being worth it when he weighs it up against the. To. Price that you were able to Blackstone.

Buying back one 2 million would be. You know in the market wouldn't really matter as much. And tendering for the bonds themselves wouldn't. But until that time, it being worth it when he weighs it up against the. To. Price that you were able to Blackstone.

You know in the market wouldn't really matter as much. And tendering for the bonds themselves wouldn't. But until that time, it being worth it when he weighs it up against the. To. Price that you were able to Blackstone.

And tendering for the bonds themselves wouldn't. But until that time, it being worth it when he weighs it up against the. To. Price that you were able to Blackstone.

But until that time, it being worth it when he weighs it up against the. To. Price that you were able to Blackstone.

To. Price that you were able to Blackstone.

Price that you were able to Blackstone.

Liam Burke: Great. Thank you, Robert. And I mean, presuming that you have as good or a better year this year, your operating cash was about $1 billion. So presuming this year, you do $1 billion or better in cash. You've laid out your buyback programs, your debt reduction. Is there any thought on the dividend policy at these levels? Because I know you just doubled it, but how are you thinking about that?

I mean, presuming that you have as good or a better year. This year. Your operating cash was about $1 billion. So presuming. This year, you do a $1 billion or better in cash you've laid out your your buyback program to your debt reduction is there any thought on the dividend policy at these levels.

I know you just doubled it but how.

How are you thinking.

Robert Bugbee: I think you've done a good calculation and you pointed out what the luxury problem is going to soon happen. And the first thing is to make sure we have the money booked and in the bank. So let's get there first. We believe that we are going to have these numbers that you're talking about, maybe even better, who knows. But let's get there first, because once we are there, we are in a massively strong position at that time. And that doesn't mean it's very long because we've pointed out already that we do intend to hold some debt. We intend to have some commercial bank debt. We intend to have vessels, as Brian pointed out, unencumbered. And we intend to have a certain amount of cash.

Got you.

You've done a.

Good calculation and you pointed out.

You know what the luxury problem has gone to see them happen.

But when they are needed, but the first thing is to make sure we have some money.

Booked in the bank, so let's get that but we believe that we're going to.

These numbers and that you're talking about maybe even better who knows.

Robert Bugbee: But let's get there first, because once we are there, we are in a massively strong position at that time. And that doesn't mean it's very long because we've pointed out already that we do intend to hold some debt. We intend to have some commercial bank debt. We intend to have vessels, as Brian pointed out, unencumbered. And we intend to have a certain amount of cash.

We're in a massively strong position at that time.

And that doesn't mean, it's very long because we've pointed out already that we do intend to hold some debt we intend to have some.

Commercial bank debt, we intend to have vessels as Brian pointed out unencumbered.

And we.

And intend to have a certain amount of cash.

Robert Bugbee: I think the importance with the doubling of the dividend isn't -- I mean, the dividend is still only 1.5% or whatever that may be close to the S&P average, but that's not really the relevant point. The relevant point is that management and the Board are conscious already of the rapidly improving position of the balance sheet that we are confident with what we see, a situation where we're going to get to the desired point that we want to be at.

Relevant point is that is that management and the board Oh.

Congress has already of the rapidly improving position on the balance sheet.

We are.

Confident with what we see.

<unk>.

A situation where.

We're going to get to the desired point that we wanted to be yet.

Robert Bugbee: And we are in a way signing a little spotlight down that pathway with the increase of the dividend now. And that I think is probably the most I can say at the moment. And does that make -- did you understand the implied message in that or not?

With the increase of the dividend now I think.

It's probably the.

The most I can say at the moment then.

It is.

Does that make you understand the implied message in that or not.

Multiple: [Liam Burke]  I do. Thank you, Robert.  [Robert Bugbee]  Great. Thank you

Operator: This concludes our question and answer session. I would like to turn the conference back over to Emanuele Lauro for any closing remarks.

Emanuele Lauro: No closing remarks. The call finishes here, but thanks very much for your time and look forward to speaking to you all soon. Thank you.

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

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