Q4 2022 Scorpio Tankers Inc Earnings Call

[music].

Hello, and welcome to the Scorpio Tankers, Inc. Fourth quarter 2022 conference call.

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I'd like to turn the call over to James Doyle head of corporate development and Investor Relations. Please go ahead.

Thank you for joining us today welcome to the Scorpio tankers fourth quarter 2022 earnings conference call on the call with me today are Emmanuel L. A where our chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief Operating Officer, Brian Lee Chief Financial.

Officer wires Denker Nelson commercial director.

Earlier today, we issued our fourth 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 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 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 Scorpio tankers, dotcom and FCC Dot Gov call participant.

Third buys that the audio of this conference call is being broadcast live on the Internet and is also being recorded for playback purposes archived audio webcast will be made available on the Investor Relations page of our website for approximately 14 days, we will be giving a short presentation for that.

Presentation is available at Scorpio tankers dot com and the <unk>.

Relations page under reports and presentations 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 tell do you have an additional question. Please rejoin the queue now I'd like to introduce our Chief Executive Officer Emmanuel Laura.

Thank you very much James and good morning or afternoon, everyone.

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.

It would have been very very difficult to imagine this only 12 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.

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.

The company enters 'twenty to 'twenty, three with its strongest financial position in its history.

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.

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 10 cents to <unk> 20 per share.

Our strategy remains the same improve the quality of Scorpio tankers is an investment and create long term shareholder value consistent with this as of now we feel reducing our leverage and repurchasing shares given the discount the company's NAV.

He is the best way to create this value.

In the first quarter, we have booked a fleet spot average of $339500 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.

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.

Thank you Amanda.

Thanks, everybody.

Your support and your interest today.

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

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

As Emmanuel said the fundamentals are improving.

It's a fairly simple story on <unk>.

While demand is also accelerating beyond the headline demand.

It's a continued refinery changes, which is the long term theme and now Russian sanctions.

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

Russia and sanctions.

Following that simply incredible 2022 we as Emmanuel said expect 'twenty to 'twenty three to be even better.

We are clearly off to a great start.

He very much again James.

Thanks Robert.

Slide eight please.

Since March of 2022, the refined product tanker market has been resilient rates of oscillated between 20000 and $80000 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.

<unk> 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.

Slide nine please.

Yeah.

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 available in.

In addition to demand refining capacity changes have also been a large driver behind higher volumes and lower inventories slide 10. Please.

Pre COVID-19 refining capacity is different than post COVID-19 or demand is above pre COVID-19 levels of capacity in certain regions is lower due to refinery closures and.

And changes in the global refining system and 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 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. If you look at refinery capacity changes over the last several years and exclude China, you see an increase in middle Eastern export capacity closures in places like Europe , Southeast Asia, and the U S. What you don't see it.

The increase in capacity in places like Africa, Latin America, and Southeast Asia, where demand continues to grow to put this into perspective.

2017, China has added $5 8 million barrels in finding capacity and exports have remained relatively unchanged. However.

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.

Slide 11 place.

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 products volumes declined around half a million barrels a day today they appear to be at normal.

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

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

Our view is that it's just starting.

Slide 12 please.

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.

We know Europe increased imports from Russia to build inventory before sanctions and east imports as a result of slightly 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.

In short the benefit of rerouting of Russian barrels is just starting and 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 miles lastly.

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

We're still very much a concern.

Slide 13 please.

Vessels, which would have been the sanction trades produces the supply of vessels and non sanction trades, but regardless of the grade fleet darkly et cetera, two things are clear.

Holding 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 built until 2000 and later.

To put this in perspective, where more and more and how our product tankers ordered in 2006, when the total number of EMR and LR vessels scrap since the year 2000.

Supply constraints will remain an issue going forward.

Putting this all together slide 14 place.

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 remained at an all time low.

The order book is near a record level of five 4% of the fleet and.

And using minimal minimal scrapping assumptions the 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 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.

The confluence of factors in today's market are constructive individually historically low inventories increasing demand exports in ton miles structural dislocations in the refinery system rerouting.

Products was due to the Russia and Ukraine.

But limited fleet growth and upcoming environmental.

The regulation collectively they are unprecedented five.

Slide 16 please.

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.

Other increases in operating expenses due to the easing of supply chain congestion there for repairs and maintenance as well as general inflationary pressures.

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.

<unk> in place.

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.

Slide 18 please.

Okay.

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 up one of these facilities.

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.

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.

Slide 19 place in Q1, so far including time charters that fleet is averaging $38000 per day on an annual basis. This would translate to almost <unk> 20 per share or a free cash flow yield.

Of 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.

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.

And our first question will come from Omar.

Jeffrey Please go ahead.

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

Yes, thanks for the update and really congratulations on capping a transformative 22 and it looks like as the menu. While he said 23 may be even better.

Wanted to just ask about the balance sheet first cash position now is 600 million debt levels 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.

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.

Okay.

Our.

I'll speak to the heart of what we call project <unk>.

Which is great.

Great question.

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

Update.

Very clear that we're willing to.

I 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 that you've been doing for a little while now continuing to.

Have paying down debt is a priority.

You can see from the announcements of the swap meet what we've done so we've swapped expensive debt for a cheaper debt.

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 will be.

Limitations related to blackout periods earnings et cetera.

And you can see that the you know the.

The cash account on the balance sheet.

President and 600 million is more than adequate T J.

To fulfill that part of the strategy and.

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

<unk> got a very very healthy situation.

Obviously, if things start to change.

You rapidly.

At this rate level, the right level, we booked at the low and 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.

We are going to.

<unk> was a policy and trying to create.

The value to shareholders.

Returning capital to shareholders.

Right now, though you have such a major dislocation.

Between the N a V a.

And the.

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

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

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 wanted to ask or maybe for Lars Theres. Some talk that we're going to be seeing a heavy.

Binary 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.

<unk> 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.

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

With the demand that's increasing.

About $1 6 million barrels per day or higher this year than last year.

What we've seen when it comes to turnarounds in the U S Gulf and 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.

At the same time there is also a maintenance season in the middle East, that's taking place but tends to be around now up to March and then Asia a little bit later for April and May.

You know it obviously will lead to the arguments are very constructive market as these barrels rebalance globally are pretty much similar to what we saw.

Last year.

I think what is really.

Interesting is.

No.

We saw how these rates stay soft and back in January .

On the back of the of the freeze off the U S.

So obviously the.

Drilling up in Europe , Thats, what James had mentioned in 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.

I think we had about $2 7 million barrels of refining capacity that one's kind of taken out with the fees I'll follow on with the refining turnaround that started really in January and as I mentioned now and its peak, but it's 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 been taking place globally, there's a tighter supply of available tonnage across the globe, So post Chinese new year.

As we anticipated.

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 today, we had.

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

And it's pretty much the same print doesn't show.

For the pre salt in early December .

The same thing goes also for their lot choose.

Identical market dynamics.

We've moved up to a very healthy $60000 a day, if you fix it today.

Uh huh.

By the way purely on round voyages.

Obviously, you 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.

No Robert the amount of what I was 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.

Yes, Indeed, there are very interesting and definitely based off of your guidance. It looks like that January softness we saw effectively a non event or maybe just.

It's no longer relevant anyway, what well thanks, guys I appreciate the color and congrats again.

Yeah can I just add color that I think what was relevant about January event.

Was just how strong the market actually related.

Despite all that weakness.

Basic.

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.

Hello.

You've got very high utilization outside 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.

Going to push like cool.

That was it.

Next question please.

Yeah.

Yeah.

The next question comes from Jon Chapell of Evercore. Please go ahead.

Thank you good morning, good afternoon.

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 in 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.

Sure.

I'm James mentioned that you know potash exports.

After after 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.

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 going to be of a constraint.

And I think also which is really interesting to understand is that you know any vessels that are moving from the normal non sanctioned business to sanction trade be a price cap, albeit dark fleet, how much that will overall kind of reduced supply.

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.

And I think also because there is this tightness, we should expect some periods, where Russia, while Russia barrels will struggle to find ships are due to availability.

Colton loading the products.

The price cap 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.

Where this reluctance is going to kind of play out.

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.

To the point that James is making in terms of Turkey. We have also seen our barrels move 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 essentially 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.

But I think also just as important is.

Europe needs to import that replacement barrel as we move forward and you know they obviously find out that those stocks that they built 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.

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

That's very helpful and of course it yeah.

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 Youre looking at a factor increase of four.

Great.

Yeah.

The last point I think I just wanted to.

And about how does this compare to crude.

And I think it's different.

Patrick crude where you know that.

Oh Cold 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 all the ships that are being bought.

To 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 service the sizeable requirement.

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

Mhm yeah.

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 refining refinancing them at much lower cost of 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 the rough number.

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

Got it.

Yeah.

Could give you an answer but 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 Robert said it'd be cheaper debt, we're not going to have that'd be vessel probably.

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

We have a number for you right now, but I think you'll see as time goes by as we've done in the lab.

Both 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.

Uh huh.

Alright, Thanks, Brian Thanks Raj.

I'd like to add to that.

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

Next year, but 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 time, we've been in.

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

So as Brian says, if we do it in a systematic way.

It's going to have.

A lot of cash on the balance sheet.

More than enough cash to make sure we can take.

Take advantage of dislocations in a really strong way that we bought over $100 million than the one month in.

January we couldn't even to use the full month, because we had stopped around the 19th.

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 systematic close to that.

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

Got it thanks Robert.

Yeah.

The next question comes from Kenn Hoekstra of Bank of America. Please go ahead.

Hey, great good morning.

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 D.

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 charter out contracts.

Versus your remaining on spot.

Thanks, Ken So I'll I'll take the first part.

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.

Aman crop and the other component of that to get to the 11% is 7% in terms of ton miles and Thats 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 to actually service that so 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.

With the time charters will will continue to.

Right.

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

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

Sure.

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

The 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 air Lars 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 defense I guess.

Watching the rates complex wise across the board.

<unk> in the personal segment and at some point.

There's a discussion to be had I guess.

Yeah.

Yeah.

And then I guess, just a follow up.

Why are we not seeing orders kick in right. The container market always gets irrational when when you've got such an exuberant market and and even though its shore market. They they over water.

We saw it 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 get that 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.

James.

Well, maybe I'll say it again.

Yeah.

Emmanuel you Gotta go ahead James.

Yes.

Just saying one of the aspect is the propulsion candidate that plays a role you've 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.

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

The the technological change that conventional shipping ah, meaning tankers and bulk carriers or are seeing now raises questions on.

We each type of propulsion day, you know, we should owners should put on their new buildings and this may be one of the aspects why people are not.

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.

Orders placed the good news is you've mentioned yourself is that in order to have it.

<unk> been in sort of slots at a reputable yard you need to wait two to two and a half years. So that that plays in our advantage James anything to us.

No that's great.

Yeah.

Great Emmanuel Robert James Marsh and team. Thank you very much for that.

Sure.

The next question comes from Gregory Lewis of Beachy IAG.

Please go ahead.

Thank you and good afternoon, and good morning, everybody and thanks for taking my questions I'm, Brian I did want to follow up a little bit on jonathan's question, realizing not getting into specifics, but you know we do have some of these Chinese or Asian based asset leasing.

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

Interest rates are higher.

You know yeah.

Realizing that you know any refinancing is going to be delevering, so it's going to 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.

Yes, Greg.

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.

Okay, Great Yeah no.

Yeah, Great I I think that was a good just crystallize crystallize that and then and then just you know thinking.

Thinking a little bit bigger.

Bigger picture on the overall macro.

As we look ahead to this year end.

What's going on with you know what you know now.

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

The great fleet or.

As vessels move into that trade.

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

It is.

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

I don't know what how are you.

Regularly trading fleet.

Yeah.

What do you think of us.

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 greater dog treat or whatever you want to call it tends to be of 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 that they 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 you ship that has been traded in the dark fleet or even in the price cap fleet.

So 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 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.

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

Thank you.

Yeah.

The next question comes from fruit of markets all of Clarksons Securities.

Please go ahead.

Okay.

Hi, everyone.

I have a question on the ship values.

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% return.

So.

This in my book.

As part of the support plus 30% increase due.

Others.

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

And your thoughts.

Alright, it hasn't.

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

Christmas generally and then you know.

Everything got into this hiatus in 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.

The calculations and dynamics you are showing.

Hmm.

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 hall.

All of that is wet.

Generally not many deals happen and then the the.

The rates start to and the uncertainties surrounding the.

Markets in the first part of the year.

It was one explanation that anybody else have it.

Any thoughts.

Yeah.

I think throw there I agree with Robert its a I'd say yet rather than it.

It hasn't happened true, but if you are there yet there.

I think it's catching up fairly fairly fast the liquidity in the market has been absorbed as well in the form of transaction.

In the transaction basis, let's say on <unk>.

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 are we.

Do expect asset depreciation to follow pretty shortly.

It would be the same as the stock appreciation too I mean, the market's only.

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.

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

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

Yep.

Thank you for the color.

Sure.

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

Thanks.

Well for my first question one of the I think one of the interesting dynamics are that I haven't really heard a lot about and I'm curious maybe lars can give some color on it.

Oh, especially this time of the year ice class tonnage is pretty important for anything.

Anything in the Arctic, but especially those Russian volumes you guys have a bunch.

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

How are you seeing that play out is it 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.

Any color there maybe you can add on that.

Yeah, Hi, Ben.

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 normal ship owner has meant that a lot of the the ice ports are rendered.

Not just us in that sense.

We know that a lot of the ships that were bought.

The crude side had ice class attached to it.

I've also heard anecdotally.

100% sure. If this is true or not but that the Russians have also kind of easing.

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

Ice class vessels with the lesser degree of ice class had been allowed to a cold Washington ports.

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.

Hmm interesting, okay, and just maybe associated with that Oh, what kind of premiums or is the oh, our vessels with ice class notations, earning relative to similarly sized vessels and the mountain and just if you could maybe.

That out.

So for a normal tanker post February pretty.

Pretty much zero.

And then.

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.

But once again the the shares I think probably you're 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'm curious whether or not you just just strategically how are you thinking about things that you know it doesn't really if you 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.

Yes.

I guess the quick question.

Well, we do we do think that the store.

Stock is.

To heavily discount could be like we talked about the rate sweep.

We've talked about the potential movement in pricing to both of those things are going to indicate you know already in school 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 right away.

Just going through the dialogue.

Last thing that spot rates are higher charter rates are going up.

As 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.

Yeah, I mean, we just don't have a desire to buy anything.

And there's no publicly that can compare to our fleet.

Oney to the knick he could put against the company on a comparative basis is.

We've been the pulse 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 at all.

On our fleet.

Give us lots of different avenues.

You do that fleet means we don't have real issues.

None of us 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.

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 looking.

I'm looking at.

Targets or other companies or individual.

Individual ships.

Alright.

So the use of proceeds would be quiet.

It would be difficult to.

The equity offering.

Sure very clear I appreciate it thanks Robert.

So Paul.

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

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.

Yeah.

Yeah.

Well the.

Up.

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

Buying 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 we're still around 50.

Good.

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 NAV forget they present and it's also the future short term many of you would be.

And the bonds.

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

You know buying back one 2 million would be.

In the market wouldn't really matter much.

And tendering for the bonds themselves wouldn't.

But until that time, it being worth it when he weighs it up against the yet to.

Price that you were able to Blackstone.

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 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 are you thinking.

I think they.

You use.

You've done a.

Good calculation and you pointed out.

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

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.

How do these numbers and that you're talking about maybe even better.

It was.

But let's get the best because once we're there.

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.

Thank the importance with the doubling of the dividend isn't I mean, the dividend is still on even a 1.5% or whatever that may be close to the S&P average, but that's not really the relevant point.

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

Conscious already of the rapidly improving position of the balance sheet.

We are.

Confident with what we see.

Hey.

A situation where.

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

And we are in no way shining a little spotlight down that pathway.

With the increase of the dividend now.

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.

Thank you Robert Great. Thank you.

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

No closing remarks, the call finishes year, but thanks very much for your time and look forward to speaking to you all soon thank you.

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

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