Scorpio Tankers, Inc. Q1 FY2025 earnings call

• Strengthened balance sheet by reducing debt by $2.2 billion since 2022, expanding revolving credit capacity, and locking in low-cost capital. • Lowered daily cash breakevens to $12,500 per day. • Liquidity now at nearly $1.4 billion. • Completed special surveys for drydocking of 10 vessels this quarter, enhancing vessel efficiencies. • Added one new vessel on time charter and extended three LR2 charters for one year. • Adopted more conservative capital allocation due to global uncertainty while maintaining positive outlook for crude and oil refined products.

In the first quarter, the company generated $123.7 million in adjusted EBITDA and $49 million, or $1.03 per diluted share in adjusted net income. The company added one new vessel on time charter and had three LR2 charters extended for one additional year. It has materially strengthened its balance sheet, reducing debt by $2.2 billion since 2022, and lowered daily cash breakevens to $12,500 per day. Liquidity stands at close to $1.4 billion. Operationally, it completed special surveys for drydocking of 10 vessels this quarter.

• Product anchor rates began the second quarter of 2025 at higher levels than the first quarter. • Outlook for crude and oil refined products remains positive. • Balance sheet fortified, fleet upgraded, and market fundamentals favorable to navigate uncertainty.

• Policy shifts, tariffs, and geopolitical developments create global uncertainty affecting visibility. • Potential impact from USTR proposed port fees, though minimal for product tankers. • If Russia-Ukraine peace deal reached, tankers servicing Russian trades may struggle to re-enter Western markets due to age, history, etc.

Q: Hey guys. Today’s report is just about business as usual as you can get. Especially with this backdrop of what’s going on in the broader markets and you entered into some nice charters. Just wanted to ask maybe in terms of ship values, clearly there’s been a significant disconnect between where the equities are and tanker values. And so obviously not just for Scorpio, but across the board. And it seems like something has to give at some point. Maybe they converge or one meets the other. So far we’re seeing tanker rates as evidenced by your guidance, so far they’re rising. How are you thinking about where ship values are? Are you seeing them holding up? Is there transactions going on that can give you a barometer of what’s happening? What are you seeing from your vantage point there?

A: I think that the correction that we’ve seen in ship values, it’s closely correlated to the global uncertainty that has characterized the world in the last six months. So the big correction has come and has been more pronounced as the global uncertainty increased. So the way we see it is difficult to read at this stage. As everything else, as we discussed in the opening remarks and in the presentations, the fundamentals remain positive. And like you just said, we think that something’s got to give and we think that the values are going to be readjusted to match the rates as soon as the world gets some count.

Q: Clearly in a different world today, with tariffs and ongoing trade war and whatnot, can you talk a little bit about what you’ve seen, if there’s been any changes over the past few weeks or months in chartering habits? Especially as we think about what happened roughly about a month ago at the beginning of April, when it felt like things had gotten to a standstill. Did you see any of that make its way into products and any shifts since then?

A: I think it’s really interesting to see that when the tariffs really came into play on, in particular on the gas side, what that really meant for NAFTA. There is, and there currently still is a rally going on with cracks and the time spreads, they’re hitting all time highs for this year. We’re seeing and have also talked about in the past about this perpetual west to east NAFTA ARP [ph] that’s been moving. But we can really start seeing that there is a lot of demand that is kind of coming in as NAFTA probably is going to be favored over propane in terms of pricing. It certainly is the case right now that, for the crackers and so on that they are probably switching over to NAFTA, which of course, bodes well for in particular for the LR2s. So we’re seeing a lot of NAFTA being pointed towards China or Asia in general. And we don’t see that kind of changing in the short-term. This is irrespective of the fact that ethane has been exempted from the tariffs. It could happen that propane as well is going to be played into that. But if things stand right now, it turns to see that NAFTA cracks have been remaining strong in the Asian markets.

Q: Good morning, everybody. Thank you for taking my questions. Just wanted to focus a bit on the vessel OpEx came down pretty significantly quarter-over-quarter, kind of normalizing back to level seen in 2024. Can you just talk about kind of the change from 4Q to 1Q? And what you think run rate OpEx will be going forward here?

A: I’ll take that one. Hi, Chris. Chris, obviously, we’re happy to see the number come down, but as I’ve said on previous calls, one quarter doesn’t necessarily set a trend. So of course, we’re happy with the results. But if I were looking for a run rate, I would really use like a trailing 12 months average. And to help with that, so for the LR2s, I’d say that’s like slightly below or around $9,000 per day. For the MRs and the Handymaxes, I would say slightly below $8,000 per day on a normalized basis.

Q: We’ve had more crude production, both from OPEC plus putting out more barrels plus non-OPEC countries coming online. How is that impacting the – your [ph] side of the market on the refined product side?

A: Well, I’m going to start with first part of it, which is kind of pretty obvious is that when we’ve been on these calls before, a lot of the questions have been about the crude clean switching and stuff like that and the risk of the kind of cross cannibalization from the crude side. That for sure is no longer kind of an issue that we consider to be prevalent. The crude markets have increased substantially. Atlantic Basin Aframax certainly are very strong. We have seen over the last week, maybe 10 days, five LR2s going into dirty. There’s also quite clear that if the crude prices continue to drop, are we going into kind of back to a contango market? There’s I think it’s 400,000 barrels of kind of additional production that came into May. Obviously, everybody talks about what OPEC is going be doing over the next two to three months in terms of unwinding their cuts. This, of course, is going to be very strong sign for the VLCCs, but that obviously flows through down to the Aframax. And that substitution for sure will be another positive sign for the LR2s. So I think today, if we look at it, if I remember correctly, is that we’re now about 50/50 into the standard LR2 versus Aframax fleet, whereas we’ve had over the last 12 months probably a stronger proponent of ships going in clean that has now reversed. I think also it’s interesting to note that if you look at the new-buildings, which has been the other issue that we’ve been facing from the vessels loading kind of with virgin tanks, cargoes loading out of Asia. I believe it’s only five VLCCs that are going to be delivered this year. So we don’t have the same issue as we saw the prevalent previous years. There’s a lot of Suezmax’s as well that are being delivered this year, I think it’s 2023. However, with all this additional oil that’s very much Suezmax focused and particularly the stuff around Kazakhstan will be very positive for that particular market. But most importantly for our market, we’ll not have this cannibalization substitution effect that we’ve seen in the previous years.

Q: Hey guys. Yes, I guess you just said the USTR didn’t matter that much but I just wanted to follow-up anyway because yes, thankfully the MR [ph] showed Exempt more or less like so you can do triangulations without any problems. But I just wanted to ask if there are any triangulation involving the U.S. Gulf anyway and if so, maybe owners like you with a very high share of Korean vessels could benefit from that or not?

A: The first part, I’ll just take that. And yes, on the LR2s, the LR2 market is insignificant when it comes to the U.S. so, if it’s Chinese built, Korean built, for most part of the LR2s, that is not an issue. It becomes a greater issue of course on the Aframax’s but as you rightfully said Frode I mean, on balance, considering the fleet structure that we have in Scorpio, it’s not going to present an issue for us