Q1 2023 Scorpio Tankers Inc. Earnings Call
Speaker 1: The.
Speaker 1: Pro part.
Speaker 2: OM congratulations
Speaker 2: Ladies and gentlemen, good day.
Speaker 3: and welcome to the Scorpio Tankers Inc. 1st quarter 2023 conference call.
Speaker 3: I would now like to turn the call over to James Dorn, Head of Corporate Development and ION. Please go ahead, sir.
Speaker 4: Thank you for joining us today. Welcome to the Scorpio tankers 1st quarter 2023 earnings conference call. On the call with me today are a manual a world chief executive officer Robert bug be president Cameron Mackie chief operating officer.
Speaker 4: Brian Lee, Chief Financial Officer, Frisavela Chief Accounting Officer, Water Stenker Nielsen Commercial Director.
Speaker 4: information as of today, May 2, 2023, and may contain floor looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements.
Speaker 4: For discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release, as well as Scopeo Tankers SEC Highlings, which are available at squopeo Tankers.com and SEC.gov. All participants are advised that the audio of this conference call is being broadcasted live on the Internet.
Speaker 4: and it's 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 sure presentation today. The presentation is available at squirtbhankers.com on the Investor Relations page under Reports and Presentation. The slides will also be available on the webcast.
Speaker 4: After the presentation, we will go to Q&A. For those asking questions, please limit the number of questions to the two. If you have an additional question, please rejoin the Q. Now I'd like to introduce our chief executive officer, Emmanuel Aura.
Speaker 5: In the first quarter, the company generated 286 million EBD.
Speaker 5: and $196 million adjusted net income.
Speaker 5: with the first quarter last year when the company generated an adjusted loss of around 50 million dollars.
Speaker 5: So, we're starting 2023 with $210 million more in adjusted net income compared to 2022.
Speaker 5: We see an order book near record loans.
Speaker 5: An aging fleet.
Speaker 5: aging fleet, constructive demand for refined products.
Speaker 5: We do not intend to grow the company rather we intend to harvest.
Speaker 5: The balance sheet has and will continue to see a reduction in leverage, but we will look to optimize it as well.
Speaker 5: Our new 750-1 billion dollar turn-lone and revolving credit facility, while still under discussion, can accelerate the repair purchase of more expensively financing.
Speaker 5: leveraged vital to shipping companies, leverage and liquidity.
Speaker 5: While overall debt reduction continues to be our priority, our strong financial position continues to improve and has allowed us to start to return capital to shareholders.
Speaker 5: Since July 2022, we have repurchased 7.5 million of our common shares.
Speaker 5: Since July 2022, we have repurchased 7.5 million of our common shares for $350 million.
Speaker 5: Today, we announced the renewal of our security purchase program for up to $250 million and an increase of our quarterly dividend from 20 cents per share to 25 cents per share.
Speaker 5: Finally, it is with mixed feelings that we must announce today that, brilliantly, our Chief Financial Officer will be stepping down in September of this year.
Speaker 5: He will be replaced by Chris Avella, who has been with the company since 2010 and currently serves as our chief accounting officer. Bryant leadership and experience has been instrumental in the growth and development of the company over the last 13 years.
Speaker 5: He's been with us since the beginning and leaves the company in its strongest financial position with a well-trained team, forced to maintain our standards.
Speaker 5: Brian , I will miss you. We will miss you. We will miss your untargeted work ethic, your temperament, and character 2. I'm truly grateful for your contribution to the company, and we should the best on a well-deserved retirement.
Speaker 5: And by the way, if you change your mind now that the chief accountant position is open, I'm sure that Chris will hire you in the heartbeat.
Speaker 4: With that, I'd like to turn the call to James for a brief presentation. Thank you, Emmanuel. All right, shall we introduce the following, ladies and gentlemen? What was your biggest changes, Bro
Speaker 4: We have seen an elevated rate environment since Q1 of last year, and over the last five quarters we've generated a window under 1.4 billion in EBITDA, of which 1.1 billion has gone to debt repayment, and as the manual mentions, since July 2022, we've repurchased 350 million of the company shares.
Speaker 4: We have 15 vessels on time to travel out contracts, and the most recent charter was an LR2 for three years at $40,000 per day.
Speaker 4: The remaining 98 vessels are operating in the spot market.
Speaker 4: are operating in the spot market. Bye, 8-poise.
Speaker 4: We continue to repurchase vessels under expensively financing and have started to refinance some of these vessels with new bank credit facilities that have lower interest margins. To the right you can see the list of vessels that have been repurchased and are upcoming. So far we have given notice to repurchase 42 vessels.
Speaker 4: And when we say repurchase, it's really paying off the outstanding debt on the vessel.
Speaker 4: As of today, we have repurchased or repaid the outstanding debt on 28 vessels. And then Q2, we will repurchase 13 vessels on lease financing for $325 million.
Speaker 4: The margin on the lease financing ranges from libra plus 350 to 525 basis points.
Speaker 4: and the new loan facilities have a margin of silver plus 190 to 197 basis
Speaker 4: Given the credit adjustment spread between Silver and Liber, the Liber equivalent margin of our new financing is around 170 basis points. The Kremlin who have done a great job.
Speaker 4: So I'm nine points. Finding differences between repurchasing vessels on lease financing and drawing down a new facilities means that at times an appears debt is increasing. On the left you can see the movements between the new facilities being drawn and debt being repaid.
Speaker 4: In the first half of this year, including drawdowns on new facilities, we expect to reduce our debt by 146.2 million. If you look at the graph on the right, compared to December 2021, by June 30th this year, the company will have reduced its debt by 1.4 billion and repaid 1.1 billion in
Speaker 4: Until recently, the debt repayments have been done primarily with free cash well. However, with a new $750 million to $1 billion term and revolving loan facility, we can accelerate these lease purchases and optimize the balance sheet.
Speaker 4: The revolving component of the new one will allow us to manage leverage and liquidity. After completed, the changes will translate to lower brick even right to the fleet as amortization and interest costs decline.
Speaker 4: Bye, 10 plays.
Speaker 4: December 31st.
Speaker 4: 2021 net debt is decreased $1.5 billion today on a pro-former basis with over 800 million pro-former liquidity and with no new buildings on order we have minimal catbacks.
Speaker 4: We are very well positioned. File 11, please. Thank you to you so far, including time chargers, the fleet is averaging almost $40,000 per day. On an annual basis, this would translate to almost $20 per share of the free cash flow, or over a 38% free cash flow year. These are exciting times. Thank you very much.
Speaker 4: By 13, please. Despite significant refinery maintenance in the first half of this year, a reduction in European imports after building inventory ahead of sanctions and a warm winter, rates have remained strong. European product imports have increased to normalize levels. Refinery maintenance will decline considerably over the next two months, and global inventory has remained well below five year average.
Speaker 4: Obviously, it's just strong expectations for the remainder of the year, especially the back-out and next.
Speaker 4: By 14, please. Demand has been robust. While we do expect slightly lower diesel demand due to less trucking activity, the increase in gasoline and jet fuel and nap the demand more than offset the lower dissort demand.
Speaker 4: We expect refined product demand to average 1.5 to 2 million barrels a day more from Q2 to Q4 than last year and go up throughout the remainder of the year. Q4 volumes remain extremely high in our average 1 to 1.5 billion barrels per day more than 2019 levels. Given low global inventory increase consumption will continue to be met through imports with product tankers reallocating barrels around the world. 515 please. While demand is above pre-coded levels refining capacity is lower and more dislocated.
Speaker 4: Regional capacity changes are structural and will continue to drive 10 miles and flows for the coming years.
Speaker 4: After a brief surge in product exports at the end of last year, Chinese exports have now returned to your most well-en Moltes.
Speaker 4: And while OPEC cuts will restrict crude exports, they do not restrict products. And the Middle East has been the incremental barrel of refined product.
Speaker 4: There are one of the few areas with the finding capacity coming online to the export market, and most of these exports are going long haul to Europe and Asia. As 10 mile demand increases, thus, some capacity is reduced and supply tightened.
Speaker 4: One of the few areas with the finding capacity coming online to the export market and most of these exports are going long haul to Europe and Asia. As time-mile demand increases, thus some capacity is reduced and supply-tightened. By 16 points.
Speaker 4: At the start of sanctions, Russian product exports declined, but over the last two months have been above pre-sanctional levels.
Speaker 4: And prior to sanctions, most of the Russian exports are going to Europe , and now they are going longer hauled to the Middle East, Africa, Asia, and Latin America. Almost every replacement route, aside from Turkey, is longer than the previous route, and these new clothes will drive a significant increase in time miles.
Speaker 4: On the other side, Europe has to replace the loss Russian imports, and these will be from farther away. The gray fleet, our vessels that are servicing Russia, will have increased significantly to 322 vessels today, of which 254 are handymax and MR vessels. Once these vessels load at Russian ports, they are unable to service the US or Europe .
Speaker 4: The impact of vessel servicing Russia is expected to have a significant impact on the capabilities of the global feet.
Speaker 4: While unclear fresher will be able to maintain current bubbles, it's very clear these volumes are needed given the low inventory around the world. Slide 17
Speaker 4: I know there's been some more new building orders over the last two months and probably more than in this graph, but the overall order book as a percentage of the fleet still remains near historical lows. And in December , clean tanker rates reached record levels, more of the order book was at an all-time low. So we do expect additional orders in the strong rate environment and agent fleet. However, there are still long lead times for the delivery of new build vessels, shipyards or busy with orders from other sectors, and vessels ordered today will not deliver until 26. Also, new builds are expensive compared to historical levels and concerns about different propulsion systems to meet environmental regulation and the cost of these systems act as a constraint to order. When thinking about new building orders and fleet growth, the age profile of the fleet must be considered.
Speaker 4: On the lower left you can see that in 2023 through 2026, 680 MR and LR product tankers will turn 15 years old. By 2026, there will be 815 product tankers 20 years and older, and on a percentage basis that means 50% of the handy max rate, 23% of the MRs.
Speaker 4: 29% of the LR1s and 12% of the LR2s will be older than 20 years by 2026.
Speaker 4: We always prefer to see low ordering activity, a number of vessels turning 15, and those that would be 20 and older is staggering and should be put in the context.
Speaker 4: Well, the order book is at a record low. The spot market continues to remain at very strong levels. One in three year time chart rates are at high levels and evidence that our customers outlook is one of increasing exports in tonn miles against the constraint supply curve.
Speaker 4: What's different today is that typically as rates improve the order book builds and over supply more than often leads to do at the point and rates. But we have only seen modest order book growth. Using minimal scrapping assumptions, the fleet will grow less than 1% over the next three years and using higher scrapping assumptions and fleet age to be the upcoming environmental regulation. The fleet is likely to shrink over the next three years.
Speaker 4: People in exports in tonne mild demand are expected to increase 4.4% and 11.5% this year, and 4% and 7.1% next year. That's without pacing supply.
Speaker 4: The conclusive factors in today's market are constructive individually, historically low inventories, increasing demands, exports, and tonn miles. Structural dislocations in the refinery system, rerouting of global product flows and limited sleep growth. But collectively, they are unprecedented.
Speaker 4: And at last, but certainly not least, Brian , it has been a pleasure to work for you over the last 10 years.
Speaker 4: Thank you for being a great mentor, leader, and friend to so many of us. You have always been the last person in the office, the first to get credit, and the last to take it. Your hard work, humble attitude, and great sense of humor will be missed. I wish you the best in retirement. But that, I'd like to turn it over to Q&A.
Speaker 4: a great mentor, leader, and friend to so many of us. You have always been the last person in the office, the first to get credit and the last to take it. Your hard work, humble attitude, and great sense of humor will be missed. I wish you the best in retirement. With that, I'd like to turn it over to Q&A. Thank you.
Speaker 3: We will now begin the question and on procession.
Speaker 3: To ask a question you may press star then one on a telephone keypad. If you are using a speaker phone please pick up your handset before pressing the keys.
Speaker 3: If at any time your question has been addressed and you would like to withdraw your question, please press star then to.
Speaker 6: Our first question is on the line of John's travel with Elvacorn. Please go ahead. Thank you. Good morning. Brian , echo the comments. It's been a real pleasure and you'll be missed. Let me be large if we can pull you in here. James had some really great slides kind of explaining what's happened since the start of the year, but certainly some of the recent momentum, especially in the MR segment. It's been somewhat seasonal, but maybe a little bit more extreme than anticipated a couple of months ago. Is it strictly a function of refinery maintenance? And that's what gives you a more optimistic view on the back half of the year.
Speaker 6: or is there something else going on either seasonally or counter-seasonally in the MR market recently that caused some weakness?
Speaker 7: Hi, John . You know, I think putting things in context, I think, rates for the current quarter has actually held up quite nicely. The market is certainly a lot more volatile that we've seen when markets were poor and we had a flat lining market. And I think that volatility really defines that tightness.
Speaker 7: I'm going to be able to drop in the Atlantic base and I think it has performed quite well in the second quarter. And I would actually argue that rates in the Atlantic bases are bottomed out. And I think even for this morning, the market for the TC2 has increased by 20 points in one go coming out of the box.
Speaker 7: You know, as we start emerging out of this tremendous turnaround that James was talking about.
Speaker 7: I think we are coming into a season in a very good place. I'm personally very constructive, the rate environment for the second half of the year, and also balance of the second quarter. And I think that the adage of the stronger for longer that people have been panting about, certainly is valid for more. I think generally speaking, one...
Speaker 7: As per James was talking about, the stocks are low. Refining margins, complex refines are still positive. You've got a new capacity that's coming online. And I think one of the key components here in terms of where the market is, the connectivity in the regional market is defining in a fundamental role that's underpinning by this title supply that we have tonnets that we've been seeing.
So generally speaking, you know, you're seeing a lot of imports coming further afields, the Russian sanctions that everybody knows about, they will continue to influence the supply change. So I think a lot that we've seen just to answer your question, we've seen is the...
The substantial turnaround in all three regions has been playing a big role.
You know, I think in April , if I'm looking at my numbers, you had global refining maintenance topping at 9.4 million barrels. And I think by June July , you know, 6 million of those refining capacity will return to the market. You then add on the additional new capacity from Alzur, which is going to have its third trade up and running in the third quarter.
Okay, super helpful. Thank you, Lars. For my second question, I don't know if it's for James or Robert or me, I'm back to you, Lars. It seems like the pace of your one and three-year time-trailer contract is slow to a little bit from the back half last year, but if I look at slide 19 on the upper right-hand side, the rates for the MR1 year and the three-year for LR2 has been...
if I just take the first question, I think that the...
you know all weaknesses relative to I in the summer time that the market may be slightly weaker than its full-time record highs but we would hardly describe the market as averaging 40,000 a day.
In the second quarter, looking as weak, that's huge. $20 annualized run rate on a $50 stock is thank you very much. That's important because we're seeing a very steep discount. Many points during this first quarter of the actual three-year charter rate to the...
to the access spot market and what lies as you've crept onto our journey is indicating for the balance of this year. And we don't necessarily, and at the same time, our balance sheet is getting stronger and stronger and stronger. And therefore the requirement or the need or the wish to
you know, seek the security of the three-year charters, be less when we're getting, you know, such confirmation in the actual spot market and doing it. I mean, we simply have a credible situation where every single report that we're reading...
indicates that we're going to continue to see growth in product-tenko demand, product-demand, headline product-demand around the world for the balance of the year. Regardless, if we're reading someone who's very pessimistic about the world economy, thinking it's in recession or going into recession, and we know that the actual fleet itself is fixed.
And we know that those 10 mile multipliers related to the finalists are going to continue. So I think a lot of it is we've been really choosy that we've hit the record rate on our three-year chart as on our LR2s.
each point over these last three months, but there's no, you know, there's less of a need because I guess we're more optimistic about what's happening. I mean, think of all the doubt we've been through in this first quarter, what you've been talking about, and we end up in the second quarter right now.
That is really a terrific base for what we could see going forward.
Yeah, that'll make sure we have 800 million dollars at Proquel, Macache. We're just about to do an incredible refinancing. So that bounds to create punch out of security is really just going now.
Yeah, thank you Robert. Thanks Lars. Thank you.
For a reminder to all participants, if you have a question, please press star then one.
participants if you have a question please press star then one.
Next question is from the line of Omar Nocta with Jeffries. Thank you guys good morning. Also Brian congrats on the retirement. We'll miss working with you. You're leaving obvious to the company in great shape.
We've got to perform my 800 million of cash here. We wanted to just sort of ask about kind of priorities. And I think, Emmanuel, you sort of outlined this early on. You've got the 1.4 billion of net debt. Can you maybe rank your priorities in terms of the use of cash from the next few quarters and if you guys have set yet a target of what you'd left at net debt number to get to?
lending debt to the teams, which would probably, if you added those up, who would give you some kind of base position. And then you're going to have normal amortization probably from that point, but there's no target yet.
So we're going to continue really with what we've done for
You know, the last quarters where we're going to take down our total debt and we are going to prioritize buying back those sale lease back to and when the new facility is closed, that's going to really accelerate that fact.
you know, if the opportunity.
at what we can see is very value creating levels.
see as very value creating levels remains.
And that's why we've increased the, gone back and we've increased the share by-back. I think we've shown the market that we're not increasing sharebacks for show. We're increasing the sharebacks by-backs so that they can be used.
Thanks Robert. Yeah, you bumped the dividend and then you've recharged the buyback. So, clear indication there. And then maybe just a second question would be, you know, asset values continue to push higher here.
Does that change at all your view on how you've been conducting the business? Does it go from harvesting the assets today versus say monetizing down the line? How do you think about that in this context? I think we're...
on how you've been conducting the business. There's a go from harvesting the assets today versus say monetizing down the line. How do you think about that in this context? I think we're, you know, it's.
Especially when you've got very large spreads now. I mean the spread between...
our NAV or our calculated NAV and to stop right to only increase in the last three or four months is the, you know, is to catch you seeing those come in. And.
But we're open and I think it's fair to say that we are.
We are prepared and are indeed in discussions when it comes to taking advantage and maybe setting a couple to three, four or whatever the older vessels.
That would just be a small thing to do when you've got such a wide discrepancy at the moment.
Yeah, that makes sense. All right, well thanks, Robert. I'll turn it over.
Thank you. Next question is from the line of SamBlind.
with JB Morgan, please. Thanks for asking the questions. The first one is, I guess, we're aware of the sort of more midterm supply and demand picture, but then you've got all these different sort of shorter term effects like refinery maintenance and inventory levels.
Do you just talk, I know you touched on those in the opening comments, but where roughly do you think we are on those sort of short-term effects? So we kind of at the peak sort of headwind phase and from here it turns to tailwinders, refineries, activity starts increasing or where roughly do we think we are in that cycle?
touched on those in the opening comments. Where roughly do you think we are on those sort of short term effects? So we kind of at the peak sort of headwind phase and from here it turns to tailwinders, refineries, activity starts increasing or where roughly do we think we are in that cycle? Thanks.
I'll start. Good questions, Sam. Look, I think, you know, for almost two years, you've seen massive draws in inventory. And...
Right now we look at a market where Russia has been able to export more products than pre-sanction levels, but it's unclear if they'll be able to maintain those level of exports in the long term. And there's a lot of assumptions around those volumes being moved into the market, but I do think the inventory data, if you look specifically at the U.S., because it comes out weekly.
These will 12% below the five-year average. Gasoline is something like 7% below the five-year average. So we're seeing inventories continue to decline despite higher volumes. And so I think as we move to the back half of this year, demand is going to increase from a gasoline jet and not the perspective. And it's going to be much more than a slight drop and say, displeant demand from trucking.
So we're still extremely bullish on the outlook, and we haven't seen anything in our market, whether it's flows or volumes, as shown in the graph, that suggest things are lower, and we do expect a stronger back half for demand this year.
Okay, maybe I could ask the second one. It's on the order book number, I think it's 6% in the presentation. I mean, that's come up very slightly. What's your sense of...
market participants are we starting to see a real acceleration in orders or would you say it's still quite due to the moment and I suppose Where do you have any sort of feeling on where you'd be happy for that 6% number to go to and still think that to the supply and demand was quite healthy? Thank you Thank you Maybe I can
Try that one. I think good.
filling in the end to 25 to 25 bird to me.
early 2026.
So now it's expected even more expected to even more expensive to go out. And I think that when you're booking forward a market two and a half years.
I think that you don't...
really begin to even think about things until you're up to a 10% total on order and that it wouldn't be very much. That's just 3% each year.
and that would just be in historic terms. Now, we have a situation where if you look at the grass that James put up, there's severe stress out of that in the industry in terms of over aging to the product group. So you've got to set that in the context of how many ships are going to be turning.
There is a little bit of acceleration. It's kind of dramatic and it's, oh my God, what's happening. But when you put it in the perspective of the actual ongoing fleet, it's not something that we're concerned about at all. But I think that in general terms, you want to look at.
tanker fleets or any type of shipping fleet once you cross ten and then you have to put it in the perspective of what likely to be moved in the fleet going forward as to whether ten is acceptable or not. But up until ten here with...
You know, we're all pretty safe. Robert, a lot here. I mean, I just think I would just like to add, you know, the ships that you are talking about, they're also going to be struggling to meet the new carbon regulations that they kind of are being introduced in the coming years, right? So, you know, there will kind of be more inefficient and potentially will also kind of increase the scrapping element to it as we move along the line.
Understood. Okay, thank you very much. Yeah, and I'd just like to highlight for everybody, these are the two red herrings we see. The red herring we see is the, oh my god, we're seeing the new building ordered. And the other one is this thing to do with recession and headline demand.
Because just the increase in jet fuel going along around the world, which is tremendously important thing for the product market, especially new ships or whatever, is we can't get to a scenario over these next quarters where you don't get continued product and demand.
And that's even without dealing with just trying to refill, um, imagery through which I'm required.
Thanks. Join the next question please.
a great education in learning about the business. So thank you to you and the team and good luck. Maybe Robert Emanuel, you're talking about the oldest fleet or the aging fleet, overall kind of very slim new orders, although some are coming on harvesting the fleet, maybe selling some vessels at the peak or...
selling some vessels. Are you then are we then looking at the peak of the market if we're starting to see those new orders that you're talking about coming in, you're looking at maybe selling some vessels. Just how should we step back and think about that? And then as the second part to that, do you need to renew your fleet right as it starts to age here? Do you need to go in and you know, maybe it's not expansion, but it's just simply renewal of the fleet. Is that something you'd look at or is it just more monetizing at strong levels? Uh.
Well, what we need to do is to provide our shareholders a return. And we'll get selfish with it. We need to, Jack Welk said, show me how persons paid. And I'll show you how the money is. Well, inside of the largest shareholder of Scorpio Tunkers.
So the idea of selling old of Esseldress, it's nothing to do with whether or not we think the market is peak to which we don't think the market is peak. It is all about the fact that, you know, as Lars is pointing out, old Esseldress will become harder to manage over the next, you know, a couple of years.
whereas older vessels, we could simply sell the older vessels and you could use that capital to accelerate the debt repayment or accelerate a stock repurchase depending on if the stock continues to be massively discounted to its NAV.
But there's no requirement for us to renew at all. And our sleep can quite happily, with age and go through for many years going forward here.
Okay. And then maybe Brian , if I could bring you back in the op-ax, I just want to run through obviously you noted it was down because of the fewer vessels. You I guess COVID costs came off. Maybe talk about what's going to happen with op-ax. Okay.
going forward given inflation and your thoughts on op-ex into 2Q in second half. That's a very accurate inflation. So there's some inflationary pressure and delivery costs and things like that are good to be delivered. So we think it's going, it may take up a little bit higher from where it is here.
Again, if it was less between this quarter last year, this quarter this year and last year is because less about those, but we do disclose the average daily cost. So let me just mention there, and I think that again, that's going to move up a little bit over the next few quarters here. Can we put parameters on that?
How much inflation is going to be, where are equipment is going to be delivered, so you can look at it. I don't know, 3 to 3 percent for now. Okay. Thank you. I'm going to leave here.
All right, great. Thanks for the time and thoughts. Appreciate it.
All right, great. Thanks for the time and thoughts. Appreciate it, guys.
Thank you.
Thank you. Next question is from the line of...
the proper fraud model with coaxing security. This is what it is supposed to be. I'll stop here.
with Clarkson securities. Thank you. Bye guys.
My discussion on the refinery turn arounds and the products in theatories. I guess I have a high level question on arbitrage trading.
I guess at least historic glitch was fascinating to see.
That's a one barrel jet fuel could be resold many times after it was produced and up led to this very high-multiplier, maybe four or five times.
compared oil demand in terms of trade.
So I'm curious to see or know how prevalent this phenomena today.
You actually see bells moving from let's say Europe to New York and then being resold to other destinations and so on. Or you see something that...
Be Bells moving from let's say Europe to New York and then being resold to other destinations and so on. Or you see something that could be forthcoming.
I thought it's last year. I'm not going to give you a stab at that. I mean, there is no doubt that the product market in general from a trading perspective is traded multiple times and we have seen multiple times and throughout.
that we have a change of orders or there is a different training behaviour depending on where that particular arbitrage is. I mean, I've laid there has been some spreads going on where you've seen a lot more Caribbean cargos that have been destined to New York carbo because of the pricing structure. That is product that has initially come from the east of Suez from India or whatever and you then see them put it in the storage and then breaking bulk and moving different places. We see cargos moving.
into the US West Coast and in particular into Mexico on the West Coast, which previously would have been cargo that had been sourced out of the US Gulf. And we have seen throughout the first quarter a lot more cargo suddenly being moved into Mexico and the West Coast.
out of North China and in Southeast Asia in general. So in terms of the diversity of cargo base and in terms of how that moves around, we see a very healthy level of disparity around that. And obviously this is one of the things that we in the product tank market really enjoy is the ability to triangulate and that we certainly have been able to see.
to Japan or North Asia, then reloading in North Asia and China down into Australia, then we then load again out of Australia and take it back up to North Asia or into the A.G. or even to West Africa, then reload out of West Africa, etc. So this whole kind of way of a front of a market in products is certainly still there, I think it's going to remain to say. And because of the kind of very constrained...
My second question is on the new refineries in the Middle East. Any update since the last time you talked about that? What do you see?
As incremental a sect on the power tank market going forward. Thank you.
So, I mean, this is only what I have heard. And it's not something that is kind of reported officially, et cetera, but we know that the two out of the three trains that are exerting Q8 up and running, I have heard that the third train is going to become in running in the third quarter. And we will at the end of the year start seeing 640,000 bells per day, a product being shipped out of Q8, which is substantial.
That incremental barrel obviously is going to make a huge marginal change in the supply of vessels as these vessels that are learning how to curate are all going to be going long-haul for a large part, particularly the distillate will be going west of Suez and the light ends will be going east, which again is going to influence the turn-mile in a very positive sense.
I've heard that the Jusan refinery is now up and running around 50% and that also is increasing as we set out into the second half of the year. So there is a lot of additional capacity that is just about to come up and running. They are already open. We can see already on the volumes that are coming out of both of Kuwait and out of Jusan and the Red Sea has made a fundamental impact in product tankers, not only on LR2, but
of Sharif El-Megravi with BTIG. Please go ahead.
Good morning. Thanks for taking my question. I want to ask, how are you thinking about returning capital going forward? Because the dividends are on nice boost and also the Sherry Purchase Program got reset. Obviously the Stanley specs are priority, but it's looking like you have a line of sight on that now, which would free a more cash blows for other activities.
Sure. Well, I think we did look what we recently did. We bought back a lot of stock in the first quarter. And I can't remember exactly what it was, but it was, you know, five, six.
the son of the company and you know, we can see that we are that you know, a dad is projected to be going down and you know the cash and liquidity is as high or higher than it was at the beginning of the first quarter and the rate guidance is higher.
The stock's moved nowhere. So you would expect that that would be a strong priority of allocation of capital at the moment.
combined with a continued strategy of taking that down. We thank you for observing the dividend. We said before that, we're raising a regular dividend. We're doing it in increments that can be some kind of guide to the future.
And we're not going to go to the percentage payout positions, but we would always leave it open if required to do extraordinary dividends. But all these, you know, that really depends on where the value is in the stock price.
You know, you have a major dislocation right now between, you know, forget the actual NAV. That's one way of measuring it.
As James pointed out, at the present run rate, we're maybe making $20, $21 a share in cash flow on a pretty new fleet.
And that's just an amuletized basis and then combine that with the losses view of the market.
If you forgot cash flow, you're basically indicating that
that is going to the value in the company is even going to be more discounted going forward. So that is overwhelmingly.
that is going to the value in the company is even going to be more discounted going forward. So that isn't overwhelmingly higher priority at the moment.
We could do that. Or has been in that first call appeared. Thank you very much.
Thank you. Our next question is from the Lion of...
Liam Book with B. Riley FBR. Please go ahead. Thank you. I know time charter activity is sort of flattened out here, but has there been any recognition by your customers that there's an impending shortage as the MRs age for them to start time chartering?
the same constructive view of longer term market rates and we see plenty of questions coming across rates still at elevated levels compared to last and The last time I've seen this type of interest For three to five year time charters is probably mid 2000s. So there's plenty of there's plenty of interest out there
Okay, great. And the balance, I mean, you talked about the dividend and buybacks in terms of the balance. But is there an NAV for your fleet that you consider when looking at your buybacks or is it just stock price? Yes.
Now, of course, we look at the NAV and we look at the cash flow and we look at what we can afford to go back to the question that we were for. You can see what's happening in this balance sheet and it's going to be – we are not going to take the debt down to zero. We don't go and negotiate $570 million of bank credit in debt.
real loan to value, but it's going to be very low to the book value of the company, which is substantially lower than
where the loan to value is. When that point is reached, obviously if you've still got a huge amount of cash which we would hope to have to.
all of the income coming in, then become surplus to what's happening.
So when you're measuring buybacks, the net asset value is only one guide. We're trying to model where the company is worth in the end of the year. In two years, three years, we're also trying to model it.
moment is not too difficult to calculation either way.
is not too difficult to calculation either way. Great, thank you Robert.
Thank you. Our next question is from Chris Robertson with Deutsche Bank. Please go ahead.
Hey guys, thanks for taking my question and Brian good luck with retirement. Best wishes towards you into the future. I just wanted to ask here around the scrubber fuel spreads come down a bit over the last few months. Can you comment about what's been driving that? Do you think this is a structural change or is this a seasonal effect?
I'll take that one. Hey, Chris. I don't think it's structural. I think if you look at the demand for high sulfur fuel, it's predominantly for vessels with scrubbers and for power generation in the Middle East. I think the pressure is coming from distillate and you've seen distillate cracks come down.
We've seen diesel prices come down and it's just a reversal of kind of what we've seen for the last two years. You've had a very very strong and tight distillate market, you know, people have been worried about shortages and so it's probably an overreaction to that but for the foreseeable future we're still constructive on that spread.
Does it hit the high 300s as it has in the past? Maybe not, but 100 to 250 I think is a reasonable range. Okay, yeah, thanks for that. And just following up on a few questions from earlier around kind of the new building orders, and this really relates to shipyard capacity. So as you look at the aging fleet, not only on the product, but also on the
all these things or do you think there will be a crunch which further kind of limits fleet growth?
Well, you know, I was actually watching at shape yards to pass the end. If you compare it to historical levels, it's certainly down. I wasn't looking at other sectors, really looking at products. But, you know, if you look at the MR fleet that's on the water today, I think something like 800 or since the liver actually, so at 20.
And so I do think there's going to be a constraint on the capacity side. But even if you were to order hundreds of ships, given the age distribution of the fleet, there's going to be more ships turning 15 to 20 years old and there will be delivered over the next several years.
All right, yeah, got it. All right, thanks for the time. Appreciate it. Thanks, Chris. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Emmanuel Lono for any closing remarks.
We don't have any closing remarks rather than thanking everybody for the time today, so we'll speak to you soon. Thanks a lot, the call may be concluded.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.