Scorpio Tankers Inc (STNG) 2020 Q4 法說會逐字稿

Hello, and welcome to the Scorpio Tankers Inc. Fourth Quarter 2020 Conference Call.

I would now like to turn the call over to Brian Lee, Chief Financial Officer. Please go ahead, sir.

Okay. Thank you and thanks, everyone, for joining us today. Welcome to the Scorpio Tankers fourth quarter earnings conference call. On the call are Emanuele Lauro, our Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer; Lars Dencker Nielsen, Commercial Director; David Morant, Managing Director; James Doyle, Senior Financial Analyst.

Earlier today, we issued our fourth quarter earnings press release, which is available on our website. Information discussed on this call is based on the information as of today, February 18, 2021, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release that we issued today as well as the Scorpio Tankers' SEC filings, which are available at scorpiotankers.com and sec.gov.

Call participants are advised that the audio of this conference call is being broadcast live on the internet and is being recorded for playback. An archive on the webcast will be made available on the Investor Relations page of our website for approximately 14 days. There are slides available at scorpiotankers.com on the Investor Relations page under Reports and Presentations. If you have any specific modeling questions, you can contact me later and discuss offline.

Now I'd like to introduce Emanuele Lauro.

Thank you, Brian. Welcome, everybody, to our first call of 2021. Thank you for being with us today. On our last call, we said that the rapid rollout of vaccinations would be potentially a game-changer and this is proving correct. And as we speak, injections are winning against infections. The rebound potential in our business is now significant. It is estimated that COVID has temporarily reduced 6 million barrels per day of global demand of which 2/3 is in aviation. As we look across the market, many sectors of the economy like travel and tourism, for example, are already discounting a significant rebound in demand, correctly so in our view. Meanwhile, in large parts of Asia, we are already back to normal levels of demand. So we do expect rates to move upwards from here.

While the short-term opportunity exists for our company, we must not lose sight of the longer term impact of the virus in our industry. The last 12 months have seen a rapid acceleration of global macroeconomic evolution across different segments like renewable energy, technology, medical science and others. In our business, we have experienced a much overlooked but decisive closure of refining capacity in the developed world. Alongside this, we have experienced the opening of major refineries in the Middle East, like Jizan or Al Zour. By the way, we at Scorpio Tankers have lifted the first Jizan cargo 3 1/2 weeks ago on one of our MRs.

So long after the crisis has receded, this positive structural impact on ton-mile demand will be felt. As such, the pandemic has served to accelerate the structural changes in demand from which we can benefit well into the future. The supply picture in clean product tankers is still benign, and not only it's benign but it preexisted the pandemic. At present, the underwater fleet of modern MRs is starting to shrink. The crisis has only served to deepen and prolong the undersupplied market and in this process it is now returning pricing power to incumbent owners with modern vessels, like STNG. The newbuilding ordering continues to remain very low, which is another encouraging factor.

Before I conclude, I would like to spend a word and think about our seafarers and our teams around the world. I thank these key workers who in the most demanding and extraordinary circumstances, have made significant personal sacrifices away from their family, away from their friends, just to keep the world economy supplied. Scorpio is a proud employer, is proud of its record as a responsible company, a responsible employer. Our teams on land and at sea can continue to rely on our unwavering support through this period. We employ about 8,000 seafarers and we had more than 14,000 crew movements since the start of the pandemic.

Finally, I will sum up with the following thought about hydrocarbons. Hydrocarbons are here to stay. But as a global community, we will likely produce and consume hydrocarbons in a different way or better in an evolving way. We believe that the modern clean ECO tanker has a pivotal role to play in the future, in this future and in this transition. As such, whilst the crisis has been painful for many and tragic for some, it has given us a window to the future. This future is a huge step-up in product tanker ton-mile with modern efficient refiners exporting major volumes of refined products to all corners of our world.

With this, I have ended my remarks and I would like to turn the call to Robert Bugbee.

Thank you very much, Emanuele. Look, I think this is an absolutely super exciting time for the STNG shareholder and the STNG potential investor. We're past the bottom in terms of rates, and know we're going to -- know the inventory has been really drawn down. The vessels you can see from our earnings, are moving. That means that there's very little surplus capacity. So any increase in demand is going to immediately move into corresponding higher rates just straightaway. And we would expect that over the next couple of weeks that we will start to get significant movements upwards again in the Asian market, as Asia comes back from the Lunar New Year.

It's a great opportunity in the sense that our stock is still trading, despite the sort of partial sort of runout from the bottom, it's still trading at a significant discount to its net asset value. It's trading at an even further discount to where the company was only 12-13 months ago, despite all the cash that the company earned last year and the debt that has been paid through that year. We'd expect the NAVs to start to move upwards as well, and they can move up quite sharply. Yard pricing is going upwards across shipping, higher input values, higher interest in areas like containers, LNG, soon-to-be dry cargo to time charter rates have started to firm, strong inquiry in many fixtures especially of the modern tonnage. And the forward curve has been strengthening too.

In addition to that, I think it's safe to say that the last 4 weeks investors have come out and shown a lot of interest, and as Emanuele has pointed out, as these vaccinations are a game-changer going forward and a game-changer to people's psychology and mood. People are believing and are expecting the opposite of last year. Last year when the rates were high, the stock sold off rapidly, because we expected -- everyone expected the market to fall. Today, people expect that the vaccines will lead to greater demand, greater move for OPEC, so we're starting to anticipate that improvement. And anybody that's short, and we still have a lot of significant short interest in STNG, is really denying the fact that the world is going to get better as a result of COVID.

And with that, we have a lot to talk about today. We'd like to open it up to the questions. Thank you very much.

(Operator Instructions) Your first question comes from the line of Ken Hoexter from Bank of America.

Can you just talk a bit about the effect the storms are having on trading patterns? Also just more specifically, the MR rates where you showed improving sequentially with your book dates, but yet the others kind of declined. Can you talk about that differential? Is that a trading pattern east and west, given where nat gas prices are or do expect that to decline like the other classes?

Sure. Lars, why don't you answer that one?

Sure. I mean going back to Robert's point, I mean the capacity of the fleet is pretty good, to be honest. And it doesn't take that much to see what the delays and uncertainty can do to the rebound of the market. And obviously we have seen that these kind of dislocations lead to spikes. And I guess the live example that you're referring to is what's going on in the Atlantic Basin with the MRs right now. And so it's interesting to note that with the U.S. polar vortex, the issues arising around that. The TC2 market, which is the Atlantic Basin of MRs, just this week alone has moved from worldscale 117.5 to I think we've got worldscale 170 on subs today. This corresponds to pretty much a jump of $8,000 per day in free trading days, which of course is remarkable, and obviously is a testament to the capacity of the balance that actually is in place. And similarly I guess, and for completely other reasons that have nothing to do with the polar vortex, the market in the Med and the Handys, they moved this week as well, 122 worldscale to worldscale 220, which is a very substantial jump, and probably equates to around $12,000 U.S. dollars per day increase from what it was on Monday. And I think the point here really is that if it's east or west -- because we've seen it in the east as well -- is that the market has the volatility that we really need and require. And the overhang of vessels in the product market again is limited, I would say. And this shows that at the margin the markets have that immediate capacity to move and do so very, very rapidly. And it's not hampered by any layup or overcapacity that we saw back in the '80s really. So I think the reality is at the moment followed by sentiment. And I think time and time again it shows that in fairly balanced market, upturns come very quickly.

Amazing, I guess, really well positioned, you're right, depending on how quickly we see this tightening in price [flow] through. I guess what does the impact -- let me just get a follow-up on the reversal of the million barrels per day cut from Saudi. Is that something that -- I guess, Robert, you've always talked about lengthening length of hauls. Is this the driver that you're going to finally start seeing that in absorption of capacity, and maybe within that where does the storage now sit on water? Are we kind of done with that bleed-out into the market or will that still pressure us...

I think we're -- sure. I think first of all that there's almost no storage on products on the water that's drawn down. And there's still some storage left on the water in VLCCs. And I think that we would -- I think conventional wisdom would say anyway that the product market will move upwards, if all the VLCC market were to move up or the crude market, but it's fantastic either way. As soon as the Saudis start to reverse their positions and OPEC -- imagine, almost all oil analysts say that over the next 10 months or so before the end of the year, we're going to pick up between 5 million and 6.5 million barrels a day. Well, you're going to be stripped going at 500,000 to 550,000 a month increase. And that's great. Lars can talk about the psychological thing of this. But for us in the product market, particularly the Saudi question, the Saudis put in product exports into their totals for their exports. So here with their new refineries coming out, that just gives more confirmation along with the end of the Lunar New Year, of our belief that the East market and the LR2 market, and whether it's 2 weeks, 3 weeks; is going to start to crank itself up.

Just one last one from me, if I can, Robert or I guess for Brian maybe, particularly. The operating cost remain elevated at $1,600. I presume that's because of COVID and all the stuff that you're doing. Is that something you see lasting through '21? Do you see that starting to come down at all? Maybe just one quick thought on the expense side.

Ken, that's right. That's because of the COVID and the crew changes and a few other things that are associated with that. So that, at least in the first quarter here, we'll still see that. And hopefully as we mentioned with the vaccines, things are getting better, and more places are going to be easier for crew changes going forward.

Your next question comes from the line of Omar Nokta from Clarksons Platou Securities.

Emanuele, Robert, obviously you in your opening remarks kind of presented a pretty positive outlook. And over the past few months in other shipping sectors, we've seen a real strengthening as each of those came out of their kind of COVID-induced downturn. We've seen multiyear highs coming out of that gate here for containers. We've seen in for dry bulk. We've seen it for gas. As you guys think about the tanker market recovery from here, can you see something similar playing out here in the next few quarters? And then with that in mind and how you view that, how do you feel about share buybacks in that context?

I think the first question is yes. I mean there's no -- if we think of where we were 13 months ago at $40 or whatever, what's changed? If we said, okay, in January 2022 the demand was the same as what it was or probably higher, where are rates going to be? Rates are going to be stronger. They're going to be stronger because we have a number of MRs that are going to be leaving the clean petroleum trade this year, because they'll turn 16 years old. We will have still a very constricted supply order book, very constricted in terms of its ordering position. And we are having some real positives in refinery changes. James can talk about that in a separate question, I'm sure. But the refinery changes have been accelerated, as Emanuele indicated. And we've just seen in quick succession what's happening in Australia, for example, and this big effect on ton-miles. When it comes to values, there's inflation going on right now. Steel prices are moving upwards. The yards through this period have consolidated too. Shipyards are already moving their price positions up. There is a scarcity of new or modern product tankers. So there's every reason that given the fact that the share count would be the same, that in a stronger market you'd recognize what the company has actually earned or paid back too in this trailing 12 months that there's no reason why the stock shouldn't be higher than $40, if you look at it that way in 12 months' time. The second question, we've been very consistent and you can see what we're doing. We're continuing to maintain our liquidity. We announced today that we still have an excess of $200 million of cash on the balance sheet that with the financings that were in the works or the things there, we're showing more or less $300 million of liquidity. And so we're able to go through this position. We're getting more and more confident as we see the vaccinations. But we've remained humble in this last 2-3 months waiting for things to play out. But certainly we're indicating that we believe the NAV is well above the present stock price and going higher. So there is going to be a the room there, the very moment that the rates start to really shift and move and move above, let's say, $17,000 a day on average, which is our all-in cash breakeven, let's say. But we'd like to see that first. That's the prudent thing to do.

Thanks, Robert. That makes sense, and maybe just kind of thinking about that, from your vantage point. Maybe it's a little early, but wanted to check with you on kind of what you're seeing in terms of potential recovery. You mentioned the Lunar New Year holidays and expecting this year improvement there. When we look at the oil price and the oil curve, obviously Brent is now pushing close to $65 and there's mounting pressure for more barrels to come to market from OPEC. Are you seeing anything in the cargoes you're carrying or in the refineries that you are doing business with, are you seeing any preparations on their part to shift their production, whether to ramp up certain types of cargoes, including say, jet fuel or gasoline? Are you seeing anything there that indicates changes are coming?

Lars, would you like to answer that?

It's a really difficult question to answer really, because obviously people keep their cards very close to their chest. But what we do see is that just with the first point about the ton-mile and stuff, how are we seeing the development in what we consider to be a low point in the cycle at the moment. And with the refineries that were shut down in Australia, which was the Kwinana one first, and the one that was announced the other day which was Altona, a refinery of Exxon.

And we've seen how things are developing and what's moving. If we look at the numbers for January in terms of cargoes moved relative to what was going on last year, and we can see that 57 MRs were done in January to Australia in '21 January, and 38 were done in January last year. So we can already see that everything that we've been talking about last year, are people doing things that they're saying that they're going to do happening? Well, it certainly has happened very quickly, the same thing that I think Emanuele mentioned in his opening remarks about Jizan. We moved the first cargo out of Jizan and we've seen that they're ramping up as well.

At the moment, we haven't seen very much distillate moving west for obvious reasons. So at the moment, it’s light and it’s moving east, where obviously there has been this unbelievable demand for particularly naphtha in Asia, which of course has held up a lot of the markets from the west going east with the big ships. And what we're waiting for, of course, is this turn when we're going to start seeing the other parts of the barrel start moving the other direction. We're seeing small sparks of it. We've seen our first jet cargo. It's still too early to say what that means.

Obviously, jet doesn't have an unlimited storage life. But certainly if you start seeing that things are going to flying around again, you have to think about what you're going to do with your jet fuel and have that in storage in the right places 6-8 weeks prior. So we are pretty confident that we're starting to see the changes. We can see that people in some markets are now reaching out, further out, particularly in the west on their fixing windows and stuff like that. But to say that we're seeing the cargo mix as such change, I think it's still a bit early.

I think one of the better ways of gauging the customers' position is the steady taking on and lengthening their books on modern tonnage. And that's really where they are. But I think that as Lars says, this is what do you want to call it? This is just as the tide is changing. The tide has been going out in the last 2-3 weeks or so. The tide stopped going out, and we're pretty sure it's going to turn. Just simply as you start to see, look at what's happening in the United States in our own states, where we're living, certain things are starting to open up, whether it's kids being able to play team sports again or going to the restaurant or doing driving. And Europe's already started to talk about it. I mean the rates of COVID in the U.K. has been falling like crazy. So I wouldn't say that we're -- we are pretty close.

Can I just add, Robert, in terms of the time charter that you talked about? I mean that obviously is one of the kind of real old-fashioned leading indicators that always tends to see where you have sentiment. And typically for a lot of the traders, the rationale that they do or they take time charters, is they obviously see the inflection point often days and months before it happens, to make sure that they can be on the right side of that curve. And we look at it for what's happened year-to-date in '21. Most of that activity has been on the MR vessels. And the thing that's interesting to note now is that most of that has been happening on the ECO vessels. I think on the last count on our own list of when we follow these things, we've seen over 40 MRs actually don't have time charter in this year. And on the count, over 30 of them are ECO. And a large handful, if not 2 handfuls of those are also with scrubbers. So I think it's a really important kind of dynamic what is changing here, where we can see quite clearly that the end user or the customers using the ships to trade, whether business or as a portfolio, there's certainly a pivoting towards a more ECO fleet. Because we then look at the overall numbers of vessels that we follow that every one of these traders they have on every quarter, they tend to be roughly the same, which then tells you that they're swapping the older units out with the newer that are more fuel and certainly more carbon efficient.

Lars, I appreciate that color and Robert as well. Obviously, it's probably early -- as you mentioned, it's a bit early to tell about the shifting cargoes. But that definitely sets up a pretty interesting earnings call, I think, in 3 months' time or 2 months whenever you guys come out with your next results. And I'll turn it over.

Your next question comes from the line of Amit Mehrotra from Deutsche Bank.

Brian, I saw the debt amortization moved around a bit prospectively. Is there more to come on that side? Or are we all done there in terms of what you guys want to do in terms of stretching out the payables a little bit?

We have a few more things that we're working on, as we mentioned. We have some facilities to draw down on, and then we're in discussions on a few other ones. So it is moving around. Unfortunately, it makes your guys' life very difficult to keep on top of it, but we have a few more things, and then we'll see where we are at that point. Things should calm down after.

Yes. I mean, I bet -- I mean, at least it's going down, right? So that's good. My next question, it's going to be a tough question, but I think it's a completely fair question. So I just want to warn you ahead of time. Robert, I guess, Brian and Emanuele, you guys lost $75 million in the quarter on a GAAP loss basis. We can exclude things like impairment losses, restricted stock awards. I don't know why you would exclude those. But the bottom line is you lost that much money in the quarter. We're now 10 years into this venture called Scorpio Tankers, and you guys have reported 70% of the time annually a loss. So the question is, what is the change in strategy that's going to one, to allow you guys to actually create some value because the stock is down 87% since you took this public; and second, what are you doing to rebuild some goodwill with the shareholders? And I'm really talking about it from the perspective of your related party transactions and the value transfer to SSH.

I think we've had a -- a direct question is, as we've gone through this process, we've adjusted those relationships. We've dropped various things along the way. We even did a major change 2 or 3 years ago in conjunction with our lead investors that we've been very -- the actual basic fees related to OpEx, et cetera; they haven't gone up. There's been no price adjustment for years despite the fact that costs have obviously gone up. I think that the value is going to be created right now by the dynamic that's going to play out. That's going to play out in terms of the real fundamentals.

Well, can you give the public shareholders a holiday on commercial and technical management fees? Because you're right, they haven't gone up, but they haven't gone down.

We gave a holiday on commercial fees, when the rates have been consistently low previously. We didn't do any claw back when the rates were really, really high. At the moment, we don't think that that's necessary at all in the company. I think that the actual margins have been reduced quite a lot simply because I said, it hasn't gone up, but costs have gone up, salaries have gone up, et cetera, et cetera. But the quality in many ways has improved. I mean, you can see we do very well against the benchmarks and very well against the competitors. And I think also it wouldn't make a material difference anyway, Amit, to what you're talking about.

And there are 2 things, Robert, if I may. I think that we need to contextualize your question, Amit, because it is a fair question. And we like direct questions. I think that the space has been beaten up for the past decade. I think that if you look at our performances compared to others, we are actually right on top. If you look at the fee issue that you've mentioned, apart from the S&P fee, which was a 1% S&P fee, which we dropped, as Robert has mentioned a few minutes ago, which many other companies charge; then we decided to charge that together with our underwriters when we went public, and then decided to drop it because it was creating confusion and stuff or noise. However, on the technical and commercial that you just mentioned, if you look at our peers, look at our OpEx, our OpEx are inclusive of fees. Our numbers on the commercial side are inclusive of fees. We issue net numbers, so post fees. And there is really nothing to look at with criticism. We charge market numbers. We outperform on -- or are right at the top of the commercial results. We are right at the bottom from a quality price standpoint with OpEx. So there is -- it's a non-argument. On the general performance, as I said, it is very important to contextualize this. You cited some numbers which are true. We do welcome, as I said, direct questions or criticism. However, the tanker space and the shipping industry in general has been quite a difficult one. You guys, on the analyst -- from an analyst perspective -- have changed and struggled to remain relevant in an industry where a lot of investors have not paid attention because of the depressed results that the industry specifically was bringing. So yes, you're right.

I really -- I don't want to belabor the point because it's a public call, so I'll move on. But like I don't think that has anything to do with the question. The question I had is you still also have over $200 million of restricted stock awards since 2010, which is basically share awards to the management team when the public equity price is collapsing 90%. So how do you kind of explain that?

I think the cycle -- yes, the management isn't getting -- the compensation is tied a lot to the stock price. So the other way of looking at it is, look, the management -- we're shareholders, we also buy things and we suffer when the stock doesn't perform. And I think it's probably a better position overall that a large amount of compensation is tied to the stock price as opposed to tied to cash bonuses or cash salaries, et cetera.

Okay. I know these are tough questions.

No, no. They're fine. We're totally fine. But I mean, the other part of it is that you -- insiders have been big buyers. You haven't seen many managements buy as much stock or derivatives through stock than this one, especially recently. The recent position is, is that we are really backing up the truck at the moment into what we think is going to be a great period for listing shareholders and return.

And 13 months ago, we were at a great period, and then the pandemic came. But this question was not -- you didn't ask the question 13 months ago. I mean not because you're shy, but because you thought as well as we did that we were actually going to enjoy a very prosperous period ahead of us, which then the pandemic ruined for many, many other companies and more importantly, for many people. So that's where we are. But as you say, happy to discuss this, happy to discuss whenever you want.

Your next question comes from the line of Greg Lewis from BTIG.

As I look at the forward guidance and go through the presentation, which I kind of thought you'd highlight some of these slides. I guess my question is, as I look at the performance for the quarter, is there any way to parcel out how much of that is scrubber related and really, how we should be thinking about the impact of widening fuel spreads on the performance over the next couple of months? And kind of around the scrubbers, are you start -- I realize about a year ago when scrubber spreads were (inaudible) dollars, you actually had a lot of traders and other entities looking to charter in vessels just to take advantage of the scrubber spread. Is that starting to rear its head again?

It will do, yes. I mean, in the first question, how much of our benefit we had so far in our results or our guidance, not really very much. It's only been recently, as you know, that the price of fuels has moved upwards and the spread has started to rewiden above $100. But we do see that spread continuing to open up a bit. We don't necessarily see it going back to $300, but we don't see it going back to much under $100. So it will become more meaningful as we continue through this year. I don't know, James, would you like to add to that?

No, I would completely agree with that, Robert. We have a slide in our presentation, which gives you the breakdown at a $200 spread, so you would divide that by 100 to get the savings. But we think the spread will continue to widen just because we're in a more normalized commodity cycle, and there's limited uses for high sulfur fuel oil outside of power generation in the Middle East and scrubber-fitted vessels.

And then what about -- has there been an increased interest for charters looking for scrubber-type charters that really capture the spread?

Well, I think that the charters are looking for anything that can perform better in terms of either total fuel consumption because of environmental reasons. And then add on top of that, they'd like to have scrubbers too, especially as the spread is opening up.

Okay. And then, Brian, shifting gears a little bit, clearly there seems to be an expectation of rising asset prices as we come out of this, as we move into a recovery of oil demand mode. Do you have any sense, realizing it's going to be different across banks and leasing houses, do we have any sense in terms of appetite for additional lease providing of capital from whether it's traditional European banks, Asian leasing houses? Really what I'm trying to understand is that obviously, there's been a lot of rightsizing of shipping books over the last 1, 2, 3, 4 years. And I'm just kind of curious, are we now more in a stable environment? Or are we still seeing some parties involved in commercial ship lending continuing to pull back?

Well, you're seeing much more in the sale-leaseback and the Asian financial houses coming into play. And there's actually on Slide 13, James, put together a summary there. And you can see our credit facilities are about $1 billion, and our lease financings are about just under $2 billion. And I think if you looked at that at any other time, it will be nowhere near. I think if we went back just about last year, it would be roughly equal. So as you saw over time, that has changed, and we're not the only ones doing it. You're seeing other people doing that. So I think we're seeing a different market open up for us to borrow from; very competitive, too.

And do you get the sense that the appetite from the leasing houses is continuing to grow or has it kind of normalized or stopped?

No. I think some of them are opening up. There's some more out there as well. At least we're getting inquiry from other people.

We have your next question coming from the line of Randy Giveans from Jefferies.

I may have missed this earlier. I'm struggling with some power outages, obviously, here in Houston. But I just wanted to ask about asset values and how that has been impacted by current market weakness as well as maybe on the other side, the optimistic outlook for the back half of this year. And then how liquid, is that market in a relatively tough still operating environment? And then lastly, you mentioned STNG is trading at a significant discount to NAV, so just trying to get a better sense for that updated NAV estimate.

The last question I can give pretty clearly is that we're not going to give any guidance on what we think our NAV is. The first part is, especially, especially linked to the very first question related to would we start to buy our stock back at a certain point. So we will keep what we think our NAV is to ourself during -- if we adopt that strategy. Then I think that will be to the benefit of our shareholders. Then in the first question, there hasn't been very many transactions, primarily because the last year was that no one really had to sell in terms of distress because even though the rates have been weak for the last few months, of course, last year was a fantastic cash flow year. So there have been very few. And most of the owners of modern tonnage have been the stronger owners. So there have been very few willing sellers, as they were. Prices were -- values were therefore determined by whatever discounting newbuilding prices, newbuilding order market was very weak last year in OpEx. In many ways, you had NAVs or values that were kind of artificially low, but with very few transactions. Now you have almost a situation where we know that there are lots of people who are potential buyers of product tankers. Again, those owners of modern tonnage certainly don't want to let go of their tonnage as they -- at today's prices, because they're seeing the market rise, time charter activity rise. And that they know that their modern tonnage in the water will be a premium because this market is likely to move and move fast. And so it's much better for all these people to buy tonnage in the water than it would be to do newbuildings. So there's little being transacted at the moment. So there's very little data points. But you know that the actual trend is upwards because you've got the charter activity and you have newbuilding increasing, and you've got the expectations of a market that's going to improve.

Sure. Okay. And then in terms of plans for all the additional liquidity you have raised and are raising via the refinancing to 7% notes due in 2025; what are kind of your sources and uses of cash this year? And then also on that, how big of a priority is maintaining the dividend?

Well the Board is, as of today, saying it's keeping its dividend. We are indicating that we expect the markets to improve and cash flow to come into the market. So I think the Board at the moment would expect to maintain the dividend. The sources and uses right now are to -- and have been -- to ensure that nothing untoward happens. Things have been changing. It was in November, December, perhaps vaccinations were disappointing. Now vaccinations are starting to accelerate, we're getting more optimistic. We'd expect that pipeline to accelerate further. But as we said earlier, until we cross into a $17,000 a day range, maybe we can go a little bit earlier. We would keep liquidity on the balance sheet. Until we do that, I can say that we have no interest in buying other people's assets right now, like 0. We have a fantastic fleet, fantastic operating leverage. And the first priority to free cash would be buying back -- after debt -- would be buying back the stock. And we're not even in discussion with shipyards at all. I mean the idea of ordering a ship is completely at the bottom of the list.

Your next question is from the line of Ben Nolan from Stifel.

One of the questions that I wanted to sort of circle back on, I think that you talked in your prepared remarks is about sort of crew issues. And one of the things we've heard from a few owners is that they were sort of going out of their way to stop by Manilla or other places to pick up new crews. I don't know if that's universal. But I was curious if you guys are doing things of that sort and maybe the numbers that we're seeing now, there's some sort of an impact from maybe artificially depressed utilization or something like that as a function of just not being at optimum efficiency.

Yes. Cameron?

Yes. Thank you for the question. The rerouting of vessels is really an event that we faced over the last 2 quarters. And you could see that there is a corresponding impact in terms of decline utilization or TCE, as you might see it, but also sort of decreasing for the short term, some decreasing travel expense. And then as things start to normalize, you're going to see the opposite. So again, it was something that we've been through for the last 6-8 months, but things are slowly returning back to normal. It's still quite a logistical feat to manage travel, not just for our crew, but for technicians or superintendents or anybody else that needs to visit or maintain the vessel. And so again, as Emanuele said in his opening remarks, the next 3 to 4 months, we should see things start to normalize.

Is there -- Cameron, is there any way to -- or have you done any math on sort of what maybe that TCE impact is roughly?

We don't have it at hand, but we can certainly take this conversation off-line to talk about some of the examples. Thankfully, the law of large numbers helps us a fair bit. So spacing these out and taking them one at a time, really, I'm not sure the impact would have been terribly material. You're talking about a few hundred dollars a day maybe across the fleet.

Okay. No, that's helpful. And then secondly, for Brian, we're closing in on just a little bit more than a year before the convert comes due. The number is smaller now that you guys have bought some of it back. But how are you thinking ultimately about what you want to do there? And I appreciate, maybe it's a little early. But is that something that you would envision simply looking to refinance? Or -- and maybe do you anticipate that type of capital being in the capital structure long term?

It's very possible. We are looking at a few different options. And I think as time goes on, we'll tell you what we're going to do with that. But we're looking at everything at this point. So -- and it's May. So we still have, as you say, it's 15 months. It's not -- it's coming up. It's on our radar.

We have the line of Jon Chappell from Evercore.

Just one maybe a little bit long-winded question from my side. So Emanuele has talked a couple of times about the 5 million to 6 million barrels a day of demand growth this year, which our house view is very similar to that. So understanding rate of change is going to be positive. We're bouncing off the bottom of oil demand, and therefore, the market has to move higher from where it is today. What I'm trying to understand is the kind of extreme optimism about the pace or the magnitude of the recovery. If we look at oil demand estimates for '21 and '22, our super bullish oil analyst came out today with 7.6 million barrels over that 2-year period. But that's up against an 8.7 million barrel decline in 2020. So we're looking at a 2022 demand number that's lower than 2019, yet the LR2 fleet has grown by 6% or 7% over that period. The MRs will be a couple of percent. So I'm just trying to understand, just pure simple supply-demand, what else is happening with ton-miles with not scrapping that gets you to that kind of very optimistic view that not only will we have a recovery, but an incredibly meaningful and sustainable one?

Yes, great question. So firstly, we have to remember that the -- what is effective product tanker supply. So we expect in clean petroleum products there to be a significant decline of what's in the present fleet of well over 400 MRs over the next 2-3 years that will leave the premium fleet trading clean petroleum products, which needs to be offset against a very small order book. Again, James in a second can give those details once they go through the parameters. So the supply side effectively is either staying flat going forward or potentially even declining in terms of an effective basis. Then we're seeing big changes, huge changes, just in this last 3 months. Just take what's happened in Australia in terms of ton-mile changes as refineries import refineries from crude go and are replaced by clean petroleum product import terminals. If we look at the mix itself going forward out of that 6 million barrels or 7 million or 8 million barrels. This year, by the end of this year, a million of those barrels is going to be product exports. So that's a huge change, just that is a huge change on the actual product position. So you're looking and your oil analyst is looking at total crude oil barrel demand. We're looking at product ton-mile demand. So for us, it's how much product is going to be used in the world. And then it's going to be where is it being shifted to? We have a theme going on underneath that growth, that the ratio of products carried by sea is going to increase at a far higher rate than that of crude oil in this recovery. James, would you like to provide some detail to this, please?

Jon, so yes, just to build on Robert's points; when we think about the capacity closures, we tracked 1.6 million barrels today. And estimates have ranged from 2 to 3, but basically, pre-COVID, the refining industry was oversupplied. So we're going to see further consolidation of the refining space. Now we are obviously highlighting the closure of the Australian refineries because it's very simple ton-mile demand math. Australia is a country that already imports more than half of its refined product demand, right? However, if we start thinking about the closures in Europe, a place that's already had a diesel deficit, if you were to ask me a year ago, that's not something I had expected. If we start to look at closures throughout the United States and certain parts of Southeast Asia, these are areas that in most cases, we'll need to replace the lost production. Obviously, the New Mexico or Wyoming refinery that's quite small and closing is not going to have a material impact. But you close a refinery in the Philippines, where they only have one remaining, and you're going to need to replace those barrels. On the other side of it, people really didn't start building MR product tankers until the early 2000s. If you go back to 1998-1999, you're talking about 20 ships delivered a year in the MR space. So one, nothing has ever left the space, really, if you consider that 15-age year. And then 2, all the ships that were really starting to deliver in the '04 to '08 period are now getting to that 15 to 18-year range. So if we take 108 MRs on order today and we compare it to 460 that are turning 15 over the next 4 years, it's considerable. And I'm going to actually pass to Lars on this, because he can tell you a little bit more about customer preference in the time charter market and perhaps some of these emission regulations that are coming forward.

Thanks, James. I mean, we talked a little bit about before about the MRs fixed on time charter and where the pivot was towards the ECO fleet. And that I think is certainly across the board that we're seeing this. The thing I think is really going to be a game-changer over the next couple of years is how we are looking to really grasp around the carbon emission issue. And with the IMO putting their goals in to reduce the carbon emissions by 40% by 2030, there's a couple of things that are taking place right now, right? You've got the operational standard that is -- it's supremely important as we look at product tankers and the age, what they call today the energy efficiency, existing shipment [bake] or the [EXI]. And basically, if you want to try and kind of reduce your carbon footprint, you've got to look at the efficiency of the vessel that you're utilizing. And we're seeing today a lot of our customers from the 1st of January this year, measuring carbon footprint on every spot voyage that they're doing in anticipation of what this will mean for the cost of moving cargo from A to B. So when you then think about, well what does that mean if you want to lower down your carbon emission footprint as an oil transporter? Well, first of all, you look at a more modern ship because they emit a lot less carbon than the gas guzzlers of the non-ECO vintage. So that in itself, I think you will start seeing a true tiering of a market to a much larger extent than we have been seeing over the last couple of years where there was an age threshold set at 15 years, which was what a lot of the oil majors had put in as a quality threshold that they use the age. But now with the introduction of carbon emissions, we're going to see a lot of changes here, where people are going to be really focused on choosing the vessel more on their carbon footprint than anything else. And here, of course, Scorpio will be well placed. On that point, the only way to reduce a carbon footprint really effectively for a non-ECO vessel or an ECO vessel for that matter as well, is reducing the speed. And when people start introducing speed reduction as the most efficient way of reducing the carbon footprint, which it would be at least as we look at things today, well, then you have the competitive advances of the super ECO vessel coming to the fore again. So this backdrop here is supremely important, I believe, over the next period.

Your next question comes from the line of Liam Burke from B. Riley.

Yes. We've talked a lot about the refinery disintermediation with the closing and then the reopenings in China and the Mid-East. How long does this process take to roll out? We've had closures in 2020, we expect more in 2021; before the ton-miles begin to normalize?

Between the normalized? Well, it would be a new normal. It won't be back. It won't be a normal…

Correct. That's right. A new normal.

So it's already happening. As Lars is saying, what he's saying from Australia, the change of Australia, January to now, they've added another refinery closure very recently, the Exxon one. And I believe that we've already fixed a vessel in clean to that area as a substitution for them closing that down. So it's sort of pretty well come instantaneously as the refinery that was refining importing crude to refine products just stops refining the crude. Then they have to make up for that, especially now that inventories are pretty well normalized around the world. They have to make up for that product loss kind of immediately. The actual refinery is coming online, they take -- they sort of step up over a period, a month from zero when they -- before they start. And then they just move up in incremental levels as they open up the refinery.

Okay. And on the debt front, we've touched on your lease financing, the convert and everything else. As you look at cash flows accelerating and rising rates, lower CapEx, is there any part of the stack that makes more sense to you? Or do you go back and look at just your straight cost of debt?

It's Brian. So we just want to look at some of our highest cost of debt, which some of these facilities that we inherited on the Navig8 deal, we're refinancing those at better rates, better margins. So looking at that, number one, in reducing interest costs along the way. That will give us the ability to keep on paying down more principal. Because that's -- as long as our stock price remains reasonable, which it's not right now, but in the longer term, we would -- our #1 priority, as Robert has said, is to pay back debt.

Your next question is from the line of Calvin Froedge from TankerData.

First of all, congratulations on retaining liquidity in a challenging environment, and thank you for having me on the conference call for the first time. I have a question from one of our subscribers who is an ex [led fin] banker. And he just wants to understand a little bit better the flexibility and limitations STNG has in financing facilities. He thinks that the debt costs are quite high. And wants to know, apart from reflecting leverage in the business, do these higher rates represent flexibility in the uses of the financing. For example, if the company starts seeing a clear pathway to much higher global fuel consumption, can you tap some of the bonds to opportunistically buy back shares? Are there any penalties associated with debt repurchases or any other interesting features of the financing facilities?

Go on Brian. In simple terms -- I'll start, Brian, if I may. In simple terms, the leases have repurchase options. That's -- that they have those at different points, but that's quite efficient. It's not really penalties. There may be a transaction fee related to doing that. And otherwise, they're fairly standard. So there's nothing that is preventing, as we talked about earlier, nothing in preventing us in refinancing the more expensive part of the capital stack or nothing there that's preventing us moving to buy back stock either.

Okay. And separately, as far as the ESG stuff goes and increasing moves towards reducing emissions outside of having scrubbers fitted to your ships and having newer ECO [tiny] ships, are there any other steps that you guys can take or that you anticipate needing to take in order to meet newer emission standards?

I think that's a really great question. But before Cam goes into that and maybe other areas of not just the E, but the S too in ESG is that -- first of all, we really appreciate your questions and your interest. And so hopefully, you will create or help create for the market, helping one of the things for investors that we're noticing is that there's very poor information related to our actual market, what it's doing and what, for example, an LR2 market is really doing day-to-day. I mean, we've seen some really appalling sort of daily estimates of what an LR2 market is doing. We've said for many times that Clarksons has really being the most accurate, potentially most accurate in determining what a triangulated LR2 can actually do. There are other services out there in the private ship brokers non-publishing, McQuilling, for example, do a very good job. And we think that your Tanker Data is also making the effort to go through and do the hard work to go through the fixtures. And to answer your actual question itself, I'll pass it over to Cameron.

Thank you, Robert. It's a broad question. As a first response, I'd refer you to our sustainability report, which lays out some of these answers in great detail. But additional progress on our carbon footprint and our emissions profile, Lars referred to it a little bit earlier, comes from a variety of sources. That includes not just the ships that we thoughtfully designed and constructed 5 -- 3, 4, 5 years ago. But how they're operated, the type of sensors and analytics and analytical tools that are available to us on board and assure the training of our crews on the operation of the vessel and the interpretation of these advanced analytics and obviously a great deal into the interaction of the vessel and its environment. So when you think about how you drive your car or how an airplane goes from A to B, that technology has led the shipping industry a bit. But it's advancing quite rapidly, and this has to do with things to reduce the friction and frictional coefficient between the vessel and the water and increasing its efficiency that way through coatings and different methods of cleaning the vessel. It has to do with routing and the technology around routing vessels optimally to get from one point to another, speed adjustments, course adjustments; all of these things. And finally, and most importantly, it has to do with the management of the fuel. Because as you know, most people think that bunkers are a commodity, when, in fact, they vary a great deal depending on where and when and from whom you purchase them. And managing that fuel effectively has a huge impact on the efficiency of the vessels and, of course, the emissions footprint. So all of this is a big topic, and there's a lot more to discuss, but these are the basic points that I would I would put to you. And again, as far as we've come every year, you'll see improvement as our technology improves and other resources and materials also improve.

Okay. Specifically, as far as carbon trading goes, you need to purchase credit, being able to sell credits. Have there been any developments that you think are actually going to have a material effect on you guys in the next few years?

Thanks for the question. Actually, it's a great point, and it's something we're working on currently. You're just starting to see the monetization of credits come into our industry, largely in dry bulk and LNG, but it's slowly coming into tankers, and we're currently working with one of our customers on an initial trial on selling them carbon credits. And so we expect this to become a more normal activity in the next several years. Obviously, there's a great bit around different jurisdictions and how you take credits from an offshore industry and put them onshore. But we're right in the middle of developing this, and we're very excited about it.

Okay. I think I just heard you said that Scorpio Tankers is selling carbon credits. Did I catch that correctly?

Well, we would be transferring them to a customer. Insofar as we are ahead of our emissions targets that the IMO and the other regulators have set, yes, we have credits that we can transfer to some of our customers.

And as I said at the beginning of your question, it's a good question, and a developing question and perhaps some hidden treasures will evolve. But generally, in terms of communication, I'd just like to sort of say -- take this opportunity that we're going to try and communicate better. We know that we have a widening group of investors interested. And we also know that we have, let's say, 2 kinds of sets of, let's say, analysts at the moment is one group of analysts that are following this market every single day and really providing sort of more daily or weekly information to investors. And then we've got what I would call the quarterly analysts that just literally just show up once a quarter and don't really sort of communicate with the companies or the market in between. And then, of course, we've got a growing interest from retail, et cetera, et cetera. And we know that they're shut out a lot from some of the key webinars and some of the key, let's say, conference calls that we make that are not allowed. They're just not allowed on by the actual banks or whatever giving them. So we're going to try and look into providing an opportunity to, let's say, have an investor conference call that's much more open to really anybody who's interested asking a call through maybe some intermediaries or through e-mail or Zoom or whatever like that. We haven't finalized how to do that. But hopefully, we can work out how to do that. So we can try and educate the community better.

I am showing no further questions at this time. I would like to turn it back to the speakers for any further comments.

Thank you for joining us today. We look forward to speaking to everybody soon. Thank you very much. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.