Scorpio Tankers Inc . (NYSE: NYSE:STNG), the largest market cap company in the pure product tanker sector, has reported a robust start to 2024 with substantial earnings and a positive outlook for the year ahead. In the first quarter, the company achieved an adjusted EBITDA of $293 million and an adjusted net income of $207 million.
With a strategy focused on debt repayment and operational efficiency, Scorpio Tankers has reduced its net debt to $811 million and is targeting a significant decrease in cash breakeven to $12,500 per day by Q3 2024. Amidst a strong global demand for refined products and a constrained maritime supply chain, the company's modern fleet positions it well to capitalize on favorable product tanker rates.
Key Takeaways
- Scorpio Tankers reported adjusted EBITDA of $293 million and adjusted net income of $207 million for Q1 2024.
- The company reduced its net debt to $811 million and aims to lower cash breakeven to $12,500 per day by Q3 2024.
- Scorpio Tankers’ fleet is averaging nearly $38,600 per day in Q2 2024 coverage, with significant cash flow potential at current rates.
- The company is well-positioned with the newest fleet in the pure product tanker sector and a sustainable dividend policy.
- Scorpio Tankers plans for shareholder returns, including share buybacks, while continuing to prepay existing debts.
Company Outlook
- Scorpio Tankers anticipates further debt prepayment to decrease breakeven rates and boost shareholder returns.
- The global demand for refined products remains strong, and the constrained supply chain is beneficial for tanker rates.
- The company is optimistic about the spot market's upward trend across all sectors.
Bearish Highlights
- Concerns about the impact of geopolitical events, such as the ceasefire in Israel and Gaza, on tanker stocks were addressed, with historical data suggesting the company can still outperform 2023 earnings.
Bullish Highlights
- New refineries and increased utilization levels are positively impacting the shipping industry.
- Upcoming events TMX and CMX are expected to significantly affect the Aframax and LR2 markets.
- The Aframax order book is low, which could lead to higher demand for existing vessels.
Misses
- There were no specific financial misses reported in the earnings call.
Q&A Highlights
- The management team discussed the potential for extraordinary increases in capacity utilization.
- Breakeven levels were addressed, with the current figure at around 16,000.
- The Handymax segment was highlighted for its potential for quick growth and optimization, with current rates trading at approximately $25,000 to $30,000 per day.
In summary, Scorpio Tankers Inc. is navigating 2024 with a strong financial foundation and strategic initiatives that position it favorably in the product tanker market. The company's focus on reducing debt and improving operational efficiency, combined with a favorable market environment, sets the stage for continued success and shareholder value creation.
InvestingPro Insights
As Scorpio Tankers Inc. (NYSE: STNG) sails through a profitable Q1 2024, the company's strategic maneuvers are mirrored in its financial metrics and market performance. InvestingPro data highlights a robust market capitalization of approximately $3.83 billion, reflecting the company's substantial market presence in the pure product tanker sector.
InvestingPro Tips indicate that management's aggressive share buyback strategy has been well received, demonstrating confidence in the company's future prospects. This is coupled with an impressive gross profit margin of 75.48% for the last twelve months as of Q4 2023, showcasing the company's ability to maintain high levels of profitability.
Furthermore, Scorpio Tankers' commitment to shareholder value is evident, having maintained dividend payments for 12 consecutive years. The current dividend yield stands at 2.12%, which is particularly attractive to income-focused investors. The company's stock is also trading near its 52-week high, with a price 98.8% of the peak, indicating a strong market confidence and a potential signal for momentum-focused investors.
To delve deeper into the financial health and future performance of Scorpio Tankers, investors can access additional insights through InvestingPro, which lists a total of 12 InvestingPro Tips for STNG. These tips provide a comprehensive analysis, including the latest earnings revisions and profitability predictions. For those interested in taking advantage of these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at https://www.investing.com/pro/STNG.
Full transcript - Scorpio Tankers Inc (STNG) Q1 2024:
Operator: Hello and welcome to the Scorpio Tankers Inc. First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to James Doyle, Head of Corporate Development and IR. Please go ahead, sir.
James Doyle: Thank you for joining us today. Welcome to the Scorpio Tankers first quarter 2024 earnings conference call. On the call with me today are, Emanuele Lauro, Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer; Chris Avella, Chief Financial Officer; Lars Dencker Nielsen, Chief Commercial Officer. Earlier today, we issued our first quarter earnings press release which is available on our website scorpiotankers.com. The information discussed on this call is based on information as of today, May 09, 2024 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 as well as 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 broadcasted live on the internet and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days. We will be giving a short presentation today. The presentation is available at scorpiotankers.com on the Investor Relations page under Reports and Presentation. These slides will also be available on the webcast. After the presentation, we will go to Q&A. For those asking questions, please limit the number of questions to two. If you have an additional question, please rejoin the queue. Now, I'd like to introduce our Chief Executive Officer, Emanuele Lauro.
Emanuele Lauro: Thank you, James, and good morning to everyone and thank you for joining us today. We are pleased to announce another strong quarter of financial results. In the first quarter, the company generated $293 million in adjusted EBITDA, and $207 million in adjusted net income. The market dynamics that have been driving this favorable rate environment continue. Global demand for refined products is robust. Refining capacity remains dislocated and the maritime supply chain is still constrained. In addition, geopolitical disruptions have tightened the supply curve further, and the resulting cash flows from a high [indiscernible] environment have been significant as well as transformational for Scorpio Tankers over the past few quarters. In Q1, we continue to focus on using our leverage. We made $262 million in unscheduled repayments on our debt, and are set to repay an additional $118 million during the second quarter. As previously mentioned, the balance sheet and quality of Scorpio as an investment improves each day. Today, our net debt stands at $811 million, which represents the lower end of our target debt level. We anticipate significant reduction in our cash breakeven, starting in the third quarter of this year. In fact, we are working with our lenders to prepay existing debts, which will decrease our daily fleet operating breakevens to $12,500 per day, a figure near the lowest TCE rates during the COVID period and in the company's history. This breakeven once achieved would be amongst the lowest in the industry, despite Scorpio Tankers actually still owning the most modern product tanker fleet out there. With net debt near scrap value, our modern fleet, low anticipated cash breakevens, we have positioned ourselves to act opportunistically to increase shareholder returns and further reduce debt. If things were to remain the same, even the share price discount to NAV, we would be buyback -- we would favor buybacks as we see them more accreted to shareholders than further increases in regular dividends. As we look forward, we remain optimistic with low global inventories, robust demand and limited growth [indiscernible] supportive factors for the continued strength in the product tanker rates. We remain committed to delivering value to our shareholders and appreciate your continued support and confidence in Scorpio tankers. I would like now to turn the call to James for a brief presentation, James?
James Doyle: Thank you, Emanuele. Slide 7, please. Never have there been so many factors driving our business. Individually, these factors are positive. Collectively, they're unprecedented. Increasing global demand, low inventories and shifts and refining capacity have increased seaborne exports in ton miles. At the same time, the fleet has become bifurcated and supply growth has been limited. The result, product tanker rates have remained at high levels for the last 2 years. Today, spot rates for MRs are almost $40,000 per day and 50,000 for LR2s. While LR2s have captured headlines because of their higher volatility and impact from disruptions in the Red Sea, MR rates have shown remarkable consistency and served as a clear indicator of the robust underlying global demand for refined products. This continues today. Slide 8, please. Refined product demand has been extremely strong. We expect an increase of 1.5 million barrels per day through year end driven by increases in diesel gasoline, jet fuel and Naphtha. And yes, as global demand has increased, so have sea borne exports right now in place. The increase in demand has led to record levels of seaborne exports. In March, exports reached 21.1 million barrels a day, an increase of 1.1 million compared to last -- to 2019 levels and up 500,000 barrels a day year-over-year. The increase has been primarily fueled by heightened demand for diesel gasoline and jet fuel. Moreover, not only have export grow -- exports grown, but the distance these barrels are travelling has also significantly increased. Slide 10, please. As refineries have moved further away from the consumer, the distance to cargo needs to travel has increased. Refinery closers in Europe, U.S. and Australia, Asia have decreased local output, increasing the need for imports. Conversely new refining capacity in places like the Middle East have boosted production, leading to an increase in exports. The structural changes in capacity has been continuous to reshape for us. As ton mile demand increases, vessel capacity has reduced and supply tightened. Slide 11 please. End demand for ton miles has notably increased. Excluding Russia, ton mile demand has increased by 21% since 2019. If you include Russia, ton mile demand increases an additional 6%. This suggests that it's not only geopolitical events driving ton miles, but changes in refining capacity and increasing export. That said, geopolitical events have required the rerouting of vessels, leading to a less efficient fleet that must cover longer distances. For instance, attacks in the Red Sea [indiscernible] product tanker volumes to the Suez Canal by 75%, and increased volumes around the Cape of Good Hope by 400%. These disruptions have exacerbated the strong supply and demand fundamentals in our market. Slide 12, please. Strong spot and time charter rates coupled with an ageing fleet has led to an increase in new building orders. Currently, the order book set to deliver over the next 3 years, represents 14.8% of the existing fleet. Meanwhile, the fleet continues to age with the average age of the product tanker fleet now at 13 years. So what will the fleet look like in 2026, including new build? Well, by then 50% of the fleet will be older than 15 years and 21% [indiscernible] 20 years and older, positioning them as potential candidates for scrapping. Thus, using conservative scrapping assumptions, fleet growth looks modest over the next 3 years. Slide 13, please. This year's fleet growth is expected to be about 1.4%. And with seaborne exports and ton mile is expected to increase 2.6% and 7% this year, it's vastly outpacing supply. Looking for we're very constructive on the supply demand balance. The confluence of factors in today's market are constructed individually, historically low inventories, increasing demand exports and ton miles, structural dislocations in the refinery system, rerouting of global product flows and limited fleet growth. Collectively, they're unprecedented. With that I would like to turn it over to Chris.
Chris Abella: Thank you, James. Good morning. Good afternoon, everyone. Slide 15 Please. The first quarter of 2024 combined another strong seasonal quarter with the dramatic expansion of ton mile demand that was triggered by the conditions in the Red Sea. Over the past five quarters, we have generated $1.3 billion in adjusted EBITDA and $777 million in adjusted net income. These results have enabled us to reduce our debt by $557 million, pay $79 million in dividends and purchase, $490 million of the company's stock in the open market at an average price of about $50 per share. Slide 16, please. Deleveraging has been our primary focus. And as of today, we have reached our net debt target. We've not only reduced our leverage, but we've also simplified our balance sheet through more traditional forms of financing at lower costs and more flexible terms. We have successfully refinanced almost all of our legacy lease obligations into more traditional and lower cost secured bank debt, which carries margins of less than 200 basis points. As shown in the chart on the right, our gross and net debt as of today stands at $1.4 billion and $811 million, respectively. Slide 17, please. We are currently in discussions with the lenders on our $1 billion credit facility to make a prepayment of up to $223 million on the term portion of this loan. This amount represents up to 2 years of term loan amortization, which is for the period commencing in the third quarter of 2024 through and including the second quarter of 2026. This prepayment remains subject to lender credit committee approval and the execution of definitive documentation. If approved, repayments would not be scheduled to resume again until September 2026. We are taking this step in an effort to effect a significant and immediate reduction in our cash breakeven costs. Accordingly, we projected the company's daily cash breakeven costs, which include vessel operating expenses, cash G&A, interest payments and regularly scheduled loan amortization will come down to about $12,500 per day on a pro forma basis after giving effect to this prepayment. We expect to continue to pursue ways to reduce our daily cash breakeven rates through additional debt and lease repayments. By pursuing a long-term reduction in our cash breakeven rates, we have positioned the company to opportunity opportunistically increase shareholder returns. Slide 18, please. Our second quarter of 2024 coverage across the fleet, including time charters is averaging close to $38,600 per day. These rates demonstrate the company's operating leverage. At $30,000 per day the company can generate $547 million in cash flow per year and at $40,000 per day the company can generate $937 million per year. It is important to note that these estimates do not include any potential impact of the prepayment on our $1 billion credit facility. And with that, I'd like to turn the call over to Robert.
Emanuele Lauro: If Robert is not available, I don't know, Robert, if you're on mute or something, but …
Robert Bugbee: I am sorry. Hi. Hi, Rob, that's -- thank you very much, Chris. That’s -- it's fantastic. I just want to say just how enthusiastic all of us here in the Scorpio Group is. We know we've been climbing this mountain for a long time many years. And we finally got to this incredible stage where we've genuinely got a lot of things going for us. We are the largest market cap company. In -- a pure product tanker company. They're the highest liquidity in dollars per day trading volume. We have the newest fleet, the least need for fleet renewal, a sustainable dividend policy. And now we're ready to go. We're ready to go to the next place. As Chris pointed out, we're even going to be by the end of next week, we're going to be below on that date range that set out. Emanuele stated right from the beginning, that with our stock trading well below NAV, up priority for return of capital will be shared buybacks. Finally, we're expecting now through all this hard work with the delay of gratification that the shareholders have had in the last 6 months, we understand that, that can be frustrating, but it's been worth it because these operating cash breakeven are really low right now, a $12,500 [ph] a day that's like trust, earnings. It's even lower if we actually looked at the breakeven related to the spot part of the fleet, but a 12.5 that almost withstand anything, that withstand the COVID -- that terrible COVID year, the terrible 6 months or the worst period of the COVID year. And we're about to have our fair share of luck, because right now the spot market is moving. It's moving upward strongly across all sectors. As James pointed out, the factors out there are super favorable. And there's really no need for us to feel anything other than bullish. We observe that there is kind of fear the stock trades down all the tanker stocks are weak. Whenever there's a mention of a ceasefire in Israel, Gaza, because I guess it's because of the fear of opening up the Red Sea. But first of all, a ceasefire in Gaza does not necessarily mean you open the Red Sea straightaway. Secondly, let's look at that fear. If we look into 2023, where there was no disruption to the Red Sea. The MR market has been more or less the same. In this first quarter, this first 5 months as 2023. The LR2 market, depending on what quarter is maybe $5,000 to $10,000 stronger than 2023. But let's remember 2023 was an outstanding year. So it's not really something we should be afraid of, especially as the company's breakeven levels have dropped so much because of debt renewal. So it's arguable if we look at the data, historical data here, notwithstanding the fact that the market itself is fundamentally stronger today than it was in 2023. That the company could still earn pretty much -- would earn more than what it did in 2023, just because of the debt reduction. So I think that some of the fears out there are overblown, either cases, Emanuele said straightaway, is the company is in great shape. You can face anything now and look at that situation as a great opportunity. With that, we're really excited, we're really bullish, and just like to open that over to questions.
Operator: [Operator Instructions] Our first question comes from Omar Nokta of Clarksons Platou Securities. Go ahead, please.
Omar Nokta: Thank you, operator. I've since moved to Jeffrey. Hey guys. Good morning and good afternoon. First off, congrats on reaching your debt target. And, Robert, as you mentioned, we've been climbing this mountain. Now you're here and every available play is there for you now, both strategically and financially. I guess maybe, first thing now that you have reached this target threshold, does this change anything in how you're viewing the business? It sounds clearly that the buyback is now back in focus. And the pause that we've seen for the past maybe 6 to 9 months as you focused on debt reductions have been well worth it. But in general, are there any kind of changes now that you've reached this target regarding the business are coming?
Robert Bugbee: No, I mean, if you're asking, do we think it's worthwhile going out and order new buildings, no? Do we think it's worthwhile buying ships, no, or willing to continue while as this spread to sell some of our older ships, sure. But as you see it's not like a drastic situation, we are just doing it one-at a time or whatever it is taking. Great advantage of strong prices. I think that there was -- I think one thing that may not really a change, because it's just an expansion of where we before is that you are saying the 3-year rates move up quite strongly, the 2-year rate quite strongly and one of the things that I will -- a reduction in debt or reduction of costs, and interest costs does do is that it makes now some of the charter levels look super compelling in just putting in some rates knowing where we are. If we knew a little bit more where our revenue line is that allows us to be more even more aggressive elsewhere. So if there was one thing, I think that it's the lowering of our cost structure has changed. If you think of it this way, if you know, basically the third quarter last year, those numbers that we're talking about 12,500 were pretty close to the 20 and effective terms. That delta is huge. That means that if you are fixing a ship out to $40,000 today, that cost you 18, you've changed your 19, you've changed your free cash flow from 21 to 29, that's enormous. That's another real benefit of lowering these costs. And that would be the only change. But there's no rusty look, we're very confident that spot market too. So there's no rush to go out there and pile on the time charter.
Omar Nokta: Thanks, Robert. Yes, no, it's nice raising interest rates and lower breakeven, very, very different times. And I have a follow-up and just a bit more market related. Obviously, LR2s have been strong, and they've really established a higher floor or higher ceiling this year, at least, definitely relative to other segments in this, whether it's crude or product. Rerouting is obviously played a role, but I guess on that front any color you can give on how much the LR2 capacity that had previously been trading dirty has come back into the [indiscernible] to take advantage of this. And then I'm asking just simply because we now have also a lot of discussion on the TMX pipeline coming on and does that perhaps change any of that? Cleaning up the dirty LR2s and then perhaps, do [indiscernible] LR2s want to migrate into the dirty trade, take advantage of that TMX opportunity. Any color you can give on that?
Robert Bugbee: Lars?
Lars Dencker Nielsen: Yes, I will take it. I mean, LR2 clean dirty trading has obviously taken place for years, right? I mean, it oscillates and I looked at this the other day. Can you hear me?
Emanuele Lauro: Yes, we can.
Lars Dencker Nielsen: Yes, sorry. And it has oscillated, up and down between 220 units to 250 units trading clean over the last 3 or 4 years. So there has been a number of ships that gone into clean from the dirty trade as they clean up. And you might recall them that it takes a little bit of time to do that. So it's obviously a big decision. If you look at a more strategically in terms of number of vessels from a trading history perspective, it has kind of plateaued. It's not something that is a big issue for a LR2 owner to look at these things from an overall perspective. Because clearly, it's very decent and a very constructive market. I think it's fair to say before answering your question on TMX, which I think is a really important one is when I look at it holistically on the market, it's close to firing on all cylinders. Notwithstanding what goes on with the Bab el-Mandeb and -- does not going through Suez, because we still have a lot of refining kind of output that is going to increase over the next couple of months in June, July, as we go out of this kind of the big turnaround season that has taken place in the first quarter. And here we've still had a very strong first quarter. And now we're going into the second quarter, we can start seeing that there's more runs being built up, which is great. So you look at Asia, MRs there have been trading. And I think as James was saying early on around $40,000 per day, those rates have been increasing. [Indiscernible] has been good rates as well. China exports is going to be a big thing as we move into the second and third quarter. And again, talking about the LR2s, we've seen rates now moving up strongly. I think 50 points today trading 225, 230. Probably gainfully around $60,000 a day for offer long-haul business. Same time, Middle East has been good for MRs as well. Trading probably $45,000 a day around voyage. The West has been a little bit slow, a little bit on the back of this refining turnaround. We've seen good activity this week as well rates have ramped up very much in the U.S., Gulf couple $100,000 for cross curves, that's also now trending up towards $30,000 a day. So, all of this is good stuff. James also talked about the new refineries and we see this every single day now we live this every day and we can see how utilization levels have moved up on that. And also the disparity of the cargo selection that we can do the triangulation availability not only on air mass, but also now certainly on LR2s have impacted the way we do our business and certainly the ton miles. When you talk about TMX, I call that like one of the new dynamics, which is like Dangote [ph], which is a big thing, it does focus in Mexico, which is coming up end of the year and then CMX. Now CMX is a big thing for Aframaxes. And because of Aframaxes we also have a big thing for LR2s. If you ask TMX, they say that I think it's about 30 Aframax listings per month out of Vancouver. And that's a lot of Aframaxes. I mean we've seen a couple of [indiscernible] now they've gone to Asia. If it goes long-haul, it could be more than that, if it goes to California be less than that. Whatever way you look at it, it's going to have a big impact on the Aframax market and through that also on the LR2s because there will be additional bottlenecking around these things. And when you talk about for what LR2 supply, you need to look at the overall context and you have to include the Aframaxes. So the Aframax order book today is extremely low when you combine it with the LR2. So you put all of this together with the fact that the LR2 and Aframaxes will reach 20 years of age, it doesn't equate to that. So I see this as a really strong kind of input or the one of the new dynamics that really is going to improve the overall demand for Aframax stroke, LR2s as we move into '24 and beyond.
Omar Nokta: Great. Thank you, Lars. That's a very, very obviously detailed and helpful color. So appreciate that. And Robert, thank you as well. I'll turn it over.
Operator: Our next question comes from Jon Chappell of Evercore ISI. Go ahead, please.
Jon Chappell: Thank you. Good morning. Quick follow-up on strategy as it relates to vessel sales. It seems like the pace of disposals have been picking up a little bit through some of the announcements you made today. By my count, 6 2012 and 2013 vessels lapped. Clearly you already have a lot of operating leverage and per your commentary about your own NAV there seems to be an [indiscernible] there of potential sale. So should we expect those to exit the fleet at some point in this year? Clearly, you don't need it from a deleveraging perspective, but could only just add to the bounty for the second half buyback. A - Robert Bugbee I think that the better way to describe it, we'll deal with those opportunities -- opportunistically along the way. I don’t think we can answer this, but …
Jon Chappell: Okay.
Robert Bugbee: …I just don’t think it's useful for us to discuss actual types of vessels and what our plans would be. I think it's much better for us to all have shareholders to just accept that we'll carry on if we see vessels that are bids that are attractive to us, then we might engage and do that. We don't have to, but we might want to.
Jon Chappell: Then for a follow-up to go back to, I think James's first chart. I think the LR2 get a lot of focus because of the volatility there. But as you noted, the MRs have been pretty consistent throughout. Would it be fair to characterize the LR2s to be more of the disruptively impacted sector. But what's been happening in the MR is kind of slow and steady, grinds higher is more structural, and related to demand and the refinery dislocation, and therefore, if there were to be some perceived, I guess, peace across the impacted regions, it would seem that the MRs would still have more of a structural boost. And maybe the LR2s would be the ones at risk.
Robert Bugbee: I'll let Lars answer that in two seconds. But I think we just said we got back into historically you still had a -- I just think you'd rather just the widest spread between MRs and LR2s to the benefit of the LR2, whilst the Suez Canal is we're not [indiscernible] the owning group. And -- but you still had in 2023, quite a wide -- still quite a wide spread to the LR2s in its favor. You also on the time charter market its difficult to [indiscernible] remember the time charter market itself is saying there is a quite a widespread again to the LR2s favor. So we're only saying we're not saying that the market thinks that the Red Sea will be transmittable, it is just saying, look, some of this sort of worried really isn't that much of a worry. Lars, do you want to add to that?
Lars Dencker Nielsen: I think what we're seeing today also is that the LR2 is becoming more of a fungible unit. There is a lot more arbitrage that takes place on an LR2 today. The whole concept of what's going on -- going back to the TMX thing has meant that the crossover between an LR2 and Aframax is evident. You can see that on the time chatter market. You can also see it in the ordering market for new builds where you know, most owners considering where the price point is today will be willing to pay the marginal increase for an LR2, which is limited now to have that optionality. So when you look at LR2 Aframax you got to look them together holistically. I think that to your second point, Robert, where you talked about these factors of Bab el-Mandeb and so on, obviously impacts the longer haul business, which of course impacts the LR2 by virtue of its size, and therefore you have it outsized. I think under normal market conditions there will be that spread. But I do think that they both are kind of very viable, fungible tradable assets.
Robert Bugbee: If you've seen some recent clarification in INSWs, the results yesterday when they have fixed MR and they have fixed an LR2. And there you can see that positive spread -- quite a wide positive spread to the LR2.
Jon Chappell: Okay. That’s all clear. Thank you, Lars. Thanks, Robert.
Operator: Our next question comes from Greg Lewis of BTIG. Go ahead, please.
Greg Lewis: Yes, thank you and good morning, afternoon. Thanks for taking my question. I guess my first one, Robert, James or Lars is around the time charter market. I mean, you called out the pickup and I guess rates in the more longer term 2, 3-year time charter market. Just kind of curious at a high-level, what types of customers are looking for those are kind of the usual suspects. And as we think about the appetite from those charters, is the impediment on getting deals done. Like [indiscernible] why do we think these bid asks are at this point?
Lars Dencker Nielsen: First of all, I'd say that the bid ask is not very wide, because deals are being concluded quite regularly at this moment at levels that are gainful both on LR2s and also on MRs. And there's quite a few out there looking consistently for longer term charters between 2,3, 4 or 5 years. And basically, the client base is wide. It is national oil companies, its traders, its end users and it spans the globe.
Greg Lewis: And just real quick on, is there a preference for scrubbers?
Lars Dencker Nielsen: There tends to be a preference with scrubbers, but it's not complete. I mean, there are definite, there are some who do not want, but I'll probably say 80% for scrubbers.
Greg Lewis: Okay, great. Thanks. And then just one I wanted to touch a little bit on Dangote, kind of where -- that seems like it has the potential as the year progresses. And I guess really even in the '25 to be a major driver of volumes. Any kind of updates you can share there kind of what's been happening there as you see it develop is that, as we think about the differences between MRs and LR2s. Is that -- do we expect that to kind of evolve in a more of an LR2 market, is it going to be mixed, kind of just any high-level thoughts around that would be super helpful.
Robert Bugbee: So it's very early days still, Greg. Dangote has just recently started up and I think it's currently around 300,000 barrels a day. And I think there's a second distillation unit that's coming on stream in 6 weeks or something like that, and that's going to start ramping up. And then suddenly the product is going to become finished grade, which is not the case right now. We have seen exports, we have done a couple of cells that has been exports done on LR2s long-haul, there's been a lot of MRs being done as well. Dangote, which primarily has been going to some of the other West African countries, all are very interesting from a product tanker owner perspective. As this startup has taken place, it almost seems right now at the startup stage that we've -- there's this third export market has been created in the Western Atlantic together with the continent and the mid. So you have to bid the vessel, you have to start looking at pricing somewhat differently rather than being at a backwater West Africa where you tended to only have gone in with your imports. Obviously, you would anticipate some reduction of imports over time from the continent. But I think we talked about this before, but there is a logical value trade, because the premium finished product that's coming out of Dangote is high grade, high value stuff that's ultra low sulfur, diesel, 1 PPM gasoline and stuff like that, which obviously goes and fetches a premium in the States or in Europe and other OECD markets whereas the products that you normally you would use in Nigeria of lower grade. So it obviously remains to be determined if -- what are the political pressures around that and what that's going to be. And I think that remains to be determined at some way or form. The other issue as well, when it comes to Dangote, which is also something we need to find out is the whole supply infrastructure is also big question. And I think there's going to be some issues around bottlenecking and double handling that's going to pose. We can see that some of these things will need to have double handle, you need to have bigger ships into work as SDS as they do already today. So it's going to be a really interesting thing to say, and to see how that's going to develop over the next year. I think the final thing also that's quite interesting is that where it's placed, Dangote has excellent out potential as a swing refinery, even go East, West, you can do all these things, I think, I would imagine as this thing starts developing as a real up and running refining with the size that it has, it will have a lot of potential because it will have a lot of Naphtha that can be exported, they will have a lot of jet fuel as well that they would not require in the local market. So it's an interesting one. Headwinds in terms of a product coming from the continent going down to West Africa, you could assume that, but I think there's a lot of other stuff considering the size of this refinery, and the quality of product that it's going to produce that will kind of come up with some interesting determinants for the market.
Greg Lewis: Super helpful. Thank you very much. Have a great day, everybody.
Operator: Our next question comes from Ken Hoexter of Bank of America. Go ahead, please.
Ken Hoexter: Hey, great. Good morning, Emanuele, Robert, James and Lars. Thanks for the update and Chris. So congrats on meeting the net debt to NAV target. What a ride to get here. Just a minor one to start. Did you have fewer vessels and drydock or where the plan drydocking quicker moves to the quarter. It looked like it was a bit lower than what you had talked about last quarter. But then my question is, is rates for the MRs have improved on your quarter-to-date with lower on LRs? Are you seeing any seasonal cooling off? If we're looking at second quarter? Is there just bigger demand near-term just want to understand the very near-term market where we normally get that seasonal pullback. Lars, have you have any thoughts on that?
Lars Dencker Nielsen: The short answer to the -- second part of your question is, I do not see seasonal pullback. I see a seasonal ramp up. And I don't think that what we have seen in the past in terms of what we would historically look at the market seasonality, going back -- pre-2019 being the case, I do see that we probably going to have a stronger some of them we have anticipated before. One of course, it's because of the refineries that we can see from the output that's going to happen over June, July. I think another thing also which is a key variable from a macro perspective, as an ingredient is China exports. We've talked about this in the past as well. There's been -- the second quarter was issued is higher than it was last year. The thing that I find quite interesting in that context is that before we were kind of being cannibalized somewhat by the new builds, but I can see that there's only one VLCC that's per delivery in '24. There's only 7 Suez maxes, I think that's being scheduled for the rest of the year. So, there's limited competition, but this kind of China long-haul stuff that before we will talk about, it's not even something that I think about anymore. It's just -- it's another thing that just comes in, and we're looking at some really kind of constructive stuff as we go into the second quarter.
Ken Hoexter: Great. Chris, thoughts on the days?
Chris Abella: Yes, Ken, thanks for the question. There were slightly fewer drydocks. I'd also emphasize there were slightly fewer days of the drydocks that we had planned, which is good. There's drydocks are always going to move around. Especially in this market, there's vessel positioning. We've had some good push back from Q1 to Q2, and some good push back from Q2, Q3. So we'll just keep updating that. But short answer is, yes.
Ken Hoexter: Perfect. Just looked a little different. And then, Robert, I guess, maybe just bigger picture or manually, thoughts on cash, right. You've noted you're going to refocus on buybacks. But what's your vision for the fleet, right, you've got some opportunities, you mentioned on potentially selling some of the older vessels. Do you look at this as an ongoing entity for the next 20, 30 years. Do you look at it as we kind of run it to the end of the fleet life and monetize that? I just want to understand your vision for what comes next. I mean, obviously, it's been a long ride to get here. And to be able to have the optionality you now have, but just want to understand how you think about the next phase of the company structure?
Robert Bugbee: I think you see is an ongoing [indiscernible]. I think I know that we see there's an ongoing entity. I don't think that you -- I don't think running off to nothing is not a -- not something that's been discussed. Obviously, the other -- obviously, there's always a public company, the alternative of someone wanting to buy the company. But other than that you look to carry the company forward.
Ken Hoexter: Right. That's just because I want understand the timing of then when you'd have to start reinvesting to replace the vessels.
Robert Bugbee: [Indiscernible].
Emanuele Lauro: I think -- if I may Robert, I think we act, I mean, the management team is, I think shown that we act and live as if it was forever, and we are opportunistic and reactive when we have to be on up markets and on down markets. So as far as a fleet renewal, I think that we have quite a bit of time to think about that. We still are sitting on the most modern fleet that any public company out there owns. We now have the lowest leverage or actually the lowest breakeven that we've seen in our company history. And we -- the beauty of where we are is that we do not have to take a decision today. Robert was saying before, yes, if we are receiving offers on existing vessels that are attractive enough, we will look at them or consider them, and maybe continue training the fleet. However, we are enjoying this market that are improving. And as you know, we've all heard Lars's comments on what the markets are doing as we speak. So we are very relaxed, aware, and open to opportunities going forward knowing that we do not have to do anything for the coming quarters as it have to, but as you can do, yes, we have a lot of options ahead of us.
Ken Hoexter: Great, appreciate the thoughts. Thanks guys.
Emanuele Lauro: Thank you.
Operator: Our next question comes from Frode Morkedal of Clarksons Securities. Go ahead, please.
Frode Morkedal: Yes. Thank you. Hi, guys. Just a quick question on the market discussion you just had. It's interesting to note that rates have been fairly similar to 2023, despite this Red Sea disruption, right. You would have thought, perhaps, a bigger impact on rates because of the turmoil expansion. But just if you have any ideas on why rates haven't been higher? I guess, part of the answer is related to refinery run. But just curious if you have any other comments to that. That's the first part of it.
Emanuele Lauro: I got be honest, I'm pretty happy with the kind of the rate structure as things are right now. I mean, there obviously has been kind of the refining maintenance in the states earlier. And then obviously, the Middle East now and China also a couple of months ago, all of that has been kind of front loaded to some extent. For the first quarter, I think it's been absolutely fantastic. If I had to say, if there's something that I think probably would change would be to see some of the arms opening up from the West to the East, I mean, the Naphtha arm has been somewhat shut. I think a lot because of the distance and view had to go all the way around. And the cost of opening up that [indiscernible] and therefore that has been somewhat less scepter [ph], for example, just looking at it from a very micro perspective is, is down for maintenance right now. So that refinery, which is very much Naphtha related is not producing. So, there's some other factors that you say, well, could there have been a bit more otherwise? I don't think it's a big thing, to be honest. I think that rates generally have had from a very high point, Greg, volatility has been oscillating wildly in some markets. The U.S Gulf is a case in point where you've seen rates move up $20,000, $30,000 a day within a week. The second one that has also been like a funky ride is been the Middle East on MRs has also moved up -- could move up 100 [indiscernible] points. Also within a couple of days creating this kind of uncertainty, or how do you peg a market. So one thing I think it's fair to say is that the underlying utilization level across the product tanker fleets is at a much higher level than we've seen before. So it doesn't take very much we have seen now and the sentiment generally with the owners as well is that it doesn't take them very long time to turn into a bull, which we don't have to go back that many years where we're flat lining a lot and sentiment took a much longer time for it to kind of react to the fundamental prompt market dynamics.
Frode Morkedal: Yes, that's interesting. I mean, I was looking at the IEA [ph] data, Q1 refining runs globally was down year-on-year, roughly about 81 million barrels per day and then they predict huge ramp up to 85 million in August. But I was thinking like we've been lower than you should have expected and what happens next in Q2 and Q3 when you have this ramp up, if it happens, that's going to be very interesting, right?
Lars Dencker Nielsen: That's, I think you hit the nail on the head there, Frode. That's how I look at it, too. It's quite interesting with all the things that took place in terms of maintenance and the pullback. You would in previous markets, going back a number of years, seen a lot more disruption and destruction at rates whereas we have been hovering very nicely at some very decent numbers in what tends to be a situation where rates would have reacted negatively. So if you add on all these elements in the stuff that you just talked about, and also the stuff around China that I just mentioned earlier and so on, we are so close to this capacity utilization where north of 90% or whatever, that you just add a little bit to it, and you start seeing extraordinary kind of increases that outsize the element of that, because you're not trading at the margin.
Frode Morkedal: Thanks. Thanks Lars.
Lars Dencker Nielsen: Thanks, Frode.
Operator: Our next question comes from Chris Robertson of Deutsche Bank. Go ahead, please.
Chris Robertson: Hey, good morning, everybody. Thanks for taking our questions. Really excited to see the breakevens here. Fantastic job. Everybody just wanted to pass that along. But yes, my question is related to that. So if you engage in the prepayment, as you said, you could get to the 12.5 level, just curious what is the breakeven level today before that pre payments?
Emanuele Lauro: Hi, Chris. It's about 16,000.
Chris Robertson: Okay. Yes, got you. I'm glad that it has that potential of an impact here. So that's what we were trying to get at. My second question is kind of the often overlooked Handymax segment, just noticing quarter-to-date rates have gone down a bit there. And there seems to be a case where there's a consistent mismatch between what some of the brokers provide in terms of the global averages versus what you guys actually put up. So I wanted to better understand the dynamic in that particular segment.
Lars Dencker Nielsen: I'll start with that. I mean, I think the Handymax vessel [indiscernible] market is like our secret weapon. It's a small market, very ageing market, it has the potential to ramp up extremely quickly. If you have a certain size and experience, you also have the ability to triangulate extremely well in terms of trading on the continent or the Mediterranean, which is the primary market. It also has two markets within that. One is clean and one is dirty. So you get kind of like a four markets going on in a -- in an area where you can optimize around that. It is certainly very intensive business. So you need a lot of kind of focus around it. You need to have a number of ships to be able to optimize it. It's not a market that I would suggest that you go in with two or three ships. But you need to have kind of critical mass. And that also is a market which I didn't talk about it earlier when was asked about the spot market. But that has also picked up a lot over the last couple of weeks or last week actually, that's also trading probably on those four markets that I mentioned somewhere around $30,000 a day today. 25 to 30.
Chris Robertson: Okay, great. Yes, thanks for that color. That's it for me. Thank you very much for the time.
Emanuele Lauro: Thank you.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Emanuele Lauro, Chief Executive Officer for any closing remarks.
Emanuele Lauro: Thank you, operator. No closing remarks from our side. Just thanking you all for your time and attention today and looking forward to speaking very soon. Thanks a lot.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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