Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Scorpio Tankers Inc (STNG, Financial) reported a significant year-over-year increase in rates, generating $278 million in adjusted EBITDA and $188 million in adjusted net income for Q2 2024.
- The company successfully reduced its net debt from $1.4 billion in June 2023 to around $700 million, with a pro forma net debt expected to be below $600 million.
- Scorpio Tankers Inc (STNG) repurchased 1.4 million shares for $109 million at an average price of $78 per share, enhancing shareholder value.
- The company declared a quarterly dividend of $0.4 per share and increased the authorization limit of its securities repurchase program to $400 million.
- Scorpio Tankers Inc (STNG) is optimistic about the rest of the year, starting Q3 with a spot fleet average of $36,000 per day, which is $10,000 higher than the previous year.
Negative Points
- The company faces geopolitical risks that could impact the strong underlying supply and demand fundamentals.
- There is a potential risk of increased fleet growth, which could affect the supply-demand balance in the future.
- The ongoing strength in the product tanker market is partly driven by geopolitical events, which could change unpredictably.
- The company has a significant portion of its fleet trading crude oil, which may not be sustainable long-term.
- Scorpio Tankers Inc (STNG) has not commenced new time charters in over a year, indicating potential market uncertainties.
Q & A Highlights
Q: Has there been any consideration of increasing the time charter out exposure to the fleet as we go through the rest of this year and into next year?
A: Robert Bugbee, President: Historically, we have been confident that the spot market would provide a better return than time charters, which has continued to be the case. We have been deleveraging, allowing us to take a more spot approach. We will continue to look at time charter opportunities but remain focused on selling older assets and repurchasing stock below net asset value.
Q: What impact could another diesel export ban from Russia have on the product market in the near term?
A: James Doyle, Head of Corporate Development & Investor Relations: A Russian diesel export ban would remove about 1 million barrels of distillate from the market, which would need to be sourced from the Middle East or the Atlantic Basin, tightening the market, especially as we approach fall maintenance season.
Q: Is Scorpio Tankers aiming to be debt-free, and what are the compelling uses of free cash besides buying stock?
A: Robert Bugbee, President: While it would be nice to reach a net cash position, buying our shares at a discount is a compelling use of cash. We have been buying shares regularly and will continue to do so opportunistically.
Q: How do you think about buying stock—is it coming from asset sales or ongoing cash flow?
A: Robert Bugbee, President: We are not providing specific guidance on this. Our strong position allows us to address opportunities as they arise, benefiting our shareholders in the long term.
Q: What are your thoughts on locking in rates and expected seasonality?
A: Robert Bugbee, President: Rates have been weaker in certain areas, but overall, the market remains strong. We are pleased with our position, as current rates are significantly higher than last year, and we are entering a stronger season.
Q: Are customers still interested in three-year time charters, or are they getting nervous about the market?
A: Robert Bugbee, President: The inquiry for time charters remains, but activity has been quieter recently. We expect this to pick up again in the next few weeks.
Q: What impact does Dangote's ability to buy crude directly from MPC have on increasing volumes?
A: James Doyle, Head of Corporate Development & Investor Relations: The ramp-up of Dangote's refinery will take time, but we are starting to see exports of jet fuel, fuel oil, and naphtha. This is bullish for the market as more products are exported.
Q: What are your thoughts on the recent move lower in the spread between low sulfur and high sulfur fuel?
A: Christopher Avella, Chief Financial Officer: We expect the spread to stay narrow for the foreseeable future. Our long-term forecasts have always anticipated a narrower spread, and if we had to make the decision again today, it wouldn't be a great return on our capital.
Q: How is the trend of crude tankers trading in the products market playing out?
A: James Doyle, Head of Corporate Development & Investor Relations: We have seen Suezmaxes carrying distillate from India to the UK, but it remains unclear where these vessels will go after discharging. Cleaning up larger vessels for trading clean products is a significant investment and is typically temporary.
Q: What is the outlook for the redistribution of global refinery capacity and its impact on ton-mile demand?
A: James Doyle, Head of Corporate Development & Investor Relations: The redistribution of refinery capacity is a long-term trend. We expect older refineries to close, with more modern refineries exporting products to regions with increasing demand. This will continue to benefit product tankers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
