Scorpio Tankers, Inc. Q3 FY2024 earnings call

• The company reported strong Q3 financial results with $166M adjusted EBITDA and $87.7M adjusted net income.
• Rates had a seasonal dip but remained above historical averages. Balance sheet improved with lower daily breakeven costs.
• Reduced debt by $115M since July and decreased share count. Sold six vessels, announced sale of three more, with pro forma liquidity of $463M.
• Repurchased over $300M of shares since April, declared $0.40 per share dividend. Acquired 4.9% stake in DHT.
• Product tanker market strong due to demand outpacing supply, refinery capacity changes, and geopolitical events. Upcoming refinery maintenance to come back online, entering seasonally strongest period.
• Crew vessels moving back to crude trade, positive tailwind for LR2s. U.S. diesel and gasoline inventories low, demand for refined products to increase. Ton-mile demand increased, refining capacity closures expected to add ton-miles. Fleet aging impacts trading patterns, order book not fully reflecting fleet growth.

In the third quarter, Scorpio Tankers generated $166 million in adjusted EBITDA and $87.7 million in adjusted net income. LR2s generate $18,000 in cash per day, and the MR fleet generates $8,000 per day. Rates experienced a seasonal dip but remained above historical averages. The company has a strong financial position with significant balance sheet improvement and lower daily breakeven costs.

• Outlook for crude and refined products remains positive. Rates have bottomed at high levels with market headwinds turning to tailwinds. Q4 and Q1 tanker earnings historically exceed Q3.
• Expect improvements in crude oil market to positively impact refined products. Modest fleet growth expected, considering aging fleet and trading patterns.

• Seasonal variability in rates. Geopolitical events impacting market. Fleet aging affecting trading patterns and capacity. Inflationary pressures on operating costs. Uncertainty in refinery maintenance schedules and their impact on market.

Q: Omar Nokta from Jefferies on DHT investment, longevity of trade.

A: Robert Bugbee talks about liquidity, DHT being undervalued, potential long-term position.

Q: Jon Chappell from Evercore ISI on bigger ships switching between crude and product.

A: Lars Dencker Nielsen explains ships cleaning up at great expense, spread between clean and dirty markets, ships returning to crude trade.

Q: Greg Lewis from BTIG on sales and purchase market, Phillips closure impact.

A: Emanuele Lauro on S&P market stability, selling assets for higher prices, MR market depth; James Doyle on Phillips closure requiring imports, impact on flows.

Q: Ken Hoexter from Bank of America on seasonality, operating costs.

A: Lars Dencker Nielsen on refining capacity offline and returning, Chris Avella on operating costs being lumpy, inflationary pressures.

Q: Chris Robertson from Deutsche Bank on time charter market, bid-ask spread.

A: Robert Bugbee on time charter policy, Emanuele Lauro on bid-ask spread due to seasonality.

Q: Frode Mørkedal from Clarkson Securities on Handymax market weakness, carbon regulations.

A: James Doyle on carbon regulations impact, Lars Dencker Nielsen on Handymax market weakness due to refinery maintenance, MR market capping.

Q: Liam Burke from B Riley FBR on asset sales, debt objectives.

A: Robert Bugbee on asset sales for high prices, debt targets related to fleet scrap value.

Q: Ben Nolan from Stiefel on MR market, crack spreads.

A: Robert Bugbee and James Doyle on crack spreads, Middle East uncertainty, crude oil price impacts.