Q3 2024 Scorpio Tankers Inc Earnings Call
Speaker Change: Hello and welcome to the Scorpio tankers 3rd quarter, 2024 Conference Call. All participants will be in listen only mode. To do need assistance, please signal a conference specialist by pressing the star key followed by zero.
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.
Speaker Change: Come to the Scorpio tankers third quarter 2024 earnings conference call on the call with me today are Emmanuel I Lauro, Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief Operating Officer, Chris <unk>, Chief Financial Officer Wire, Stinker, Nielsen Chief commercial officer earlier today.
Speaker Change: We issued our third quarter earnings press release, which is available on our website Scorpio tankers dot com the.
Speaker Change: The information discussed on this call is based on information as of today October 29, 2024 and may contain forward looking statements that involve risk and uncertainty.
Speaker Change: Actual results may differ materially from those set forth in such statements for.
Speaker Change: 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 dot com 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, an archive of this webcast will be made available on the Investor Relations page of our website for approximately 14 days, we will be giving a short presentation. Today. The presentation is available at Scorpio tankers dot com on the Investor Relations page under reports and presentations.
Speaker Change: 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.
Speaker Change: <unk> announced the sale of another three vessels expected to close in the fourth quarter.
Speaker Change: On a pro forma basis, which assumes the closing of the three remaining vessels sale and marketable securities. The company has liquidity today of $463 million.
Speaker Change: Yeah.
From April one we have repurchased over 300 million of our own shares representing over 7% of the company.
Speaker Change: Of these three 4 million shares or around $240 million were purchased since July 1st.
Speaker Change: Including share buybacks and dividends, we have returned $7 13 per share to shareholders in 2024, so far.
Speaker Change: Additionally, today, we declared a quarterly dividend of <unk> 40 per share in.
Speaker Change: In the third quarter, we acquired a four 9% stake in the crude tanker company DHT.
Speaker Change: A passive but liquid investment that positions us to capitalize on the upside of an improving crude tanker sector.
Speaker Change: Our outlook for both crude oil and refined products remains positive and for the first time in several months, we anticipate that improvements in the crude oil markets will also positively impact refined products.
Speaker Change: With low leverage strong liquidity and a young fleet, we are exceptionally well positioned we remain committed to delivering value to our shareholders and we do appreciate your continued support and confidence in Scorpio tankers.
Speaker Change: With this I would like to turn the call to James for a presentation. Please.
James: Thank you Emmanuel a slide seven please.
James: Just a few years ago, many would not I believe that <unk> and <unk> rates could reach 20% and $30000 per day.
James: Especially during the seasonally weakest part of the year.
James: Product tanker rates remained well above historical averages and are at levels, which the company generate significant cash flow we.
James: We expect this to continue.
James: The ongoing strength in the product tanker market is the result of one demand consistently outpacing supply to increase ton miles as changes in refinery capacity have reshaped global trade flows and three geopolitical events exacerbating points on it too.
James: Spike facing several challenges in the third quarter, including the end of summer driving season elevated refinery maintenance and competition from crude tankers fleet still averaged over $28000 per day.
James: Notably these rates have been achieved while undergoing a significant dry docking program.
James: But at the end of this year, we will be dry docked almost 60% of the fleet, increasing the efficiency and earnings days for next year.
James: Going forward, our outlook remains constructive rates have bottomed at very high levels. The market headwinds are becoming tailwind and it will not and will not require much for rates to increase further.
James: The risk is to the upside.
James: Slide eight please.
From August through October we saw significant refinery maintenance over the next months $3 5 million barrels of capacity will come back online increasing refinery runs in seaborne exports to meet growing winter demand.
James: We're entering the seasonally strongest period of the year Q4, and Q1 tanker earnings have consistently exceeded Q3 over the last 30 years, we expect this to continue.
James: Additionally, seasonal improvements in crude tanker rates are also expected to be a tailwind for product tankers.
Speaker Change: <unk> please.
Speaker Change: The crude vessels, which entered the clean product trade are moving back to carrying crude oil of the <unk>.
Speaker Change: <unk> 45 crude tanker vessels, which moved into this trade and excluding the vessels, which have recently loaded clean 32 are expected or have already moved back to carrying crude oil.
Speaker Change: We do not expect additional vessels to clean up and carry.
Speaker Change: <unk> products as the off hire time cleaning cost and trading limitations make this unattractive that current rate levels, the improving crude oil market and exit of these vessels from the clean trade will be will provide a positive tailwind for LR twos.
Speaker Change: Slide 10 please.
Speaker Change: Diesel and gasoline inventories in the U S are well below the five year average thus future demand will rely on refinery production and seaborne exports as opposed to inventory draws.
Speaker Change: I don't have in place.
Speaker Change: Demand continues to grow yes grow and we.
Speaker Change: Demand for refined products increased by close to 1 million barrels per day next year.
Speaker Change: We are seeing this demand strength in seaborne exports, which averaged $20 5 million barrels per day in September near record highs. Furthermore, it's not just the volume of products that has grown the distances. These barrels are traveling has also significantly increased.
Speaker Change: 12 please.
Ton mile demand has increased by 17% compared to 2019 levels, excluding Russia, and 20% when including Russia.
Speaker Change: Last week Phillips 66 announced the closure of 139000 barrel per day refinery in Los Angeles in total we are tracking closures that could reduce refining capacity by 1 million barrels per day next year.
Speaker Change: Many older refineries require significant capital investment to remain operational or meet new regulatory standards. This makes it hard to compete with newer refineries in regions like the middle East that have lower operating costs and more complex refinery configurations.
As a result, we expect more refining capacity to close which will add incremental ton miles as mass production is replaced with imports, but 13. Please.
Speaker Change: Our two vessels continue to transit around the Cape of good hope.
Speaker Change: This has increased voyage distances ton mile demand and tightened supply.
Speaker Change: We have not seen any disruption to flows going through the strait of Hormuz, which accounts for $16 5 billion barrels of crude and refined products per day.
Speaker Change: But the biggest benefit we expect to see on the LR twos is the excellent crude tanker vessels from the clean trade from June through September crude tanker vessels carrying 65 million barrels of refined product the equivalent of 87 LR two cargos.
Speaker Change: Slide 14 please.
Speaker Change: Year to date, the combined Aframax and <unk> has carried $16 5 million barrels a day of crude oil and refined products of this over 13 million barrels consists of crude oil and dirty products, while the remaining $3 3 million barrels has been clean product however, within the Aframax LR.
Speaker Change: Fleet today, 39% of the fleet comprises all of our two vessels, but differently, 39% of the combined fleet is LR twos, but the clean product trade accounts for only 20% of the total cargo volume.
Speaker Change: Slide 15 please.
Speaker Change: This requires the use of dollar two vessels to serve as the crude oil trades currently at 44% of LR twos on the water are engaged in the crude oil and dirty products trade. We expect this ratio to hold if not grow over time, given the age of the App for Max fleet, and new orders being predominantly LR twos.
Speaker Change: The 263, Aframax LR twos that have been ordered since 2021 203, our LR twos roughly 77%.
Speaker Change: This is also inflated the product tanker order book.
Speaker Change: In 2016.
Speaker Change: While the order book now accounts for 20% of the fleet.
Speaker Change: The order book as LR twos as we highlighted on the previous slide we expect a significant portion of the <unk> fleet to continue servicing our crude oil trade. Furthermore, this does not reflect the H challenges facing the fleet today.
Speaker Change: The fleet is 14 years old by 2027, including New building deliveries, 25% of the fleet will be older than 20 years. Therefore, the effective fleet growth is likely to be less than what the order book suggests.
Speaker Change: Slide 17 please.
Speaker Change: The total addressable market diminishes as vessels age the trading patterns of MLR vessels built in 2004 observed over the last eight years clearly demonstrates this decline at age 12. These vessels carry at $3 2 million barrels of refined product per year by the time, they reached 16% to 18 years old they carry too.
Speaker Change: 1 million barrels per year, a decline of 33%.
Speaker Change: As these vessels approached 20 years their capacity to clients, even further to one 8 million barrels translating to a total reduction of over 40% in volume compared to age 12, one might argue this could have declined even further without the additional demand from sanction Russian trades.
Speaker Change: By 2027 more than a thousand ships will be older than 20 years and the number of Mr's over 20 years will increase from 261 today to 525 by 2027.
Speaker Change: Many are underestimating the impacts of an ageing fleet and overestimating the capacity of the current order book.
Speaker Change: Year to date, seaborne refined product exports and ton miles have grown by 7% and seven 8% respectively.
Speaker Change: Far exceeding this year's fleet growth of one 5%.
Speaker Change: As highlighted earlier, we anticipate that fleet growth will be more modest in the order book implies.
Speaker Change: If all Newbuild LR twos, where to operate in the clean market fleet to an average around three 9% annually over the next three years. However, the effective fleet growth could be closer to two 5% per year. During this period when factoring <unk> trading in the crude oil market and while scrapping.
Speaker Change: Looking forward, we are very constructive on the supply demand balance the confluence of factors in today's market are constructive individually increasing demand exports in ton miles structural dislocations in the refinery system rerouting of global product flows and modestly growth collectively theyre unprecedented with that I will turn it over.
Chris: Over to Chris.
Chris: Thank you James Good morning, good afternoon, everyone.
Chris: On slide 20 please.
Chris: Over the past seven quarters, we've generated $1 $7 billion in adjusted EBITDA and $1 1 billion and adjusted net income.
Chris: These results have enabled us to reduce our debt by $1 billion.
Chris: $121 million in dividends and purchased $786 million of the Companys stock in the open market at an average price of about $56 per share.
Chris: Our approach to shareholder returns has been to combine the accretive effect of deleveraging along with opportunistic share repurchases and a sustainable dividend.
Chris: On a year to date basis through September of 2024, we have reduced our debt by over $700 million.
Chris: And returned $365 million or $7 13 per share to shareholders in the form of dividends and stock repurchases.
Chris: As an additional point of emphasis the company expects to have completed the five year special surveys on almost 60% of the fleet by the end of this year.
Chris: Not only does this set the company up for a lighter drydock schedule for the next couple of years, but the work performed during these dry docks is expected to enhance the operating efficiency of each vessel going forward.
Slide 21 please.
Chris: The charts on this slide demonstrate the complete transformation of the Companys capital structure over the past three years.
Chris: Less than three years ago, the company was highly levered and vulnerable to even mild contractions in the spot market.
With the low leverage of the Companys balance sheet today, not only can it withstand a contraction in the spot market, but it can thrive due to its cash generation potential driven by low breakeven rates.
Chris: Our debt reduction efforts continued during the third quarter as we repaid our $64 million term loan with BMT powered by in Cynosure.
Chris: This facility was the most expensive bank financing on our balance sheet bearing interest at <unk>, plus a margin of 291 basis points.
Chris: We also executed an agreement with the lenders on our $225 million credit facility to convert this facility into a revolving credit facility.
This amendment gives the company the flexibility to make unscheduled repayments that can be redrawn in the future.
Chris: A full repayment of this facility could potentially reduce our daily cash breakeven cost which include vessel operating costs cash G&A and interest payments and regularly scheduled loan amortization.
$850 per day.
Chris: As shown in the table on the right our gross and net debt as of today stands at $896 million and $675 million respectively.
Chris: On a pro forma basis, which assumes the closing of three remaining vessels sales, which are expected to close within the fourth quarter of 2024, our net debt will be below $520 million.
This compares to net debt of $1 $3 billion at the same time last year.
Chris: Slide 22 please.
Chris: Through the end of 2025, our ongoing quarterly scheduled principal repayment obligations on our secured debt or less than $20 million per quarter.
Chris: This illustrates the company's low leverage and cash generation potential.
Chris: With the daily cash breakeven rate of approximately $12500 per day. These debt service obligations are highly manageable and position the company to generate cash flow and sustained shareholder returns even in the most challenging rate environment.
Slide 23 please.
Chris: We are currently exiting the seasonal low point of the year and are now seeing positive signs of momentum in the spot market.
Our quarter to date coverage on our LR twos, and Mars, which incorporate the effect of the seasonality still reflect cash generation of over $18000 per day and $8000 per day, respectively. On these vessels.
Chris: To further illustrate the company's cash generation potential at $20000 per day, the company can generate up to $271 million in cash flow per year at.
Chris: At $30000 per day, the company can generate up to $632 million in cash flow per year and that $40000 per day, the company can generate up to $994 million in cash flow per year.
Chris: With that I'd like to turn the call over to Q&A.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Speaker Change: Using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: Anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two we ask you to limit yourself to two questions at.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Okay.
Speaker Change: And our first question comes from Omar <unk> with Jefferies. Please go ahead.
Thank you Hey, guys. Good morning, good afternoon, thanks for the update.
Obviously a lot of.
Omar: A lot going on and just wanted to ask obviously on DHT being the Big news today, you put $89 million to work there it sounds from <unk> comments in the beginning of the call that you're bullish on crude.
Omar: Wanted to just ask how do you how do you view this playing out in China.
Speaker Change: Uh huh.
Speaker Change: The longevity of both trade at this stage.
Speaker Change: Is this a short term trade take advantage of potential winter strength or is this more of a long term holding given the dynamics of the limited supply and VLCC.
Speaker Change: Thanks Soma.
Speaker Change: There are a couple of things festival.
Speaker Change:
Speaker Change: The we can see that we can afford to do the we have a lot of the.
Speaker Change: Critically on the.
Speaker Change: Uh huh.
Speaker Change: <unk> hundred $63 million doesn't need them.
Include the liquidity, we could use.
Speaker Change: Hum.
Speaker Change: So there's no way.
Speaker Change: Investment in DHT.
It's a tool.
Speaker Change: Restricting our ability to.
Speaker Change: So why aren't we.
Speaker Change: We we really.
Speaker Change: We really wish that.
Speaker Change: The rules related to all banks are being a little bit different we've been quite severely restricted.
Speaker Change: The last weeks, we haven't been able to buy for a number of days now and even during the period, where we could buy.
Speaker Change: Because of the drop in volume.
Speaker Change: You know, even though we were doing the maximum we could buy in many days that was inadequate we wish we could have bought more.
But even if we could have just bought all the time all the way through though.
Would still have enough money to do what we see with the cake.
Speaker Change: <unk> tried to take advantage of something.
Speaker Change: It's pretty unusual.
Speaker Change: Few years now the VLCC market has underperformed.
Speaker Change: Itself has being a potential negative for the product market because we can ah.
Speaker Change: And along with the crude market is drawn.
Speaker Change: Vessel from the crude.
Speaker Change: The product at a time and now we're seeing that this is going to change that we keep the first time it was <unk>.
Speaker Change: Is lining up to be a very strong wind to blow the crude side.
Speaker Change: That's gonna be additive.
Speaker Change: Our product tankers.
Speaker Change: It already starting to happen in yellow Pea.
Speaker Change: In that setting.
Speaker Change: We think.
Speaker Change: He is very undervalued and we are setting up well.
Speaker Change: Great investment for the company.
Speaker Change: It's proven to be a liquid stock we don't foresee.
Speaker Change: You'll see having.
Speaker Change: The need to access the capital too.
Speaker Change: To help buy firearms, Scott, but we could do if.
Speaker Change: We had tea.
Speaker Change: Hum.
Speaker Change: It's like any other investment you watch how it goes we think that this could be a very.
Speaker Change: Our long term position, even though the company.
Speaker Change: Returning a lot of capital during this week.
Speaker Change: So we've already.
Speaker Change: Received one dividend.
Purchase price as you point out the supply demand balance looks.
Speaker Change: Very attractive for Vlccs.
Speaker Change: So you know I don't think you use a public company as they are short term trading vehicle when the onset when you go in.
Speaker Change: So the intention here it would be for.
Speaker Change: You know because you've got great fundamentals for a period in the VLCC market.
Speaker Change: Thanks, Robert got it that's very helpful.
Speaker Change: I appreciate the context, and maybe just as a follow up and I'll turn it over.
The four 9% clearly there's a I'm guessing that's by design, but is that the is that the extent of it would you like would you look to add to it and then would you want to add either VLCC crude exposure in any other way.
Speaker Change: I think this is a.
Speaker Change: It's an exceptional opportunity.
Speaker Change: Yeah.
Speaker Change: The market that stock markets have been.
Speaker Change: No.
Speaker Change: Going just like we've seen products I mean, the actual third quarter, if we look at the reality.
Speaker Change: The generation of cash generation. This thing has been fantastic.
Speaker Change: The rates during that period for any of us as being in the industry for a reasonable wall are absolutely fantastic the brakes as we're coming out of this the quarter right now today in India, a lot to use in your malls.
Speaker Change: You could take the rate from 30 to 50 in one crazy week, Yeah, a lot too.
Speaker Change: As you approach this wind composition I'm sure laws would talk about it later.
But.
Speaker Change: The.
Speaker Change: Opportunity arose same in crude where the crude was consistently improving.
Despite very low exports during particularly.
Speaker Change: September October.
Speaker Change: And.
Speaker Change: So we were able to take this opportunity is by design that we stopped at four 9% we wanted to.
Speaker Change: To make it clear to the market I think it would've been a mixed message if we could.
Speaker Change: Gone from $4 nine filing.
Tyler.
Tyler: Seven 8%.
Tyler: I think that would be in let's say two aggressive music movement could lead to the thought that you know.
Tyler: We want to invest there was going to be.
Tyler: Two or three or something.
Tyler: Yeah.
Tyler: Sure.
Tyler: By design, we're stopping at that position.
Tyler: We do not see ourselves acquiring.
Tyler: Vlccs.
Tyler: No.
Tyler: Really know a lot of tools to do that we've managed to acquire if you want to put it that way.
Tyler: She sees if you are too.
Tyler: But finance on them, we manage to buy.
Tyler: 2345, VLCC equivalents, but we happened to have booked at 25th bullet and about 20% below the cytokine.
Tyler: So.
Tyler: No.
Tyler: We were happy with what we got.
Speaker Change: Yeah, No certainly okay, well thanks, Robert that's it for me I'll pass it over.
Speaker Change: Okay.
Speaker Change: And our next question comes from Jon Chappell with Evercore ISI. Please go ahead.
Jon Chappell: Thank you.
Jon Chappell: James as it relates to the bigger ships encroaching on the product trades I understand that they're leaving now which makes complete sense from a seasonal basis. We also kind of led to understand over the years that these are kind of newbuild vlccs and Suezmax has never carried a crude cargo or kind of made it easy to trade in the product on their maiden voyage.
Speaker Change: But it seems like a lot of what's happened in the last couple of months or actually establish ships would move crude for them. So can you kind of help us understand the process and how they were able to switch so quickly between crude and product and is this gonna be a risk for seasonal kind of shoulder periods going forward the ability to move back and forth that quickly, especially if ship to that size.
Jon Chappell: Yeah.
Jon Chappell: Yeah.
Speaker Change: Lars do you want me to take this or would you like to.
I'll give it to Scott Thanks, Hi.
Speaker Change: John.
Scott: I mean first of all.
Speaker Change: The ships that we're talking about right now are <unk>.
Speaker Change: Basically ships are dirty and have cleaned up great expense the spread between the cleaning of the dirty market have to be that great to be able to take the risk in terms of spec.
Speaker Change: Degradation of spec the time that it would take two to clean up the vessels also the type of cargo that you have to load.
Speaker Change: Also it has to be able to manage.
Speaker Change: Uncoated vessel.
Speaker Change: So we had a huge market on on <unk> twos in the middle of the year around June July.
Speaker Change: The crude market at that point in time was languishing.
Speaker Change: <unk> spread where traders could say well, we're willing to take that particular risks.
Speaker Change: We saw about I don't know 65 million barrels.
Speaker Change: Moving on.
Speaker Change: We count 30 to 35 Suezmax is unfortunate vlccs, which is about 86 to 92 equivalents. This impacted of course, the L. A to market and the market to some extent also be on a one market.
Speaker Change: What we can see now is that since then and this is looking back.
Speaker Change: To June.
Speaker Change: We are now.
Speaker Change: On the BLS of 14, seven have gone back to dirty.
Speaker Change: There's still three of those I don't want a clean voids are they're all trading off as we can see it off West Africa could have spec issues that could be storage is because they are cheap.
Speaker Change: So on but in terms of.
Speaker Change: Suezmax is we counted 35, we can see the 23 of those have gone back there's still about 10 on those voyages and then you think about well you know where are we now in terms of number of ships being fixed in that segment that we can see for October that's only one ship.
Speaker Change: <unk> that has gone into this thing and there's only a small handful of suezmax.
Speaker Change: So there was a huge change in terms of that volume and if you say, it's given that the volume in the middle East and West Coast of India is constant relative constant despite the.
Speaker Change: The large turnarounds that are taking place, particularly in yanbu and also in our Zoro has two trains on the just about to start on some of their maintenance Youre really talking about a huge amount of volume that suddenly is going to go back into the CPP trade and the reason for that is that the spread between the CPP and the crude is now.
Speaker Change: Drawn in and it doesn't make it at the margin beneficial to.
Speaker Change: Kind of expense yourself with cleaning up vessels. So we have seen a huge amount of vlccs and suezmax is going back into dirty.
Speaker Change: So when when the market was trading at $9 million for a two and it was trading at $3 million or something like that for a VLCC you could see that you could load three LNG cargoes and then you had a big spread that no longer is the case and therefore, we believe that.
Speaker Change: We have a lot more cargo coming in once we get through the.
Speaker Change: The market as we see it right now.
Speaker Change: Okay I'll just I'll keep my follow up somewhat on the same thematic between that.
Speaker Change: The variability of older ships or the older ships bigger ships coming in and out and.
Speaker Change: And also the order book are picking up a little bit for product tankers and twenty-five relative to the last few years do you envision more volatility in the segments that you operate in especially the LR twos is the bigger ships than we've seen over the last couple of years, maybe a wider spread of highs and lows.
Speaker Change: And if not why.
Speaker Change: I think we have seen.
Speaker Change: Immense volatility over the last couple of years, which we embrace.
Speaker Change: The volatility kind of.
Speaker Change: Is it telling tale about how strong the markets are underlying where suddenly you can see these big jumps that Robert also alluded to and we've seen those jumps throughout this year as well.
Speaker Change: And we've seen them on in the west and particularly the U S. Gulf on numerous occasions as well this year on the Mr's.
Speaker Change: When it comes to I think the first point, you made which I didn't really.
Speaker Change: And so properly.
Jon Chappell: John was.
Jon Chappell: The fact of having new buildings coming into the market be Suezmax and Vlccs has been something that's been going on for years right. When you have a completely virgin tanks people would be able to load the vessels in the euro to Steve's et cetera.
Jon Chappell: We anticipate that to happen.
Jon Chappell: Looking forward as well, but that's just par for the course, that's normal so we don't consider that to be a big issue and I think theres a number of suezmax as a coming out next year very few.
Jon Chappell: Very few vlccs. So on balance that is something thats, just kind of normal when it comes into the fact, though these huge immense spreads that we saw in the middle of the year between a VLCC in it a lot too.
Jon Chappell: That could happen again than you would have to have a stronger view on where you think that the VLCC market is going to go as we move into the fourth quarter and the first quarter and there were a lot more constructive now than we were let's say a year ago.
Speaker Change: Got it thanks.
Speaker Change: Yeah.
Speaker Change: And our next question comes from Greg Lewis with <unk>. Please go ahead, yes.
Greg Lewis: Hi, Thank you and good morning, and thanks for taking my questions. You know I I was hoping you could kind of talk a little bit about what.
Greg Lewis: What you're seeing in the.
Greg Lewis: Sales and purchase market I mean, clearly you guys have you know sort of a couple of vessels. It seems like you know maybe not on the <unk>.
Greg Lewis: In the EMR side on the on the older vessels, you don't have many of those but what we're hearing reports of those kind of asset kind of kind of selling off.
Greg Lewis: Kind of any color what youre seeing is it been a lack of lack of buyer interest more sellers coming to market any kind of color there would be helpful.
Speaker Change: I'll take this thanks for the question I think the market has remained quiet.
Speaker Change: Stable on the levels from an SMB standpoint.
Speaker Change: As you have seen as far as we are concerned we tried to.
Speaker Change: Always sell a b.
Speaker Change: The next shift at the higher level than we were selling the previous one.
Speaker Change: And we've been riding that wave looking for quality, rather than quantity not needing to sell and one thing to always capture the best.
Speaker Change: The price to date he says.
Speaker Change: As far as we're concerned limited quantity, but weren't we'd always an increasing price level as Ed just described.
Speaker Change: Market wise on the bigger ships that has been.
Speaker Change: Less appetite than <unk>. This is why we have been selling less LR twos than EMR them ours by definition are the workhorse of the product space and.
Speaker Change: It is an easier vessels to trade for.
Speaker Change: The bigger.
Speaker Change: The spectrum of buyers or operators. So we found more depth into that market and bear in mind that.
Speaker Change: Of course, we've stayed far away from any doubtful.
Speaker Change: Potential buyer on the grave fleet or or.
Speaker Change: Or anything like it by by definition are keeping entertaining discussions on people that we didn't have a clarity of without even having to conduct the K YC. So.
Speaker Change: And you know we've been that we we are satisfied with what we have done and we are also satisfied with how the market.
Speaker Change: He's holding up of course people are flying right. There is its normal there has been a deep in seasonality on the rate side and people have been trying to throw lower numbers to see the reactions.
Speaker Change: And they so far if you didnt get very far so I'm not talking with us, which they would go nowhere but up.
Speaker Change: More broadly from the market perspective, so it remains to see how the next couple of weeks boil out pan out and and see whether the winter market, which we're expecting to come we will come in then I expect that the S&P market too.
Speaker Change: But either way.
Speaker Change: Okay, Great Super helpful. And then and then you know in the prepared remarks, you guys highlighted the Philips closure out on the West coast.
Speaker Change: And any kind of thoughts around how that impacts the market in terms of you know.
Those volume replacements, whether that's U S golf on pipe U S. In the U S. Gulf on pipelines as it impact exports any kind of any kind of high level views on that closure and what that could mean for U S exports imports on the product side.
Speaker Change: Sure Greg It's James.
James: Feel free to add but I think this disclosure is going to require imports to come from from Asia you're.
James: Youre going to need gasoline and distillate to replace that probably 70 to 80000 barrels, but I think what's more important is it sets the tone for some of these regions that are going to have a.
James: Difficult time with their all their capacity. So we don't think it's for example, the only refinery that can close in California, Valero kind of highlighted some of the challenges that they have there and it's probably something we'll see or have seen in Europe.
James: So we expect this to continue I think you had a really high crack spread environment for two years as cracks have come in there's a lot of costs that need to go in to maintaining these refineries and the economics don't make sense. So we view this as not only constructive in the short term, but definitely in the long term for flows.
Speaker Change: Okay, Great Super helpful. Thank you.
Speaker Change: And our next question comes from Ken <unk> with Bank of America. Please go ahead.
Speaker Change: Hey, great good morning.
Speaker Change: So I guess, if we look at the <unk> 35 per cent bookings for quarter to date deceleration in rates as you mentioned, but what market rates. You noted are starting to drive.
Speaker Change: I don't know, if it's time and or or Lars Arnaud. If you want to give maybe a little historical perspective, how do you think.
Speaker Change: How do you see this shaping up seasonally or is this an early start a late start.
Speaker Change: I don't know if you want to put it in perspective of given the excess.
Speaker Change: Built in in terms of capacity or if given the timing of the shut downs, maybe just give some perspective on how we should think about the seasonality of rates as we head into the into the Thanksgiving that Robert always talks about as the key startup.
Speaker Change: [laughter] Oh I was just going to say exactly that the old school kind of our thought process is that the market always thoughts around Thanksgiving.
Speaker Change: Obviously, that's been a very different game over the last couple of years in terms of the seasonality and when we expect the market to come in I think the most important thing is that.
Speaker Change: When you look at the refining capacity that is offline for September and October were trending at seven seven for September eight and a half.
The barrels per day for October that's kind of rapidly draws down in November to $5 million. Then suddenly for December is down at three and a half and then for Q1, where we were trending around $2 2 million barrels offline globally. So there's a huge amount of oil that's going to have to come to market.
Speaker Change: That perspective. The question of course is that when you want to go into the the macro and the micro of that is that is that short haul long haul is that all related what's going to happen. That's that's always the defining factor, but the thing that's always interesting when it comes to Q4.
Speaker Change: Drivers.
Speaker Change: The refining runs that we were gonna see that's going to come online in Asia, the middle East, but also for Europe and.
Speaker Change: In North America, We've got I think for Cobra in November September October sorry, I'm, just looking at the numbers here, that's about $3 million.
Speaker Change: Put together, that's a 1.4 in North America, and Europe as 1.31, 0.7, North America, one eight so in October three and a half million barrels offline in the Atlantic Basin that comes back on on stream. So obviously refining runs as big as the big ticket item.
Speaker Change: The thing as well is the north.
Speaker Change: Northern Hemisphere weather delays, we've talked about that you've gone by that also were always a place. It plays a small role as well, but the thing is well that's important.
Speaker Change: Yeah.
Speaker Change: Is the Fungibility of these different types of vessels, we talked about before.
Speaker Change: Issues around the cannibalization of the six 5 million barrels that we saw over June to September I mean, that's a huge amount of allowed to equivalents, but that also impacted the mr's.
Speaker Change: Have a perpetual open market in terms of arms from the U S Gulf going too.
Sure.
Speaker Change: Go to Europe in terms of distillate that has always been there that we've had a very weak T C to market over the last couple of months, which probably is going to be prolonged because of the turnarounds that we're seeing in.
Speaker Change: In Europe at the moment, but the fact of the matter is that on balance you've got a lot of more product that is going to come to the market that needs to be shipped.
Speaker Change: Yeah, just to put it in perspective, when you look at the barrel numbers you threw out the $7.7 million in in September eight and a half in October is that seasonally.
Speaker Change: I'm just trying to understand that the rate of change potentially is that normal level is that higher than normal in terms of what's offline. When you. When you I'm just trying to understand the potential acceleration as we move toward November.
I'm, probably going to ask James that could be probably has the numbers for the previous years, but the only thing I do recall is over the last couple of years, we've seen before because of the very high margin environments people were pushing you know refining maintenance.
Speaker Change: Forward and backward to fit into their kind of profile in terms of where they want to be so it is quite normal to see these type of.
Speaker Change: Turnarounds when it comes to the Middle East and into Asia, and North America, I think has been a little bit different over the years because of our refining margins, particularly in the U S Gulf being so high.
Speaker Change: I'll see if James says anything to that.
James: Yeah, No I'm fault.
Speaker Change: Agree with wires I'd say, it's been above average this year, Ken if you look historically what happens in certain years, where it looks really high is because of the hurricane.
James: It impacts specifically the U S golf, but where we were projecting to give you an idea of maybe about 5 million barrels a day of capacity offline for September and October and it came in about three three and a half million more but keep in mind refiners keeps us close to their chest a lot of the refineries have trading arms and things like that so.
James: Do you find this out a little bit later, but it was above average, which means we should get a bigger boost as it comes back online.
I appreciate that and then if I can get my second question on on your cost your cost per day your operating cost per day. It looked like the Mr's really took a jump up about 8% sequentially. The others kind of more in line with kind of a normal step up but I just want to understand was there anything going on that kind of changes those cost per days as we start to think about kind of running forward is it.
Speaker Change: Inflation was at you know labor costs I don't know if there's anything particular to the hours that you'd highlight.
Speaker Change: Okay.
Speaker Change: Hey, Ken it's Chris I'll take that one.
Chris: Nothing in particular, you have to look at the running cost more on a year to date basis, they tend to be lumpy throughout the year.
Chris: There were still seeing inflationary pressures.
Chris: And yes, there are still there's still a.
Chris: Slight upward cost movements and our running costs.
Chris: But I wouldnt, if youre looking for a forward run rate I would look more at the year to date figure than just Q3 in isolation.
Speaker Change: Okay, but I guess when you have a 1% increase in MLR to cost per day on your sheet, but an 8% MLR.
Speaker Change: Is there right quarter over that Youre, comparing you're comparing a quarter to another quarter.
Speaker Change: It's not as pronounced when you compare it on a year to date basis.
Speaker Change: And there's no. There's if you look at the numbers and there's a it's a high volume of data.
Speaker Change: Nothing huge that stands out but it's just it's just data it's just normal operating.
Speaker Change: Repairs and maintenance spares and stores purchases things like that.
Speaker Change: Got it alright, thanks, guys appreciate the time.
Speaker Change: Next question comes from Chris Robertson with Deutsche Bank. Please go ahead.
Chris Robertson: Hey, good morning, everybody and thanks for taking my questions just kind of harkens back to Jon's question around volatility, but it relates to the one and three year time charter market.
Chris Robertson: So I just wanted to get a sense of if you're getting healthy levels of incoming inquiries around the one and three year time charter market. How would you kind of characterize the bid ask spread in the market at the moment and you know given your positive commentary around supply and demand dynamics would you be looking to put away additional tonnage on time charter or are you leaning more into the.
Chris Robertson: Spot market at this point.
I'll just take the last part of the question what does continue with our policy is on time charter which is if.
Chris Robertson: If we'd have a you know.
Chris Robertson: A customer.
Chris Robertson: Customer or good strategic partner.
Chris Robertson: Once the three year five year charter then.
Chris Robertson: You know I think we will engage with the discussion.
Chris Robertson: Otherwise you know where.
We are very constructive on the on the market at this point.
Chris Robertson: The spot market.
Speaker Change: Okay, Yeah, Thanks, Robert and I guess any any color on level of.
Speaker Change: And cummings or narrow or wide bid ask spread in that market at the moment or how would you characterize it.
Speaker Change: I think it's a I think it reflects a little bit my answer on the SMB side.
Speaker Change: Where we did get there has been over the last month.
Speaker Change: Month, and a half in rates of course charters are trying to get a.
Speaker Change: And you know better rates for them before the winter starts having said that there hasn't been a lot of volume of of deals done because we wouldnt fix below what we've.
Speaker Change: Don for example to Echo what Robert just said.
Speaker Change: And.
Speaker Change:
So people are in a wait and see situation here for the next couple of weeks I guess before before the winter market shows up.
Speaker Change: Yes, it makes perfect sense I appreciate it thanks for the question.
Speaker Change: But I think everybody is.
Speaker Change: It's a lot of like you know traditionally in stock prices as soon as the <unk>.
Speaker Change: Soon as the winter market starts to move up then the you know the.
Speaker Change: The bid get some are on the time charter market just in the same way as stocks get summer.
But people have to wait to see it.
Speaker Change: That's a fair comparison thanks Robert.
Speaker Change: And our next question comes from frozen market, all with Clarksons <unk> Securities. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Thank you hi, guys.
Speaker Change:
Speaker Change: Considering the fleet growth figures you mentioned I agree that it's clearly important to account for the LR twos trading the Dan.
Speaker Change: But do you also think that there's a need for partners tankers to slow steam or reduce speed more.
Speaker Change: To comply with the carbon regulations.
Speaker Change: Now despite the strong markets and you're seeing them.
Speaker Change:
Speaker Change: If so how significant could this be.
Oh, absolutely I think you probably have a better number than I do on that but what I would say is I still think that impact is going to be less than the <unk>. For example, going from 250 today over 20 years to 550 by 2027.
Speaker Change: And that carrying capacity and the vessels that trade in those markets completely changing item basis, we've never seen before because if you go back from four to 2010. The fleet grew 11% per year 70, 80% seat growth.
Speaker Change: All of those vessels are now hitting each year that 20 year age Mark and we can debate maybe how many vessels the customer will take at 16 or 17 years old but at 20, plus we all know that's a tertiary market limiting trading patterns. So I think that's where we focus most of our analysis to say this will be the biggest impact on fleet growth, but we do definitely think.
Speaker Change: That the environmental impacts will also be significant.
Speaker Change: That's good to hear.
Speaker Change: Next question is on the hand, the Max earnings there seem to be relatively weak compared to mr's anything what's driving that and.
Speaker Change: Market weakness.
Speaker Change: Okay.
Speaker Change: I'll take that.
Speaker Change: So over the last two years, we have seen unbelievable handy markets.
Speaker Change: Primarily because of the issues around the supply of this lithium with Russia being taken out of the market.
Speaker Change: There's been some couple of trends that we've seen lately. One of course is very much down to the other.
Speaker Change: Our refineries going through their maintenance.
Speaker Change: More market capping the handy market as well so even though that there is the handy market that was about to go to a more weakness because of the Tc to be weak.
Speaker Change: It has kept the debt market as well.
I also think that it's more smaller things like the fire there'll be so Joe to Dori, Greece, a force majeure in Libya has not helped with the overall cargo count.
Speaker Change: We had anticipated that with the <unk> and Suezmax is coming up.
Speaker Change: To northwest Europe that because of the size of these vessels that there'll be a lot of STS to take place that didn't really take place that didn't really happen.
Speaker Change: And then the third thing that I think it's also important to understand the handy market is that there was a big difference between the dirty hendy market the clean hunting market the difference between the north what's your opinion market in the Mediterranean and the market.
Speaker Change: So there are markets right now that are trading reasonably well.
Speaker Change: 2019, and $20000 a day.
Speaker Change: You've got other markets in the short term that have kind of.
Speaker Change: Studying them treading water one.
Speaker Change: One thing is for certain that every time that we have seen a handy market going into the fourth quarter. If suddenly has a lot to be sent to these ships in terms of what their earning potential is as we move into November December and into the first quarter overall for the year of the handy I think it's been fantastic. It's only of late that we've seen.
Speaker Change: I think it's primarily due to the reasons that I just mentioned.
Speaker Change: But at.
Speaker Change: At the same time as people are probably aware that the aging fleet of the Andes is probably more.
Speaker Change: Prevalent than it is in any other segments are we are blessed with the younger fleet of all the handy. We can see that we are still kind of the vessel of choice.
Speaker Change: That's good to hear.
Speaker Change: Good color. Thank you.
Speaker Change: Our next question comes from Liam Burke with B Riley FBR. Please go ahead, yes.
Liam Burke: Yes. Thank you.
Liam Burke: Asset sales you sold the 2019 built LR too and you publish the price on it yeah Manuel.
Speaker Change: Emmanuel E earlier in his discussion said that you'd.
Speaker Change: You'd be hesitate to ever sell assets at unless it was at a higher level from the previous sale.
Speaker Change: Is there any interest if rate if prices are on the assets remain higher would you be interested or would you think about selling more LR twos or do you have to balance that against the return the fleet can provide you.
Speaker Change: No I think we've been very consistent over the snapper.
Speaker Change: Two or three quarters.
We don't see.
Speaker Change: We see that it's beneficial to the extent that you have such a wide.
Speaker Change: On the MH price to an EV crew Kuwait look at.
Speaker Change: Opportunities.
Speaker Change: Opportunistically selling and I said it right.
Speaker Change: A very high price, that's just common sense.
Speaker Change: There's not any more complicated than that and we have suddenly you have enough assets.
Speaker Change: Remember our assets are in pools to where.
Speaker Change: No.
Speaker Change: We can continue to do that without.
Speaker Change: Affecting all our operating platform.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay fair enough.
Speaker Change: On the debt side.
Speaker Change: Chris highlighted some nice leverage on our cash costs with the debt reduction.
Speaker Change: The objective to be at net debt zero or.
Speaker Change: Is there any thought about it.
Speaker Change: Yeah.
Speaker Change: Well the only thing that we've made to comment on that and we want to remain static.
Speaker Change: To say that you know.
Speaker Change: We'd love to see reached our target which is to have.
Speaker Change: Debt net debt to be.
Speaker Change: Around.
Speaker Change: The scrap value of the fleet.
Speaker Change: Fair enough.
Speaker Change: Thank you Robert.
Speaker Change: Not to our advantage to give details on them.
Speaker Change: Where we're willing to go on a leverage exactly.
Speaker Change: Fair enough. Thank you.
Speaker Change: And the next question comes from Ben Nolan with Stifel. Please go ahead.
Speaker Change: I appreciate it.
Ben Nolan: If I can go back a little bit maybe too to the MSR markets. I mean, I think seasonal uplift is a function of the return of crude tankers did a crude trade impacting the LR to market makes perfect sense, but with crack spreads still owes you as you mentioned James.
Ben Nolan: If there is that do you think going to.
Ben Nolan: Be a drag on on some of the normal trading that would typically enhance what would otherwise be an EMR man maybe handy recovery.
Speaker Change: So my questions in.
How do we see the EMR market with with crack spreads where they are and kind of yeah right right in terms of that seasonality because I think it's more money.
Speaker Change: Maybe I can answer well. We also had also been in the last few weeks you've had as you know and affecting us, but you've had a.
Speaker Change: [laughter] price premium put it into crude oil.
Speaker Change: Because of the uncertainty related to the middle East.
Speaker Change: And that's compounded by a weak season in a turnaround two of them people not feeling.
Speaker Change: T K.
Speaker Change: T buy stocks ahead of us so I think a lot of it yet.
So it out now that oil prices coming down and you know they call.
Speaker Change: The Lady there starting to ship them for that.
Speaker Change: Susan.
Susan: Much longer.
Susan: Okay last one on that or not.
Susan: Well.
Susan: Unless.
Susan: Yeah.
Speaker Change: I would just also add Robert you know I think there's so much negative sentiment.
Speaker Change: Been in kind of the outlook for next year on crude oil and that theres going to be this oversupply, but if you look the.
Speaker Change: The incremental supply from.
Speaker Change: Non OPEC regions, mainly in the U S and Latin Americas underperformed this year and if it Underperforms next year, we're going to have a much tighter crude oil market.
Speaker Change: Youre going to see a lot of that negative sentiment reverse I think you'll also see that happened in crack spreads as well because underlying demand has actually been quite good.
Speaker Change: Okay. That's helpful and if I could go back to <unk>.
Speaker Change: I mean really you're discussing sort of the S&P market, which.
Speaker Change: Which was which I appreciate I was curious if you could maybe frame in the type of buyer for assets in the market. I mean is there a specific geography or you know is it traders or.
Speaker Change:
Speaker Change: Who are who are sort of.
Speaker Change: Out there to buy at the moment is there is there any pattern.
Speaker Change: Very fast and it's a good question Ben very fast we don't usually disclose.
Speaker Change: Our buyers, but I can tell you we've sold.
Speaker Change: In the last three months, we've sold ships too.
A traditional Greek kohner to an oil company based in Asia and to an operator based in South America. So.
You know as I said geographically are only in the last three months, we went through the world and Oh and types or nature of.
Speaker Change: Business is completely different from traditional ship owners to end users to operators. So are the best examples is a or the quick answer is extremely box on both fronts.
Speaker Change: Alright.
Speaker Change: I think quite interesting when I was talking about Boston Stump Oops, sorry too.
Speaker Change: The chocolate and you saw it.
Speaker Change: It's all of it to Brazil.
Speaker Change:
Speaker Change: A month or so ago and you're also seeing I think this is something that's perhaps understated in the demand situation because it will.
Speaker Change: No it's quite fragmented so the demand side to lead to.
Speaker Change: Great.
Speaker Change: Requirement with vessel per ton mile.
Speaker Change: The growth at all.
Speaker Change: Those areas in Asia outside of China demand.
Speaker Change: <unk> products as their economies are growing and those countries are not left with a whole bunch of refinery capacity.
Speaker Change: They're going to be increasing their input, which is going to which is reflected both in.
Speaker Change: Well the money it was talking about in the S&P market as well as what's going to become more apparent on the charter market, both spot and time charter.
Speaker Change: Interesting alright, well I appreciate you guys taking my questions.
Speaker Change: Sure.
Speaker Change: Well include our question and answer session I would like to turn the conference back over to them anyway.
Speaker Change: Any closing remarks.
Speaker Change #100: Thank you operator, there are no closing remarks, rather than thinking everybody for their.
Speaker Change #100: Their time today and I'm looking forward to being in touch going forward. Thank you.
Speaker Change #100: Yeah.
Speaker Change #101: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Speaker Change #101: [music].
Speaker Change #101: Yeah.