Scorpio Tankers Inc. Q4 FY2025 earnings call

• Reduced net debt significantly from $3.1 billion in 2021 to net cash of $309 million in 2025, with liquidity growing to $1.7 billion.
• Upgraded the fleet by selling 10 older vessels and reinvesting in 10 newbuildings, enhancing efficiency and earnings power.
• Increased the quarterly dividend to $0.45 per share, a 12.5% year-over-year increase.
• The product tanker market strengthened for five consecutive quarters, with spot rates for LR2s and MRs at $46,000 and $38,000 per day respectively.
• Refinery closures lengthen trade routes, ton-mile demand expands, and crude market strength tightens effective vessel supply in the product tanker space.

Scorpio Tankers Inc. delivered a strong quarter with Q4 adjusted EBITDA of $152,000,000 and full-year adjusted EBITDA of $568,000,000. Since 2021, net debt has been reduced from $3,100,000,000 to a net cash position of $309,000,000. The company has $1,700,000,000 of liquidity, with a daily cash breakeven of $11,000 per day per vessel. They sold 10 older vessels and reinvested in 10 modern newbuildings, making the fleet younger and more efficient.

• Increased quarterly dividend to $0.45 per share, aiming to grow dividend through the cycle.
• Confident in generating significant free cash flow and delivering durable shareholder returns across the cycle.
• Forward payment obligations on 10 newbuilding vessels, with installment payments not due until 2027-2029.

Q: Hi, guys. Good morning. Good afternoon. Congratulations on officially reaching the net cash milestone. I wanted to ask about the dividend. You have bumped it here after having bumped it also last quarter. Understanding your aim is really to keep the payout sustainable through the cycles, you have got plenty of free cash flow in today’s market. You have got a fortress balance sheet. How are you thinking about the dividend in the future? Is the aim to do a bump regularly as in maybe once every couple quarters or maybe revisit on an annual basis? Any color you are willing to share.

A: So the dividend, first, the main premise is to see if we can—what we would like to do is to grow the dividend through the cycle, pay the dividend through the cycle. That is, you know, the actual momentum of that is dependent on a lot of things. I think you have seen our let us say goodwill in the sense that, you know, immediately following the implementation of the increased dividend after the third quarter results, we immediately stepped up now. That is, as Emanuele pointed out, really a reward for all of us for the strength and finish of the fourth quarter. So apart from that, I would like to keep that on detailed. We will review everything regularly.

Q: Wanted to ask about the VLCCs. Definitely been a lot of interest lately in that segment, whether it is from the equity markets, charters themselves, or owners placing orders. You sort of got ahead of it a bit last year with those two orders you put in. I think it was back in October, November. Wanted to ask how are you thinking about those right now and whether you have options that came with those that you could potentially add to your tally.

A: Sure. We had options. The VLCC market was, as we all know, a very, very hot commodity. Those options were very short lived. They were options that were valid only until December. At that time, in December, we were in the middle of the holidays, not complete. We did not have complete visibility of how we felt the cash flows were moving in the market at the time, and we did not have strong visibility because of the holidays as well related to potential sale of our own assets, etcetera. So we felt on balance that we could pass that, remain disciplined, especially as we had the LR2 options still up our sleeve. So those VLCC options have gone. They have expired.

Q: A lot of cash, not going to ask you about that. I did want to talk a little bit about the crude market, though, as it relates to LR2s. Scorpio, since its founding, has been pretty—that the LR2s are going to primarily focus on the product side. You know, I guess it seems like the market is kind of merging as older crude Afras are retired and everyone, if you are ordering an Aframax, you are going to coat it. Does that at all change how maybe Scorpio would think about its LR2 fleet, i.e., could we see opportunities for STNG to potentially bounce those LR2s back and forth between the crude market? Or should we just assume they are going to stay in the products?

A: Hi, Greg. I think it is fair to say that the Scorpio approach in terms of LR2 clean or dirty switching has always remained opportunistic. We have a number of our ships in crude already. I think it is important, considering that the global approach that we have, to remain disciplined on these things. So we do not just dirty up ships unless the economics clearly justify it on a sustained basis. There has been the recent dirty outperformance, particularly in the Atlantic Basin, which, of course, we follow. We trade that element as well, and we can also see that the ability to cross-trade has increased between the LR2s and the Aframaxes. The case in point is, I think there are about 515 LR2s trading globally in the world today, and you only have 220-odd trading clean today, which is probably the lowest we have seen since 2020 or 2021. Now that can then give you the kind of thinking—do you go dirty or not dirty? It is always a tactical question. And we obviously follow all these markets. And if you normalize the periods, it has a little bit of a different picture than if you just look at one quarter. But the short answer to your question really is that, of course, we look at it, and we trade it as well.

Q: Rates continue to be strong. The winter market looks like it has legs. Is there any kind of expectations—in December, you fixed a couple multiyear time charters. Has the appetite from customers increased for multiyear term? Are we seeing more opportunities over the last month or two? Or is that something where, really, just thinking about previous cycles or previous periods of time, you know, summer is coming. Does that have any impact on the opportunity for term charters to pick up, i.e., if this strength in market continues, I imagine customers will be more amped to fix multiyear deals because they know next winter is already around the corner.

A: We are certainly seeing improving time charter rates. The liquidity in time charters overall is improving as well. It is very strong. There is depth in it, and particularly on the LR2/Aframax market. We see also markets increasing on MRs. But there is for sure an increased demand for longer-term periods. So it is for sure that the momentum is there for multiyear charter rates, and it is very interesting at the moment with that demand.

Q: Lot of momentum for STNG and net cash. Congrats, guys, with breakevens coming down, raising a dividend. But perhaps a question for Lars, how do you see rates progressing over the next few months or 40–60 days? Been a very firm start to the year. Do you perhaps see counter-seasonal increases continuing into 2Q, pushing you further over levels booked to date, with all the tailwinds from ton-mile demand, some of the geopolitical uncertainty, and just your view there would be great.

A: I think—yeah. I mean—You very well summarized all of the factors that are almost certainly going to lead to a relatively strong second quarter. First of all, the clean market, if we look at that first, is operating with very little slack at the moment. So you could say, well, you have some headlines on geopolitical stuff. You have headlines around miles. You have headlines around all these things. But structurally, I think we have a very positive product market in front of us. You have some things around some turnarounds taking place, but that has already started in the Atlantic Basin and so on. And still, you have a lot of product moving, and you have open arms from the West to the East, perpetually on the light ends. You have the ton miles we talked about. So it is not just a cyclical spike in my view. I think we have a refining system that is operating at a very high level, and we can see that in terms of the structural support that lends itself to LRs and to MRs in multiple regions. You have had very strong Asian markets. You have had, of course, the Atlantic Basin, and that has been highly reported widely in terms of—we have seen multiyear highs in TC14, etcetera, over the last couple weeks. So today, it is not really about short-term spikes in my view. I think we are seeing a kind of a longer wavelength coming in. And the market, for sure, has proven itself a lot more resilient than probably one initially had anticipated as we moved into 2026.

Q: More of an opportunity longer term, nevertheless, seeing any incremental uplift yet in Aframax/LR2 demand from Venezuelan exports? I know you have spoken in the past with some just kind of illustrative numbers, like an additional million barrels per day equating to roughly 23 incremental vessels. Any update there would be great.

A: I mean, I think—that is why—yeah. Why do you not go forward? Then I can follow up afterwards. Yeah. Tim, as you highlight, that is the math. I think so far we have seen about 300,000 barrels a day go to the U.S. The U.S. Gulf refining system is well designed for Venezuelan crude. We have the coking capacity that can turn this heavy stuff into distillate, which is good for margins and for exports. It is unclear whether all of this volume will go to the U.S. and how long production will take to increase in Venezuela. It varies, but I would say on the margin, it is very positive. That is exactly what我 would say as well. At the margins, it is going to be very positive, with the ships that would not have needed to move that are not in the sanctioned fleet.

Q: Just as a follow-up on the topic of Venezuela. We have talked a bit about exports here, but what is the view around naphtha imports in terms of it being a diluent for the crude? Is that market picking up? How does that look right now with increased use of the mainstream fleet? And what did it look like beforehand in terms of those deliveries into the country? Was that on sanctioned vessels? Or what is the dynamic there now?

A: To be honest, I think, at the margin, it is not the thing that really is going to change the Atlantic Basin product market on MRs in particular. Of course, it is the way that you would normally transport your naphtha into Venezuela. I think there are other things in the Atlantic Basin that have a lot greater impact in terms of why the market is also strong. It just adds to the fire in the sense that it is an additional positive.

Q: One of the macro lifts in the product tanker side has been the redistribution of global refinery capacity. And it has been a multiyear lift. Do you anticipate that continuing? Or is that sort of bottomed out now?

A: Thanks, Liam. Well, look, we anticipate it to continue in the sense that about 300,000 barrels that are closing, or part of that has closed, in the West Coast United States—for example, a Valero refinery and a Phillips 66 refinery. And as those refineries wind down in the next few months, it is 300,000 barrels, for example, that the California market needs. And if you speak to those oil and refining companies, they have highlighted they are going to import it from foreign markets. So in many ways, we have not yet seen the benefit of those flows largely coming from Asia. We still think there are going to be more closures in developed markets as well, replacing that lost production. So this is going to continue to go on for the foreseeable future. And then at the same time, as you kind of highlight with the question, emerging markets are not building much refining capacity. It takes a minimum of five, but probably seven years to build a refinery. And that has not started yet. So我 think going forward, that is very constructive from a ton-mile demand perspective for us as well.

Q: Is there any additional tweaking you need to do with the fleet or you are happy with the assets in place? And your newbuild and your liquidity.

A: We are at present engaged in the secondhand market, and you should fully expect that we would sell asset—singular or plural—over a reasonably short time. And that sale and purchase market is super strong. We continue to engage opportunistically on inbound inquiry on the existing fleet we have. And as we have done in 2025 and before that, we positively reply to inbound requests and engage in potentially selling further assets opportunistically. We are not working at anything specifically on the buy side at present, but we do not exclude substituting and renewing in a conservative way as we have done in the past quarters as you have seen. The S&P market is very hot. There is a lot of interest for tankers. What has happened in the last six to eight weeks in the crude tanker space has definitely attracted a lot of interest into the LR2s as well as trickled down to the smaller sized vessels up to MR, I would say. And this is proven by the fact that Lars has mentioned, I think, in his remarks earlier, there are about 220 LR2s trading clean today, which, in order to see that little number of vessels trading in the clean markets, we have to go back at least five years, to 2021. So this shows the level of interest and the hype that the crude market—the long-awaited crude market momentum—has captured in the last eight weeks and continues to do so. The level of interest is super high.

Q: Just first with regards to Q1 bookings. Can you elaborate a bit more on how your LR2s are relating—dirty versus clean? How would you think about bookings on open days here? I mean, there is a $40,000 difference now on LR2s and Afra. So how do we think about that spread?

A: Well, I think I will go back to what我 said initially, which is that we look at these things opportunistically every single day. But to look at it in a very short backdrop is probably not the right thing to do. I think when we look at these things, considering the size and the number of ships that we have, we have to look at how we want to deploy these things. And one of the things that we would like to see is that as many owners have moved into dirty, and we were talking about the number of clean ships back, I think constructively that volatility will be an opportunity that we would want to control and take advantage of. And when你 say that there is a $40,000 difference, I think $40,000 difference is in a very insular market on a particular week. We do not see $40,000 being the case over time. So if we look at it on a more normalized period, I think that if你 look over the quarter, it has been around maybe $10,000 a day, which does not necessarily justify large-scale switching quarter on quarter. So that outperformance that你 referred to is probably something we should look at from a longer perspective. I will just say that our approach is always opportunistic when it comes to this. But considering the ships that we have, the contracts that we have as well with some of our key clients, we have to remain disciplined in terms of the—So我 am just on term rates with你 now. VLCCs, modern VLCCs being on two or one year at $90,000 a day. And it seems like LR2s are more or less flat versus recent points. But if VLCC rates stay at 90, what would你 say is a fair level that LR2 should be at? Do你 see any upside potential here? If I may, and then Lars, please jump in. I think the LR2s have not—or Aframaxes for that matter—have not remained flat. I think that today, you can fix an Aframax/LR2 for one year in the high forties. And there are the rates for three and five years and the demand for three and five years deals, which has come in strong and has been reconfirmed. We have fixed a couple of ships for five years in Q4 last year, and today, those rates would be starting with a three for a five-year deal, or comfortably with a three for a five-year deal. So definitely, the interest is there, and the rates have increased for our classes of vessels as well.

Q: The VLCC market finally is coming into its own. Good for that, and it is going to be great for the overall market. So we are happy to see that we are firing on all cylinders now.

A: I will just add that the market on LR2/Aframax has relatively outperformed VLCCs. It is taking a while for the VLCCs to come, so we are very happy to see that the VLCC market finally is coming into its own. Good for that, and it is going to be great for the overall market. So we are happy to see that we are firing on all cylinders now.