Scorpio Tankers Q4 2024 Earnings Report

Scorpio Tankers EPS Results

• Actual EPS: $0.63
• Consensus EPS: $0.71
• Beat/Miss: Missed by -$0.08
• One Year Ago EPS: N/A

Scorpio Tankers Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $207.01 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Scorpio Tankers Announcement Details

• Quarter: Q4 2024
• Date: 2/12/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 13, 2025
• Conference Call Time: 9:00AM ET

Scorpio Tankers (NYSE:STNG), together with its subsidiaries, engages in the seaborne transportation of crude oi and refined petroleum products in the shipping markets worldwide. As of March 21, 2024, its fleet consisted of 110 owned and leases financed tanker, including 39 LR2, 57 MR, and 14 Handymax with a weighted average age of approximately 8.1 years. Scorpio Tankers Inc. was incorporated in 2009 and is headquartered in Monaco.

Scorpio Tankers Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good day and welcome to the Scorpio Tankers Fourth Quarter twenty twenty four Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to James Doyle, Head of Corporate Development and IR.

[Operator]

Please go ahead.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

Thank you for joining us today. Welcome to the Scorpio Tankers fourth quarter twenty twenty four earnings conference call. On the call with me today are Emanuele Lauro, Chief Executive Officer Robert Bugbee, President Cameron Mackey, Chief Operating Officer Chris Avella, Chief Financial Officer Lars Denker Nielsen, Chief Commercial Officer. Earlier today, we issued our fourth quarter earnings press release, which is available on our website, scorpiotankers.com. The information discussed on this call is based on information as of today, 02/13/2025, and may contain forward looking statements that involve risk and uncertainty.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward looking statement disclosure in the earnings press release, as well as Scorpio Tankers' SEC filings, which are available at scorpiotankers dot com and sec.gov. All participants are advised that the audio of this conference call is being broadcasted live on the Internet and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately fourteen days. We will be giving a short presentation today.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

The presentation is available at scorpiotankers.com on the Investor Relations page under Reports and Presentations. The slides will also be available on the webcast. After the presentation, we will go to Q and A. Now, I'd like to introduce our Chief Executive Officer, Emmanuel Iloro.

[Emanuele Lauro, Chief Executive Officer at Scorpio Tankers]

Thank you, James. Good morning or good afternoon, everyone, and thank you for being with us today. We are pleased to report a strong quarter and a strong year of financial results. In the fourth quarter, the company generated $105,000,000 in adjusted EBITDA and $30,000,000 in adjusted net income. For the full year 2024, we've generated $842,000,000 in adjusted EBITDA and $513,000,000 in adjusted net income.

[Emanuele Lauro, Chief Executive Officer at Scorpio Tankers]

2024 was another transformational year for Scorpio Tankers financially, operationally and strategically. We have significantly strengthened our balance sheet by reducing indebtedness by $740,000,000 expanding our revolving debt capacity and lowering our daily cash breakevens to $12,500 per day. Our liquidity now stands at $1,300,000,000 comprising of $531,000,000 in cash and $788,000,000 in undrawn revolving capacity. For clarity, this excludes our investments in DHT. Operationally, we completed the special surveys and drydocking of 54 vessels during 2024.

[Emanuele Lauro, Chief Executive Officer at Scorpio Tankers]

This is more than half of our fleet. Following the drydocks, these vessels will operate more efficiently and no longer need repositioning voyages solely for their dry docks, which adversely impact earnings. In addition, we sold 12 vessels at attractive prices, many of which were older vessels and thereby improving the age profile of the fleet. We balance our constructive market outlook with the understanding that cyclical downturns in our industry are often triggered by unexpected black swan events, COVID-nineteen being a prime example of it. As a result, we want to maintain financial flexibility and position the company to thrive under any rate environment.

[Emanuele Lauro, Chief Executive Officer at Scorpio Tankers]

That said, with a strong balance sheet, we can also act opportunistically. During the year, we returned $419,000,000 to shareholders, the $336,000,000 dollars of share repurchases and $84,000,000

[Emanuele Lauro, Chief Executive Officer at Scorpio Tankers]

in dividends. Recently,

[Emanuele Lauro, Chief Executive Officer at Scorpio Tankers]

we increased our stake in the crude tanker company DHC, capitalizing on its share price lag relative to improving market fundamentals and rates. We continue to view this as an attractive investment opportunity. Our outlook for both crude oil and refined products remains positive. With low leverage, strong liquidity and the young fleet, we believe we are exceptionally well positioned. With this, my remarks are concluded, and I would like to turn the call to Robert Bagby.

[Robert Bugbee, President & Director at Scorpio Tankers]

Thanks, Emmanuel. Good morning, Yuri or good afternoon.

[Robert Bugbee, President & Director at Scorpio Tankers]

I think this morning what we're going to do is try and separate what we know about, what we believe that we have strong conviction about from, let's say, the things that we really don't know that are speculative or even hypothetical. What we know about our company is that on the Q1 book guidance, we can see that we are operating cash positive and profitable. The operating cash, remember, is what's actually given to us as shareholders. The operating cash

[Robert Bugbee, President & Director at Scorpio Tankers]

for us is the

[Robert Bugbee, President & Director at Scorpio Tankers]

most important matrix as opposed to EPS. We have very strong current liquidity. We have even stronger undrawn liquidity. We are fully financed for years to come and have no new building CapEx requirements. We are complete, as Emmanuel said, we are completing extensive period of drydocking this quarter, which will result in lower drydock costs, more on hire days and more efficient vessels over the next three years.

[Robert Bugbee, President & Director at Scorpio Tankers]

So think of that in comparison to the last fifteen months, this is an asset going forward. We have very low cash breakeven, operating cash breakevens and we will work even to take those lower. This is what we know and assure about the company. We also know that we have created optionality to make the best for the opportunities ahead. We are very constructive on the product market itself.

[Robert Bugbee, President & Director at Scorpio Tankers]

However, we are also cognizant of our inability to either control, predict or even understand right now geopolitical events or various announcements, changes in emotion, etcetera, or different tweets or policies. And it's not that we do not know, it's not just that we do not know the answers. It is in many cases that I do not think right now we even know the questions. So we need see no urgency nor necessity to have nor to give clarity on capital allocation other than to say our present thinking is as follows. We will not change our dividend policy.

[Robert Bugbee, President & Director at Scorpio Tankers]

We will not pay out an extraordinary dividend. We are not thinking of ordering nor acquiring ships. We are ready, however, to buy our own shares if we think we should. We are willing to invest a small amount of capital in adjacent market companies. This is not an either or choice.

[Robert Bugbee, President & Director at Scorpio Tankers]

We can see from our balance sheet that we could have, if we wanted to, we bought our own shares in addition to acquiring DHT. They are different, however. The former acquisition of DHT remained on the balance sheet as an asset. It's an asset. It is.

[Robert Bugbee, President & Director at Scorpio Tankers]

So for us, it's okay to go ahead and do this because it remains as an asset. We have prioritized very clearly creating extremely strong balance sheet with great liquidity and the ability to take advantage of any opportunities. We will continue to monitor changing policy events and focus on the safe operation of our vessels. We simply cannot trade the change in short term sentiment and emotion, but we do expect to be a beneficiary as the risk premiums in the future come down. Thank you very much.

[Robert Bugbee, President & Director at Scorpio Tankers]

And I'll pass it back to James and Chris.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

Thank you, Robert. If we could please go to Slide seven. As Emmanuel and Robert highlighted, the market outlook is constructive. And at today's rates, product tankers are generating strong free cash flow. Recent shifts in political leadership coupled with tariffs, sanctions and other geopolitical developments have increased uncertainty not only in our markets, but across global markets.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

This has created a volatile start to the year, but the underlying market fundamentals remain positive. Demand for refined products remain strong. Global inventories are below their five year average. Refinery closures are accelerating and the fleet continues to age. All of this contributing to a constructive outlook for the product tanker market.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

Slide eight please. Demand continues to grow. This year, we expect demand for refined products to increase by close to 1,000,000 barrels per day. We are seeing this demand strength in seaborne exports, which averaged over 20,000,000 barrels per day in January near record levels. Furthermore, it's not just the volume of exports that has grown, but the distance these barrels are traveling has also increased.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

Slide nine please. Compared to 2019 levels, last year, tonne mile demand increased 15% excluding Russia and 18% when including Russia. Much of this due to changes in refining capacity, which have been reshaping global trade flows over the last decade. This year, 2,000,000 barrels of refining capacity is expected to close and many of these older refineries require significant capital investment to remain operational. And this makes it harder for them to compete with newer refineries in regions like The Middle East and Asia that have lower operating costs.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

As a result, we expect more refining capacity to close, which will add incremental ton miles as lost production is replaced with imports. Slide 10 please. On January 15, Israel and Hamas agreed to a six week temporary ceasefire. In response, the Houthis announced a pause in attacks on non Israeli vessels transiting the Red Sea. This situation remains fragile and it's unclear how the temporary ceasefire will evolve and how the Houthis will respond.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

As of now, product tankers continue to bypass the Suez Canal and transit around the Cape Of Good Hope. Slide 11, please. Last week, The U. S. Announced 10% tariffs on Canadian and 25% tariffs on Mexican energy imports, which were then postponed for thirty days.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

Although The U. S. Is the world's largest producer of crude oil, most of its output is light sweet crude, while the domestic refineries are optimized for heavier crude blends. The U. S.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

Currently imports 4,000,000 barrels per day of heavy crude from Canada and 500,000 barrels per day from Mexico. Of this, 1,000,000 barrels per day arrives via ship and the other 3,500,000 via pipeline. Seaborne crude imports could be replaced from further away, but it would be difficult to replace Canadian pipeline imports into PADD two. From a product standpoint, increasing the crude costs for PADD two refiners could reduce refinery runs and require additional seaborne product imports to the Northeast U. S.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

The U. S. Also imports 260,000 barrels of refined products from Canada each day. As disrupted, imports would likely need to be replaced and come from Europe. In addition, The U.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

S. Exports 570,000 barrels of refined product to Mexico each day, which if diverted elsewhere would increase ton miles. Mexico in turn would also then need to replace from more distant suppliers. While the final status of these tariffs remains uncertain, they could significantly reshape crude and product flows by elevated by increasing shipping distances and shifting trade patterns. Slide 12, please.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

In early January, OFAC announced sanctions on an additional 157 tankers, which were predominantly carrying Russian crude and some refined product. In 2024, China and India imported 3,000,000 barrels a day of crude oil from Russia, Sixty Percent of Russian crude exports. And last week, Trump announced sanctions targeting individuals, companies and tankers involved in shipping Iranian oil to China. These actions are consistent with Trump's strategy to put pressure on Iran and reduce its oil exports. Under Trump's last term, Iranian crude exports fell to 300,000 barrels per day while rising to 1,700,000 barrels per day under Biden.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

Today, the total OFAC sanctioned tanker fleet is almost 11% of the crude tanker fleet and 5% of the product tanker fleet. Any reduction in sanctioned vessels transporting crude and refined products is constructive for non sanctioned vessels and can also accelerate the scrapping of older tonnage. Slide 13. Since the EU's February twenty twenty three price cap on Russian refined products, European imports have four eighty nine product tankers have carried Russian products since four eighty nine product tankers have carried Russian products since 2024, many of which are older vessels and predominantly loading Russian product. If there is a peace agreement, it's unclear whether Europe would increase Russian product imports.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

And if they do, many of the vessels, which have been predominantly serving Russia, will have a difficult time serving Western markets given their age, trading history, maintenance and insurance limitations. The 1,400,000 barrels of Russian product exports per day could benefit non sanctioned vessels, which have not been trading in Russia. Slide 14. And relevant to this, the total addressable market diminishes as vessels age. The trading pattern of MR vessels built in 02/2004 clearly demonstrate this decline.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

At 12 years old, these vessels carried 3,200,000 barrels of refined product per year. By the time they reach 20 years old, they carried 1.9 barrels per year, a decline of 40%. And one could argue that without the Russian volumes, this number would probably be closer to 1,200,000 barrels, a decline of 60% compared to 12 years old. By 2027, more than 1,000 ships will be older than twenty years. Thus, even without scrapping, effective fleet growth could be lower than anticipated as older vessels transport less refined product.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

Slide 15. While the order book now accounts for 20% of the fleet, half the order book is LR2 vessels. Today, 45% of LR2s operate in the crude oil market and we expect this to continue given the larger crude oil trade. By 2027, including all the new builds, 25% of the fleet will be older than twenty years. Many are underestimating the impacts of an aging fleet and overestimating the capacity of the current order book.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

Slide 16 please. Last year, tonne mile demand increased 8% and over the last thirty years has increased at a compound annual growth rate of over 3%. If all newbuild LR2 vessels were to operate in the clean market, fleet growth would average around 4% annually over the next three years. However, effective fleet growth could be closer to 2.8% per year when factoring in LR2s servicing the crude oil trade and mild scrapping as a proxy for reductions in older tonnage. Several catalysts such as tariffs, sanctions and broader geopolitical developments could further tighten supply and increase ton miles.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

Nevertheless, even without these factors, the supplydemand balance is favorable and supportive of our constructive market outlook. And with that, I'll turn it over to Chris.

[Christopher Avella, CFO at Scorpio Tankers]

Thank you, James. Good morning or good afternoon, everyone. Slide 18, please. This past year, we have generated $842,000,000 in adjusted EBITDA and $669,000,000 in net income on an IFRS basis. Our net income for the year includes $177,000,000 gain on the sale of 12 vessels.

[Christopher Avella, CFO at Scorpio Tankers]

Most of these vessels were older vintage with 11 of the 12 vessels being almost ten years of age or greater. These vessels were sold at cyclically high prices. These results have enabled us to continue to strengthen our balance sheet by reducing our debt levels by $740,000,000 In addition to this, during 2024, we have paid $84,000,000 in dividends and purchased $336,000,000 of the company's common stock in the open market. Next slide please. During the fourth quarter and thus far in the first quarter of twenty twenty five, we've continued to take steps to strengthen our balance sheet.

[Christopher Avella, CFO at Scorpio Tankers]

The chart on the left shows our liquidity profile. We have access to over $1,300,000,000 in liquidity as of the date of this press release. This is over 1,400,000,000 if you include our investment in DHT. This level of liquidity was made partially possible by the recent execution of a new $500,000,000 revolving credit facility, which is secured by 26 of our previously unencumbered vessels. While it is currently undrawn, this facility bears a low cost of debt with a margin of 185 basis points when drawn and a seven year tenure with no amortization for the first two years.

[Christopher Avella, CFO at Scorpio Tankers]

Through the execution of this facility, we have locked in access to low cost secured financing through February. The chart on the right shows the progression of our net debt since 12/31/2021, which has declined almost $2,400,000,000 to a net debt balance of just $537,000,000 as of the date of this press release. While having low leverage is a demonstration of financial strength, this capital structure also affords us the flexibility to move quickly when windows of opportunity present themselves to further optimize our cost of capital. Our entrance into the Nordic bond market in January of this year demonstrates our willingness to see such an opportunity. Next slide please.

[Christopher Avella, CFO at Scorpio Tankers]

The chart on the left of this slide shows our outstanding debt by type. As we previously emphasized, our strategy has been to shift away from expensive low flexibility lease financing into more flexible, lower cost bank lending. Moreover, we have sought a diverse capital structure with multiple sources of funding and flexibility. As we previously announced, we recently issued $200,000,000 of five year senior unsecured notes at a 7.5% coupon in the Nordic bond market. A portion of the proceeds from this bond offering will be used to redeem our existing $71,000,000 senior unsecured notes, which are due to mature in June of this year.

[Christopher Avella, CFO at Scorpio Tankers]

While these bonds could have easily been retired using our existing liquidity, the refinancing of these bonds with the bond issuance in the Nordic markets was a compelling opportunity for us to diversify our capital structure into the Nordic fixed income market. Over the past year, corporate credit spreads have tightened given developments in the interest rate environment and the strengthening of corporate balance sheets. This is all set against the backdrop of robust economic conditions around the world. The combination of these favorable macro conditions coupled with a knowledgeable investor base in the Nordic markets opened a rare opportunity for us to lock in unsecured financing at a favorable cost and with favorable terms and conditions. This bond issuance was a testament to our efforts on strengthening our balance sheet and credit profile over the past three years as it was well oversubscribed and set the record for the lowest credit spread for any shipping company issuing U.

[Christopher Avella, CFO at Scorpio Tankers]

S. Dollar denominated bonds in the Nordic bond market. The chart on the right shows a bridge of our outstanding debt through the March. This bridge shows the deployment of a portion of the net proceeds of the Nordic bond to redeem our existing senior unsecured notes with the result in gross debt balance of $989,000,000 $353,700,000 of this debt balance is drawn revolver debt under our $1,000,000,000 credit facility and $225,000,000 credit facility. The enhancement of our liquidity position to the issuance of this Nordic bond has given us the ability to pay into these revolving credit facilities at our discretion, which would potentially have the combined effect of keeping liquidity readily available to redraw as needed and reducing debt service costs of both principal and interest to keep our cash breakeven rates low.

[Christopher Avella, CFO at Scorpio Tankers]

Next slide please. Our debt repayment obligations through the end of twenty twenty five are highly manageable at less than $15,000,000 per quarter. This does not take into account any unscheduled repayments into revolving credit facilities that have not been committed as of today. Additionally, the company has recently completed the periodic special surveys on over 50% of the fleet throughout 2024. Not only does this set the company up for a lighter drydock schedule for 2025 with far fewer off hire days, but the work performed during these drydocks is expected to enhance the operating efficiency of each vessel going forward.

[Christopher Avella, CFO at Scorpio Tankers]

Next slide please. The strength of our balance sheet enables us to continue to generate excess cash flow even in challenging rate environments given our low cash breakeven levels. Further to this, our operating leverage positions us to benefit from spikes and spot rates that have been commonplace over the past three years. To illustrate our cash generation potential at $20,000 per day, the company can generate up to $271,000,000 in cash flow per year. At $30,000 per day, the company can generate up to $632,000,000 in cash flow per year.

[Christopher Avella, CFO at Scorpio Tankers]

And at $40,000 per day, the company can generate up to $994,000,000 in cash flow per year. This concludes our presentation for today. Thank you everyone for your time. And with that, I'd like to turn the call over to Q and A.

[Operator]

We will now begin the question and answer session. Our first question comes from Omar Khnkar from Jefferies. Please go ahead.

[Omar Nokta, Managing Director at Jefferies LLC]

Thank you. Hey guys, good morning, good afternoon. A lot of things are happening on the geo macro front and Robert appreciate your comments about basically sticking to the Scorpio strategy that's been ongoing given all the unknowns. I guess maybe just sort of in terms of the sanctions that we've seen, James has talked about this in the presentation. Clearly a few weeks ago, a big chunk of sanctions were put in place, especially on that mid sized Aframax and LR2 segment, which if we count them basically negate all the new buildings that deliver this year.

[Omar Nokta, Managing Director at Jefferies LLC]

So I guess the kind of the question is, have you noticed any change in trade flows as a result of this, whether from Russia or Iran or anything that suggests that there's been an impact thus far?

[Robert Bugbee, President & Director at Scorpio Tankers]

I'll let Lars answer that. But the only comment I would make is that all these sanctions are there's the headline that the actual implementation and effect on the shipping rates is delayed. And Lars, would you like to add whatever you think?

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

Yes, I would. Hi, Omar. First of all, this is the second round of sanctions, right? If we look at the first one, we only had 34, 30 five ships that were of interest under the first sanctions round and that had a obviously a massive impact on the market. And as Robert said, it takes a little bit of time as that filters through.

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

The second round of sanctions is hitting a lot more ships, in particular the ships that are in the mid size region. And there is no doubt that we have seen ships turning around, finding other places. There is an increase in storage, other ships are reroading, floating off in the Mediterranean, waiting for STS of Turkey or Brazil, etcetera. I think also it's going to be interesting to see the wind down period in particular for India, which has been a kind of a massive fire of the Russian crude, how that is going to start to pan out as we move into March. There is no doubt that it's a lot of ships that are being sanctioned.

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

There's a lot of ships, I think it's 7% of the entire fleet and of Aframax's I think it's probably overall 13.4% of the sanctioned fleet. And we can see for sure that this as we move into kind of the next phase where suddenly this is being implemented in full that you will start seeing that there is going to be a constraint in supply in that segment. So it is one to follow. We're not really seeing the actual hits on the rates yet, which did not anticipate that either because this follows kind of more or less the same kind of way that the first sanctions were hit as well. So you put the OPEC sanctions on Russia and you see you've got the Iranian angle or you've got all the different angles, there's no doubt that there's certainly a lot of interest in where this market might be heading.

[Omar Nokta, Managing Director at Jefferies LLC]

Thanks, Lars. Yes, it makes sense. So it's still early in the process and something to stay tuned on. And just a follow-up separately, you underwent the drydockings last year, I think 54 ships, if I recall correctly. That's more than I think the 27 that you were planning at least at the start of the year.

[Omar Nokta, Managing Director at Jefferies LLC]

So it sounds like you clearly brought a bunch forward. Can you give a sense of what drove you to do that last year?

[Emanuele Lauro, Chief Executive Officer at Scorpio Tankers]

Last,

[Emanuele Lauro, Chief Executive Officer at Scorpio Tankers]

Ken?

[Cameron Mackey, COO & Director at Scorpio Tankers]

Yes, I can take that. Omar, obviously there's a fair bit of planning that goes into drydocking and one of the one of the primary issues is positioning an asset in the right place at the right time, given that you have the Red Sea unavailable to us and rather binary position about whether we're going to try and drydock in parts of Europe or head out to China as our most favored position. So given all that planning and the collaboration with chartering about the commercial opportunities that exist at the time, we on average will try to move them up if the situations allow. And it also depends on our view of the market at the time, like sixty to ninety day forward view.

[Omar Nokta, Managing Director at Jefferies LLC]

Okay.

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

I'd like to add something. I'd like to add on that. I mean, this probably from where I sit in terms of when we look at this forward planning on dry dock, which of course every shipping company has to undertake, It's obviously a big undertaking and this is probably one of the largest extensive drydock cycles that we've ever undertaken. Doing 54 ships in 2024 is a massive effort.

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

And clearly, once you get over that hump, you positioned yourself quite well for the future. We still have some additional buybacks in the first half of 'twenty five, but there's no doubt that we're steadily moving ahead where we're coming to a point where the majority of our fleet is specially die locked and obviously optimized for the future.

[Omar Nokta, Managing Director at Jefferies LLC]

Thank you. I appreciate the comments. I'll turn it over.

[Operator]

The next question comes from John Chappell from Evercore ISI. Please go ahead.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

Thank you. Good morning. Chris, Robert said in his comments that you're going to continue to drive your cash breakevens lower. You've already done a ton of heavy lifting on the expense of lease financing. You've taken the new bond in Norway.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

There's cost inflation in the business. Can you help me understand how you get any lower from the current levels from here? Is there anything you have to do with the capital structure? Or is it more along the lines of maybe efficiency of the fleet, etcetera?

[Christopher Avella, CFO at Scorpio Tankers]

Hi, John. Yes. Well, efficiency of the fleet is one thing. I mean, I think you have to take into consideration that vessels coming out of drydock are going to operate more efficiently. But the main thing is really in the financing and I mentioned this that we have over $350,000,000 of drawn revolving credit.

[Christopher Avella, CFO at Scorpio Tankers]

And some of that is amortizing. So if we take our liquidity position and pay into that, we could drive down our breakevens even further. And I think that's really sort of the area we would target going forward just on those two credit facilities.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

Okay. And then James for you, listen, I understand there's a lot going on right now. Get your point on the supply side maybe being overestimated, but rates are lower today than they were last year at this time and basically that's been the same thing for the last six months. So on Slide nine, you have a nice ton mile demand chart that goes back to the beginning of twenty nineteen. It's clearly off from the peak.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

So I guess the question is, is that cyclical in the sense that it continues to grind lower, especially if there is a change in the geopolitical landscape, including Russia? Or do you think it's on kind of a higher floor here, or maybe we don't revisit the 2019 levels from a tonne mile demand standpoint?

[Robert Bugbee, President & Director at Scorpio Tankers]

James, maybe if I do that one. So first of all, John, I think that we don't even know the outcome, for example, of Russia and a piece thing. We have no idea if there will be piece, what form it will take, whether that piece will hold and indeed whether or not it will affect tons of miles. It's just a there's like the Russian peace trade is like, well, we'll make an assumption that everything goes back to where it was before and that's negative. And we don't necessarily buy into that.

[Robert Bugbee, President & Director at Scorpio Tankers]

And as I said before, we cannot speculate on that part. I think that there are you're right. I don't think that you are going to I wouldn't use a base case that you're going to get a rate explosion and some super high rates that we had for two, three years, that's not a thing that we would have in terms of our forecast. And that's also why we've been so focused on operating cash breakevens. But we don't need when we're taking down our operating cash breakeven so much and doing the things we need to do and deleverage the company, we don't need those rates that we had before to make good money.

[Robert Bugbee, President & Director at Scorpio Tankers]

So a $30,000 rate today or a $25,000 rate today gives us much more bang for our buck in terms of operating cash than you've done before. So people can choose their own assumptions, but I think a wise assumption is that you may get periods because there's no guarantee you'll have any piece anywhere, for example, or even let's say the piece in one place will be good somewhere else. You may have periods that you get very superior rates, but that's not a working position. You can see that in the time charter market going forward, which is still very healthy, but people aren't paying time charters up in the 60s, 70s on LR2s. And that's the way I'd look at it.

[Robert Bugbee, President & Director at Scorpio Tankers]

But at the same time, the stock is in the 80s and neither other product tanker 80s. They're much more secure than where they were two years ago in terms of their leverage and their prices come off behind. So that doesn't mean you can't get great returns at lower rates.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

Okay, understood. Thanks, Robert. Thanks, Chris.

[Operator]

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

[Ken Hoexter, Managing Director at Bank of America]

Hey, great. Good morning and good afternoon. Maybe Robert, can you or Emmanuel, can you talk about your investment in DHT, your thoughts on moving into the crude market? Why them particularly in terms of your expanded investment? Is that a view on management?

[Ken Hoexter, Managing Director at Bank of America]

Is it a view on net asset value on that part of the fleet? Maybe just some thoughts there.

[Robert Bugbee, President & Director at Scorpio Tankers]

Sure. We've seen a period of two, three years where VFCC's earnings have just been disappointing. There's been a lot of hope from analysts, the actual VLCC owners. And we've always stated, we've stated consistently up until quite recently that we expected even some of our MR smaller MRs to outperform VLCCs and that was the case. And however, historically VLCC rates and product tanker rates, especially the big product tankers have not surprisingly worked together in tandem.

[Robert Bugbee, President & Director at Scorpio Tankers]

And what we're seeing is the dynamics where the crude market can actually break out that the sanctions are there, that Iran isn't going to be producing the same amount as it did before. And for other reasons, you will get an expansion of the back again of the crude oil 10 miles and that won't be as an expense to the product market. So we're expecting VLCC rates to lift and get better. And then we say, so that's a good investment. And then we look at DHT and DHT is, in our opinion, like a best in class, it had a very predictable way of managing things.

[Robert Bugbee, President & Director at Scorpio Tankers]

They perform very well commercially.

[Robert Bugbee, President & Director at Scorpio Tankers]

And

[Robert Bugbee, President & Director at Scorpio Tankers]

that's that we think is a good investment in that place and that's what it is. It's an investment.

[Ken Hoexter, Managing Director at Bank of America]

All right. And forgot to say, I guess, upfront, Chris and team, great job on reducing debt. Obviously, we've watched this for years. So what a different position. Robert, I want to follow-up on maybe John's question or actually maybe Omar's on kind of Russia.

[Ken Hoexter, Managing Director at Bank of America]

And I get you're not commenting on the news, but yesterday we obviously saw Trump posted calls with Zelenskyy and Putin. So I just want to understand if we step back, maybe can you give us a view on what does change if piece hits Russia, Europe, Ukraine? Does that mean the 15%, seventeen % of vessels that are now in the MR world and 8% of LR2, do they come back to the market? Is it unknown what happens to half of them come back and half of them go to the market? Like is there just a concept of what anything like this ever happened in the past or history that you can point to?

[Robert Bugbee, President & Director at Scorpio Tankers]

No, there's nothing you can point to, but it's highly doubtful that you get a return to the complete past and in any form. That's not a it's a nice thought to for shorts to get everybody whipped up to help physicians or whatever. But it's not the realistic thing that we're going to wake up and next week everything is going to be back into its place just on the actual demand part. There is for a whole host of reasons, there is a likelihood that even if there is a PEACE treaty that you can't really imagine that Europe goes straight back to where it was before in the dependence of Russia. I mean that's a little bit hard to imagine.

[Robert Bugbee, President & Director at Scorpio Tankers]

And definitely, you're not going to have those that dark fleet serving. So either way, you're going to have a much more muted response to any trade group change between those two factors. But it really is a wait and see. It's a long way. I mean, you can make the statement, I want this, you can make the statement that you want to build holiday resort in Gaza, but there's a long chain of events between the actual statement and deliverability.

[Ken Hoexter, Managing Director at Bank of America]

Yes. If I can just get one quick follow-up, sorry, but did you push out on the drydock question? Did you push out drydocks or did they go faster than expected at the end there? It seemed like there were the expectation for perhaps even more delay days than you had or off hire days, sorry.

[Cameron Mackey, COO & Director at Scorpio Tankers]

Sorry.

[Robert Bugbee, President & Director at Scorpio Tankers]

Please, Kenny.

[Cameron Mackey, COO & Director at Scorpio Tankers]

If I may, the timing of drydocks is driven by classification size. Essentially, they're regulated. So you cannot extend special surveys beyond a window. You could move them around within plus minus thirty, maybe sixty days, but not belong beyond that.

[Ken Hoexter, Managing Director at Bank of America]

Okay. Thanks for the time guys.

[Operator]

The next question comes from Greg Lewis from BTIG. Please go ahead.

[Gregory Lewis, Managing Director at BTIG]

Hey, thanks. Good morning and good afternoon everybody. I kind of had a like more of a like a market question. Obviously, what's been going on in the Red Sea has been kind of an issue. And it's great for us to speculate, but I imagine that the Houthis and the drones are potentially there to stay longer.

[Gregory Lewis, Managing Director at BTIG]

What as you have conversations like with insurance companies that have to insure these cargos, realizing that it's fluid, what's kind of the general view from some of these insurers? Are they like chopping at the bit to get back there and start insuring cargos through here? Or is this something that I think some of your guys' comments earlier could have a long lasting impact on that trade?

[Cameron Mackey, COO & Director at Scorpio Tankers]

I can give that question a shot. The insurance market doesn't care. The market is the market. And it's been very efficient insofar as its responsiveness to different changes in the environment. So the insurance market like any market is agnostic.

[Cameron Mackey, COO & Director at Scorpio Tankers]

There are buyers and sellers of any at any price. That being said, a cynical point of view is insurers have to handle claims. So there is an idea that, yes, there's been less volume and they'd like to increase their volume or market share through competitive pricing. But in general, you can count on the insurance market as agnostic to risk.

[Gregory Lewis, Managing Director at BTIG]

Okay.

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

I think it's also important sorry, Greg. I'm just going to add here, if I may. What the insurance companies also do, they obviously price their risk. And if you say what the price of risk is equivalent to risk to some extent and the price goes up or down.

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

All I can say is that generally the price has not come down. So that reflects that the risk is still reasonably high irrespective of what your moral conundrum might be.

[Gregory Lewis, Managing Director at BTIG]

Okay, understood. And then as I think about you kind of alluded to and I was I guess one of the questions that people are having is, if I'm going to order an Aframax tanker, why not just coat it? It cost me an extra couple million dollars and we all see the LR2 order book. Is there any kind of way or have you guys done any work on and realizing that even a company like Scorpio can trade back and forth between product and crude over a period of time with their vessels? Is there any kind of way to parcel out how much of that LR2 market from newbuilds has been ordered historically by

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

No,

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

we don't really have an idea. I think the best thing to look at is just recently over the last seven, eight years, seventy percent, maybe 80% of LR2 Aframax orders have been LR2s. So higher costs of the coating is not really that big of an issue in terms of the optionality that it gives you. And I think today 40% of the LR2 Aframax suite is LR2s, yet the market for crude in the Aframarket is four times the size. It's 14,000,000 barrels a day versus 3,500,000 of products.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

So it's impossible to not have some of these vessels servicing that crude oil trade.

[Gregory Lewis, Managing Director at BTIG]

Okay, great. Thanks guys.

[Operator]

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

[Benjamin Nolan, Managing Director at Stifel Financial Corp]

Yes, I appreciate it. So actually I've got a couple of things, maybe following on both of Greg's questions. So first of all, on the crude versus product, I know in the past there has been well, actually in the recent past VLCCs and Suezmaxes have traded product. Any update on that? And then as you think about the Red Sea, is there I know some other classes of ships are starting to dip their toe into going through there.

[Benjamin Nolan, Managing Director at Stifel Financial Corp]

I don't think that you guys are yet, but any thoughts on sort of how you're approaching that?

[Cameron Mackey, COO & Director at Scorpio Tankers]

Ben, I can take the second part of your question first is you've probably seen yourself that a lot of eyes on the Red Sea are waiting to see how Phase II of the ceasefire evolves. We don't have a window into the negotiation, but I think any casual observer of the headlines would say it's highly, highly fraught. So again, we're not as big as some of the global container players, but I think the industry as a whole, the Western industry is taking a very, very cautious approach about resuming transit to the Southern Red Sea.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

And maybe I'm

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

sorry, go ahead, James.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

No, what is your ticket?

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

So when the LR2 market was extremely strong in the beginning and throughout the second quarter, the differential between kind of LR2 from The Middle East going West to a VLCC for a similar type of voyage was so substantial that probably the spread between using one to the other ship and putting on three LR2s and one cargo probably had a margin of $20,000,000 So the incentive to clean up and take the cargo risk of moving distillate on a VLCC was pretty apparent. Now as the VLCC market has moved up Suezmaxes as well to a larger extent and and also the LR2 market has kind of drifted down, that margin is no longer there. So in terms of the clean dirty kind of cannibalization that we have talked about in the past, there are certainly data to suggest that is not happening as point is right now. There is the casual change between Aframax to LR2 from different pockets and different areas where you could load condensates, but that's at the margin. And then the second part, which is also interesting is what happens then with the new buildings that are coming out of the shipyards at the beginning of the year, which tends to be the case where we in the past have seen a lot of new buildings moving into with the virgin tanks, into cargos moving out of the North Asian markets West or out of the Middle East going West and that has also kind of come at a discount relative to the LR2 market general.

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

Point one here is that for all of 2025, there's only four VLGCs being delivered. So that really is not at the market. And then you've got the Suezmax market. The Suezmax market is potentially kind of a contender on this cannibalization. But to be honest, this is something that we tend with every single year and it's not something that changes anything in terms of our outlook.

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

I think the thing that's interesting is that there's only four newbuilding VLCCs and what that actually kind of means in terms of supply demand balances going forward.

[Benjamin Nolan, Managing Director at Stifel Financial Corp]

Got it. Appreciate it, Lars. And then my let's call it second question. Well, first of all, let me say, Robert, I think in your prepared remarks, that was absolutely the most scripted that I think I've ever heard you be in any environment, but and very helpful by the way. My second question though relates and maybe this is again for Lars, but the handysize rates that you guys are getting tend to be below what we would see in broker reports.

[Benjamin Nolan, Managing Director at Stifel Financial Corp]

And I suspect that's because historically, especially for the ice class vessels, they tend to do a lot of Russian trade. And so if you blend that in, it's something that you guys aren't doing, then it creates a little bit of a differential. But can you maybe just talk to how you think about sort of and again, appreciating that you don't really know what's going to go on with Russia, but is that the category that might benefit the most if there was a normalization?

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

I think it's important to say that Sting controls 14 handysize vessels. All 14 of those vessels were drydock in 2024. There's no doubt that, that has an impact on the tradability and the kind of the earning potential for the ships with all the drydock time that's taken out plus the positioning that was mentioned by Cam earlier on, etcetera, etcetera. So as we're moving into the February, all 14 ships have now been completed. So in terms of where you think the market was and so on, then I would count to say that considering the size of drydock that had to be done for all of these ships, it's pretty good going.

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

To the second part of your question is, it's quite clear that in terms of ice than in the past, this is before the Ukraine, we did a lot of business out of the Baltic in Russian ports, Finnish ports as well. So today, we are kind of constrained with only loading maybe stuff out of Finland, etcetera. So it's more of a non ice market for sure. So there's obviously less earnings potential. But at the same time, I will also say that there are a lot of ships in the handling market that have ice handy market is if you look at the average age on the fleet is a very aging fleet with very few ships being introduced to the fleet for this segment.

[Benjamin Nolan, Managing Director at Stifel Financial Corp]

All right. I appreciate it.

[Benjamin Nolan, Managing Director at Stifel Financial Corp]

Thank you.

[Robert Bugbee, President & Director at Scorpio Tankers]

I also think that's a lastly if you agree, that's sort of exactly the sort of place that has the highest restrictions for many reasons related to agent operation. So those charters like the Shells, the BPs, the Total, that's what we're talking about. And that's the difficulty about this assumption of return to the past because these operators that you're talking about that where the markets are going at the moment are so they have very, very little hurdles for people to get in. Whereas the traditional past European receivers have the highest hurdles there are in the world to get into trade.

[Benjamin Nolan, Managing Director at Stifel Financial Corp]

Right. All right. Well, very helpful. Appreciate it. Thank you, guys.

[Operator]

And the next question comes from Chris Robertson from Deutsche Bank. Please go ahead.

[Christopher Robertson, Analyst at Deutsche Bank]

Hey, good morning, everybody. Thanks for taking my question. I know we're getting towards the end of the call, so I'll just ask one and try to make it quick here. Just looking at the European market for a minute, not with regards to the sanctions of the vessels trade in Russian volumes, but just curious on how the fuel EU and EU ETS and emissions regulations are having any observable impact on the product trade at the moment. And I guess given this regulatory dynamic though, though, what percentage of the dark fleet or gray fleet would even qualify to trade into Europe regardless of the greater geopolitical issues?

[Robert Bugbee, President & Director at Scorpio Tankers]

John, do you have any idea?

[Cameron Mackey, COO & Director at Scorpio Tankers]

Yes, I can take a shot at it, if you like, which is number one is, I think what you were asking about in the second part of your question was to what extent do we anticipate should sanctions ease the dark fleet somehow come and start to compete in the Western market? And I'd hearken back to comments we've made on previous calls, which is regulations are certainly a bar that we have to pass and we're happy to pass clear that bar. But really in our industry, customer expectations are far and away the most stringent hurdle we have to clear. And when you really look in detail at some of the ships in the dark fleet, they are operating beyond the realm of any Western standards, whether that is insurance, classification society, general maintenance or repair, seafarer compensation and welfare. So you're looking at assets that have a very, very long distance to go and a lot of CapEx required for them to ever be even considered to trade in the West again, not because of regulations, but because of customers and their demands and their risk tolerances.

[Cameron Mackey, COO & Director at Scorpio Tankers]

So we're skeptical that you'll see many of those vessels come back and that's before you get to the age and the relative merits of the type of investment you're talking about. Sorry, and then your first question, can you repeat it?

[Christopher Robertson, Analyst at Deutsche Bank]

Just what the observable impact today is on the product trade with the existing regulations and kind of the step up into 2025?

[Cameron Mackey, COO & Director at Scorpio Tankers]

Lars may be better placed to answer that. But what I will say is, of course, it's been a big adjustment for the market in general. And what you're seeing not just in EU ETS or fuel EU is added degrees of complexity around competition. So this along with other things that have happened in the regulatory environment over the last several years just makes it harder and harder for smaller ship owners to compete. So I would above anything say, look, the market's adjusting, but it is it does have a consolidating impact.

[Cameron Mackey, COO & Director at Scorpio Tankers]

And so you would expect that the bigger owners and operators get bigger and the smaller are really struggling to with the scale and the cost and the complexity of these regulations.

[Christopher Robertson, Analyst at Deutsche Bank]

Got it. That's really helpful.

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

I'll

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

give you a number here, Chris, which is quite interesting. If you have an LR2 and you're going to trade it from The Middle East and you're going to trade it to Europe, including The UK, the difference between an EU and non EU port in terms of what you're going to have to pay from the EU ETS perspective is $150,000

[Christopher Robertson, Analyst at Deutsche Bank]

Got it. Okay.

[Christopher Robertson, Analyst at Deutsche Bank]

I appreciate that. All right. I'll turn it over.

[Operator]

The next question comes from Frode Morcador from Clarksons Securities. Please go ahead.

[Frode Mørkedal, Senior Equity Analyst at Clarksons Platou Securities]

Thank you. Hi guys. Just a quick word on the order book. We discussed it, but it's an important topic. So the slides on Page 16 is great.

[Frode Mørkedal, Senior Equity Analyst at Clarksons Platou Securities]

At least when I talk to a lot of investors, they seem to assume that all these allowed tos had all into the clean market, right? But I think you laid out the Capellan case that there is going to be, let's call it, switching, right? So my understanding is the crude Aframax order book is just 5.9%, right? So clearly, there's been very few orders in that segment and maybe by owners that should have ordered the crude Aframax, but opted for an LR2s, right? So the question is really, how do you think this plays out is transition, right?

[Frode Mørkedal, Senior Equity Analyst at Clarksons Platou Securities]

Is this are these LR2 newbuilds directly going into crude? Or do you think there will be some type of crowding out of all the ships that then switch into crude?

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

So

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

I'll start yes, I'll just start with some interesting kind of data on this. So the time charter market that we have seen obviously, quite busy parts of the year last year and there's been a bit of a resurgence kind of as we move into February. And there is no real difference in terms of the charter when he's looking for a a Aframax on LR2. And from an owner's perspective, they are not concerned about taking the LR2s and fixing it as an Aframax. The fungibility between those two market is very clear.

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

And it's clear in the spot market when there is spread differentials over $750,000 that they will start moving from one to the other. This is great for both markets. It creates the fluidity that you want, the volatility is then impacted on both. So it is very important that if you want to look at LR2 stroke Afimaxes, you have to look at those in unison. So when you look purely at LR2s and you say, well, the LR2 book is huge, whatever the percentage is, 20 or whatever it is, I think you're making a great mistake if you do not look at this in conjunction with Aframaxes, in particular with the kind of the aging fleet of Aframaxes to look at these together.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

Yes. And I would just add, Boris is making a great point. So even today, there's I think 23% of the Aframax fleets older than twenty years. And the Aframax fleet is a lot larger than the LR2 fleet, especially as you look at that older tonnage. So I think what you'll see is maybe some of the new builds trade in the clean market and then have some of the older vessels move into the dirty market.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

But Mars is absolutely right. You have to look at them together as you have as well Frode. And when you do, it certainly tells a story that there's definitely demand for both assets in a way where the supply growth looks substantially less than the 20% it may appear.

[Frode Mørkedal, Senior Equity Analyst at Clarksons Platou Securities]

Yes, indeed. Thank you. That's great update. My final question is on the Red Sea potential reopening. I guess, do you think this might be having a positive impact on this East to West arbitrage flows, which I think appears to have diminished somewhat in the past few months.

[Frode Mørkedal, Senior Equity Analyst at Clarksons Platou Securities]

So maybe that could be a positive thing?

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

I'll start with just making a few points here. Number one is that you look over the last few months, you have been through absolutely huge turnaround in the refineries in The Middle East. That's then completed. And then suddenly, you had a more or less shut diesel up over kind of December and the January. So there was no real incentive to move cargos moving cargos west.

[Lars Dencker Nielsen, Chief Commercial Officer at Scorpio Tankers]

That suddenly had split where suddenly the diesel lab has opened again. And then on top of that, if you then add on the Geesan refinery that is competing turnaround by February, I would say that you've got a lot of outlets in terms of cargo being produced both in Red Sea and also in the AG where cargo will start flowing and supply distillate to Europe.

[Frode Mørkedal, Senior Equity Analyst at Clarksons Platou Securities]

Great. Sounds good. Thank you.

[Operator]

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

[Liam Burke, Managing Director at B. Riley Financial]

Yes. Thank you. Robert, in light of your cash flow and strong liquidity position, I guess your most recent sale of a vessel was a relatively new LR2. Are you still looking at opportunistic divestitures or are you pretty much happy with the size and the positioning of the fleet?

[Robert Bugbee, President & Director at Scorpio Tankers]

Both. I mean, we're very happy with the size and the positioning of the fleet. And I think for anyone on this call's entire careers, they've been willing to opportunistically sell vessels if they think they're getting good value.

[Liam Burke, Managing Director at B. Riley Financial]

Okay. Thank you.

[Liam Burke, Managing Director at B. Riley Financial]

James, you talked about refinery realignments globally and the shutting of older less efficient ones. This has been a multi year event. How do you see this thing continuing to play out and until it reaches sort of a normal steady state of heavily weighting refinery capacity in China and in the Mideast?

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

Look, I think it's going to continue. So what the best part about the refining story is the lack of new capacity coming online in emerging markets. So everybody has focused a lot on Dangote, but that was starting construction or supposed to in 2013 and it's 2025 and it's still not at full capacity. So I think that in terms of the longer medium term product trade is really powerful. Then the other side of it is this older refining capacity that probably should have shut before COVID and then you had this strong crack environment as world demand came back and you're starting to see those closures again.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

So during our last earnings call, I think we said that we expected 1,000,000 barrels of capacity to close this year, now it's 2,000,000. And so going forward, I think there's still more capacity in The U. S, there's more in Europe, there's certainly more in China that can be closed. And you're going to have to make up that lost production. And most of the time, it's going to be carried on a ship.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

So I think it's very constructive going forward. We haven't had any necessarily new announcements since kind of the California refineries and Phillips sixty six in December, but something we monitor closely and something we think is going to be impactful for our industry going forward.

[Liam Burke, Managing Director at B. Riley Financial]

Great. Thank you, James.

[James Doyle, Head of Corporate Development & Investor Relations at Scorpio Tankers]

Thank you.

[Operator]

This concludes our question and answer session and the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• James Doyle, Head of Corporate Development & Investor Relations
• Emanuele Lauro, Chief Executive Officer
• Robert Bugbee, President & Director
• Christopher Avella, CFO
• Lars Dencker Nielsen, Chief Commercial Officer
• Cameron Mackey, COO & Director

Analysts

• Omar Nokta, Managing Director at Jefferies LLC
• Jonathan Chappell, Senior Managing Director at Evercore ISI
• Ken Hoexter, Managing Director at Bank of America
• Gregory Lewis, Managing Director at BTIG
• Benjamin Nolan, Managing Director at Stifel Financial Corp
• Christopher Robertson, Analyst at Deutsche Bank
• Frode Mørkedal, Senior Equity Analyst at Clarksons Platou Securities
• Liam Burke, Managing Director at B. Riley Financial