Scorpio Tankers Inc. Aktie

Good day, and welcome to the Scorpio Tankers Inc First Quarter 2026 Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to hand the call over to James Doyle, Head of Corporate Development and Investor Relations. Please go ahead.

Thank you for joining us today. Welcome to the Scorpio Tankers first quarter 2026 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 5, 2026, and may contain forward-looking statements that involve risks and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of the risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release as well as the 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 Presentations. The slides will also be available on the webcast. After the presentation, we will go to Q&A. [Operator Instructions]

Now I'd like to introduce our Chief Executive Officer, Emanuele Lauro.

_

Thank you, James, and good morning, and thank you for joining us today. I would like to start this earnings call by saying thank you. And thank you to all the stakeholders who have supported us in bringing the company to where it is today. When Robert, Cameron and I started this business in 2009, I cannot say that we envisioned every detail of what the company would become. But in our most ambitious plans, I remember looking at something like this.

So we have built a platform that can return capital through the cycle whilst preserving the flexibility to invest countercyclically. And this would not have been possible without the trust of our shareholders, the partnership of our customers and most of all, the commitment of our people. So thank you.

Now focusing on the business front. In the first quarter, the company generated $214 million of adjusted EBITDA, $151 million of adjusted net income. For years, we have focused on what we have under control, on what we can control, strengthening the balance sheet, optimizing the fleets and reducing our cash breakevens. Today, the discipline is fully reflected in the model.

Our cash position stands at approximately $1.4 billion, and it is bound to hit the $2 billion mark early in the summer with a daily cash breakeven of around $11,000 per day. To put that into perspective in today's market, we generate, of course, substantial free cash flow, but in a stressed environment similar to the debt of the COVID 2020 market, we remain at or above breakeven. That is a structural advantage.

Our recent financing further reinforces this. We reduced our cost of capital through 1.75% convertible bonds and a new bank facility at 120 basis points. These are the lowest margins in our history. These were proactive and opportunistic actions that were executed from a position of strength and not necessity.

We are applying the same discipline to the fleet -- since the start of the year, we have sold 12 of our older vessels at prices above their original purchase levels more than a decade before. So this is value realization is not only fleet management. The balance sheet strength and fleet optimization together create a powerful foundation for sustained capital returns.

In April, we repurchased 1.4 million shares for around $100 million. Today, we are going further. We are announcing a new $500 million share buyback authorization and a quarterly dividend of $0.45 per share. This is deliberate capital allocation. And by any measure, this was one of the strongest quarter in the company history, not only in earnings, but also in execution.

Rates have improved for 6 consecutive quarters, and that momentum actually not only continues, but has strengthened further into the second quarter. While the timing of geopolitical developments in the Middle East remain uncertain, we remain constructive on the underlying fundamentals that are driving the tanker market.

We expect restocking and demand reassert themselves as disruptions normal -- the disruption normalized. Critically, our low breakeven model allow us to perform across all environments, as mentioned before. We can be resilient in a weaker market and highly levered in stronger ones. We believe Scorpio Tankers is exceptionally well positioned to continue generating meaningful cash flow and deliver long term shareholder value.

Thank you again, and I will now turn the call to James.

Thanks, Emanuele. Slide 7, please. Today, product tanker rates are at unprecedented levels with average clean tanker earnings over $70,000 per day. It's unclear when returns to the Strait of Hormuz will normalize. But what we do know is this, global inventories, commercial, strategic and floating have been significantly drawn down.

The system will need to rebuild inventories globally. And given the scale of these draws, that process will take time. This creates a constructive setup for product tankers as refinery utilization and seaborne flows increase to support restocking in global demand.

More importantly, product tanker rates were strong prior to these disruptions as a result of robust global demand driving higher seaborne exports, refinery dislocation increasing ton-mile demand and modest fleet growth constraining supply. We remain optimistic that those fundamentals support a constructive outlook in the short and medium term.

Slide 8, please. Last year, over 18 million barrels of crude and refined products transited the Strait of Hormuz. Approximately 90% of the crude oil and naphtha volumes transiting the Strait were destined for Asia. West of Suez, roughly 75% of jet fuel flows go to Europe and 45% of diesel moves to Africa. The temporary loss of these volumes has forced global rerouting of trade flows on an unprecedented scale, reshaping supply chains across regions.

Slide 9, please. We are seeing a rebalancing of flows with increased exports from the U.S., Africa and Europe partially offsetting reduced volumes from the Middle East and Asia. Voyage distances have more than offset lower volumes, tightening effective supply and supporting a strong rate environment that we're seeing today.

Slide 10, please. Despite the scale of the disruption, demand has remained quite resilient. In the second quarter, refined product demand is expected to decline by approximately 1.5 million barrels per day year-over-year before rebounding by roughly 2.4 million barrels per day in the third quarter. And this aligns with what we're seeing on the water with seaborne exports down approximately 1.9 million barrels per day in April compared to last year. As transit through the Strait of Hormuz normalize, we expect demand to recover.

Slide 11, please. Importantly, the recovery in demand is expected to occur alongside a period of significant inventory restocking following recent draws. High-frequency refined product inventories have declined by more than 80 million barrels since the start of the year. U.S. refined product inventories have drawn 12 out of the last 13 weeks. Taken together, these data points highlight the scale of the drawdown and reinforce the magnitude of the restocking cycle ahead.

Slide 12, please. Product tanker newbuilding activity has slowed meaningfully over the past 18 months. Only 37 vessels have been ordered year-to-date and approximately half the product tanker order book is LR2s. As we've highlighted, a meaningful portion of LR2s operate in the crude market. Today, roughly 57% of the LR2 fleet is trading crude oil. As a result, the effective product tanker order book is smaller than it appears, reinforcing the view that future fleet growth will remain constrained.

Slide 13, please. Today, the order book is 18% of the existing fleet, which may seem high, but context matters. As you can see on the left, 21% of the product tanker fleet is already older than 20 years old. By 2028, it will be 30%. Roughly 25% of the Aframax LR2 fleet and 9% of the MR Handy fleet are sanctioned, averaging 20 to 21 years old. In a normal market, much of this tonnage would have likely already exited the fleet.

Slide 14. When adjusting for aging vessels sanctioned capacity and LR2 crossover, effective clean product supply fleet growth is materially lower than the headline order book implies. We expect fleet growth to average approximately 3% over the next 3 years, but potentially lower. As refinery utilization and seaborne flows increase to support global restocking and demand normalization, the market should tighten further. Longer term, refining capacity remains constrained, while the fleet is aging faster than it can be replaced. Overall, we expect ton-mile demand to outpace fleet growth.

With that, I'd like to turn it over to Chris.

Thank you, James, and good morning or good afternoon, everyone. Slide 16, please. This quarter, we generated $214 million in adjusted EBITDA and $216 million in net income on an IFRS basis. This includes a $66 million gain on the sale of 4 vessels during the quarter.

We sold another 2 vessels in April and have reached agreements to sell another 9 vessels, all built in 2014 or 2015 and all at cyclically high prices. Additionally, we declared a $0.45 per share dividend and replenished our securities repurchase program to $500 million.

The chart on the right shows the evolution of our net debt position since December of 2021. Our capital allocation policy over this period has been headlined by debt reduction and balance sheet fortification. As you can see, this approach has resulted in a reduction of our net debt position by $3.8 billion from a net debt balance of $2.9 billion at the end of 2021 to a pro forma net cash balance of $876 million as of today, which reflects our actual net cash balance of $479 million adjusted for the sales of 9 vessels that are pending closing.

Slide 17, please. The chart on the left breaks down our outstanding debt by type. As you can see, our capital structure keeps evolving as we continue to pursue opportunities to lower our cost of capital. First, we have $368 million in secured bank debt with a lending group exclusively comprised of experienced shipping lenders, and this debt all carries margins below 200 basis points. Further to this, $198 million of this amount is drawn revolving debt, an important tool that we can use if we want to repay the debt but maintain access to the liquidity in the future.

Next is our $200 million 5-year senior unsecured notes, which were issued in the Nordic bond market in January of 2025 and are currently trading at above 103 to par. Last is our $375 million convertible notes due 2031, which were just issued under a month ago. These notes have a coupon rate of 1.75% and are convertible to common stock only under certain circumstances at a conversion price over $100 per share.

As part of the offering of our convertible notes, we repurchased 1.3 million or 2.6% of our outstanding common shares for $100 million. The chart on the right shows how we continue to pursue ways to reduce our cost of capital.

Over the past 4 years, we have transitioned our vessel related borrowings out of expensive lease financing into lower cost, higher flexibility secured bank debt. And our efforts to pursue lower cost, longer tenure structures are ongoing, as you can see with our recent announcement of a $50 million secured credit facility with Bank of America at just 120 basis point margin and a 7-year tenor.

As you can see, this strategy, coupled with our aggressive prioritization of debt reduction has transformed the company's credit profile, thereby unlocking these opportunities in the unsecured markets. Now around 60% of our debt structure is unsecured and not due until 2030 and 2031.

Slide 18, please. The chart on the left shows our liquidity profile. We had $1.4 billion in cash as of May 1. And if we consider the sale of 3 vessels that were pending closing as of that date, the cash balance is $1.8 billion on a pro forma basis.

We also have an additional $712 million in availability under revolving credit facilities for a total of $2.5 billion in available liquidity. Since November of last year, we have signed contracts to purchase 10 newbuilding vessels, and the chart on the right is a waterfall reflecting our commitments to purchase these vessels. Our disciplined capital allocation over the last 3 years has afforded us the financial flexibility to enter into these newbuilding contracts. Our remaining newbuilding commitments totaled just over $641 million as of today after the payment of $59 million towards these vessels in the first quarter of 2026.

Hypothetically speaking, we could pay for all of these vessels today in cash without incurring any new debt. Importantly, approximately 80% of these remaining installment payments are not due until the years 2027, 2028 and 2029. With a low cash breakeven rate currently at approximately $11,000 per day, we are well positioned to build cash prior to delivery. Moreover, the age and specifications of these vessels make them attractive financing candidates, which has the potential to open opportunities for us to further optimize our capital structure and lower our cost of capital.

Slide 19, please. Our cash breakeven rates are at the lowest levels in the company's history. As shown on the left, these levels are below our achieved daily TCE rates dating back to 2013, with the closest point occurring during COVID-19 when global oil demand saw its largest decline on record. And just to add, the cash interest on our convertible notes only raises our cash breakeven levels by a modest amount and is more than offset by the interest we currently earn on our deposits.

To illustrate our cash generation potential at these cash breakeven levels, at $20,000 per day, the company can generate up to $260 million in cash flow per year. At $30,000 per day, the company can generate up to $548 million in cash flow per year. At $40,000 per day, the company can generate up to $836 million in cash flow per year. And at $50,000 per day, the company can generate up to $1.1 billion in cash flow per year.

This concludes our presentation today. We'd like to thank everyone for their time and attention. And now we'd like to turn the call over to Q&A.

[Operator Instructions] Our first question will come from Greg Lewis of BTIG.

I guess this first question is either for Chris or Robert. Could you kind of walk us through the decision on the convertible bond? Clearly, you laid out how strong the balance sheet is, and you kind of touched on it, but just kind of curious, a lot of cash on the balance sheet. How are we thinking about the liquidity and the opportunities for STNG post the convert?

Chris, you'd like to start and I'll follow?

Sure. Thanks, Greg. As we said, it was opportunistic. The convertible markets are strong right now and we have a strong credit profile. So it made for a good opportunity to execute an instrument that we view as a low cost of capital: 1.75% coupon and a high conversion premium. We're mindful of the fact that we have a lot of secured debt maturing in a couple of years, say 18 to 24 months. So our debt position is not static and we're just going to continue to look at opportunities to execute on low-cost transactions, and this is just one of those.

I don't have anything else to add to that, Greg.

And then the other question, just on the market as we think about it, James, you touched on ton miles expanding, maybe volumes not being where they need to be, maybe volumes being a little bit light. I guess, roughly a little over 2 months into the conflict and more of the war in Iran. Have we started to see pockets of hoarding or anything that is kind of just -- I mean, I imagine there's lots of things out of the ordinary that you're seeing. But just kind of curious how that's translating into maybe new trade routes or expanding ones, replacing others? Just kind of curious on what you're seeing there.

Lars, would you like to take this one?

Yes, sure. I'll start off. Yes, that's for sure. We have seen a lot of what you would consider to be genuinely unique voyages and instances. Ton miles have obviously elongated across the board. We have seen a huge amount of increase in the U.S. Gulf Coast exports very much further afield than what we would have seen before. From a pre-conflict into conflict level being the stuff with Iran, we had ships that were trading and transporting towards the West. And then before they even came to the Cape of Good Hope, they were asked to will you go to the Middle East. And then one day later, can you please go back to Asia where they actually had loaded from.

The fact is that the price of oil and price of product has made such that the price of freight has become insignificant. So we're not seeing any issues of freights being curtailed because of the price of freight because the oil underlying is so valuable and it's also so important for the security of supply. So that also obviously goes into the structural reshuffling of product in the United States. We've seen, obviously, the headline of the Jones Act being waived for a brief moment in time. That has obviously also kind of moved your needle to anything that we've seen in the past. So yes, there certainly has been a lot of change.

The next question comes from Omar Nokta of Clarkson Securities.

Clearly, things are moving in a really nice direction for Scorpio, certainly from a financial perspective, going deeper into net cash. You just re-upped the buyback to $500 million. And I just wanted to get a sense from you, does this signal a pivot in how you're viewing uses of capital from here? And is there any preference at this point in terms of the interest looking either at the shares or the unsecured notes or the converts?

I don't think it creates a pivot in strategy. I think this creates a point where we feel ready enough to give ourselves the largest ever buyback the company has ever had if it decides that that's the right thing to do. So there's no pivot. The idea is just developing a strategy. The first thing is to deleverage. The second is to start to renew the fleet and take advantage of backwardization in the curve. And the third is to -- as Chris says, is to then start to use that balance sheet in getting very effective cheaper finance and being able to put up the largest ever buyback the company has had, which is a continuation of strategy, which is we'll watch and we'll act and we'll react when and if we see the opportunity.

So to me, we kind of, in a funny way, seem to sort of develop like a hammer and anvil here. We got the tremendous cash position that the company has in one sense and its ability to get debt cheaply. And underneath it now, we're developing the anvil there so that if you had a wobble in the stock or we just see a continuing lack of dislocation between NAV and stock price that we can come in and take advantage of that because we believe very much in the long term development and continued health of the company.

And maybe just to follow up and touch on, I think you were mentioning the fleet and taking advantage of the backwardation there. Just want to get a sense from you on how you're thinking about the fleet as it is now. You sold a bunch of vessels this year. You've got $500 million or so coming in, in the second quarter from those vessel sales. Are we getting to a point where maybe the active selling, if you want to call it that, slows down? And is it more about fine-tuning the fleet? Is it looking at new buildings? How are you thinking about the fleet position from here?

I think we haven't -- again, we haven't changed on that. I mean we're there to take -- continue to take opportunistic sales, take opportunistic -- we're working longer term time charters too. And at the same time, we might continue to gently and responsibly where it's so clear that that financing is not changing our hammer as it were to engage in the renewal part of it that we've done gently. You're not going to see some massive great big order. You're not going to see some acquisition of a competitor. It's just going to be continuing to gently move each of the parameters we're looking at along the way here to be much of the same.

The next question comes from Jon Chappell of Evercore ISI.

James, I appreciate the presentation regarding the disruption. A lot of it seems to be focused around once the flows normalize. Can you help us just kind of with scenario analysis here? There's still a lot of uncertainty. It feels like the path may be changing by the week, if not the hour. What are some of the other kind of upside opportunities, but also downside risks as this unprecedented situation continues to evolve?

Maybe I can take a start at that one, if I can.

Sure.

I don't think we -- I'll say this very clearly. I just don't think we're in control of that. I don't think -- we don't spend much time in going through the hypotheticals or working out if A happens, if B will happen or even whether A will happen because it's information changes as to whether or not this Hormuz open, whether or not the Iranians, we're still selling international ships about 3 or 4 times just yesterday. So we'll pass on the hypotheticals, if that's okay, Jon.

Well, how about how your operations have changed? We see these headline rates. Are you fully absorbing them? Have you had to move the fleet around? So maybe do you have imbalance or maybe even better exposure to certain regions? Just how do we think about these headline rates that we're seeing, how it translates to you both from a top line perspective, but also from a potential disruption or cost/bunker perspective?

Lars?

I mean I think this is part and parcel of what we do every single day. We need to kind of assess where we anticipate the market to kind of react as the fleets are deployed. There's no doubt that when this happened, we made a conscious effort to move our ships west where we could see that the market dislocation was being kind of the greatest, and there was clearly at the margin, stronger market movements taking place.

So we moved ships a lot both through the canal and also around the Cape of Good Hope, but we also made sure that the ships that we had opening in kind of New Zealand, Alaska, North Asia, making decisions to move these ships across. And that probably took a little bit of time, but it kind of paid off. You still see today even with the high volatility that is in the markets, rates are moving 15%, 20% intra-week. But structurally, it has been such that the West market has been benefiting from a rate perspective greater than you'd see vessels trading east of Suez.

The next question comes from Ken Hoexter of Bank of America.

Maybe can you talk about any increased interest in multi-year charters given the environment, maybe your thought on that? Do you want to keep same exposure to the spot market? And then any incremental developments from Venezuela? We've talked about that a lot in terms of short-haul moves.

I'll just take one of the bits first, Lars. So I think when it comes to looking at it, look, our reduced breakeven in all senses, the lack of debt, the low borrowing cost, is now opening up the situations where you can really look you can look quite favorably at 5-year charters, 6-year charters, 7-year charters as just very, very locked in simple, profitable, secure returns, adding to, let's say, stability of income, which has always been lacking really in tanker companies. So yes, we're not only looking at opportunities that arise, but also favorable to it because of the dynamics in terms of our own financial breakeven.

Lars, would you like to go through the details.

Yes. I mean we obviously reported a couple of them within the quarter that we have done. Certainly, in my experience in the market, it's generational highs in terms of long-term charters. And this is long-term charters to very bankable first-class end users, which we have not seen before. We would always have a balance between spot and time charter, but we certainly have still a very large proponent towards spot. But clearly, the ships that we have on time charter all reflect the quality of the paper and also people that we strategically have aligned ourselves with in terms of the spot business that we also do for them so that the relationship goes up to a different level. And that has, over the years, been something that we can see has benefited the business.

In terms of looking at charters for the future, we continue to look at charters every single day. There has been continued interest both in MRs and also in LR stroke Aframaxes as everybody on the call will probably appreciate that we today look at LR2s and Aframaxes as one segment. And there certainly has been a substantial interest in that market. Indeed, we have seen 1-year deals at extremely high and elevated numbers. We've seen 3-year deal interest, 5-year deal interest. Clearly, when it comes to 8-year deals that we have done one of, that are not that frequent to see. But it's clear to me that it's not only the shipowner that considers the market to look pretty good, but a lot of the people that we do business with are willing to put pen to paper and expose themselves for long-term charter.

If I can get maybe 2 rapid ones, right? It's just the -- are you seeing any shortages now at this point yet on some of the products, I don't know, jet fuel in different areas? I think you were talking about New Zealand. I was there not too long ago. It seemed like Australia was starting to ration some fuel. Maybe thoughts on where we are. James was talking about inventories. And then I think you mentioned the $2 billion in cash by the summer, but the $500 million buyback plan. Thoughts on the other $1.5 billion usage plans.

I'll start with the shortages. I think what we've seen in Southeast Asia is obviously methods to reduce travel. But what I think at a high level we've seen is so far it appears that it's more inefficient supply to meet demand. Demand has been quite strong. And when you look at the issues that are currently happening, a lot of it falls to this -- there's not a lot of spare refining capacity in the world.

And we've been talking about this for years on the call, but you've had closures around the world, refinery capacity has moved further away from the consumer. And what you're seeing as a result of this is that. So I think going forward, you're going to see, like I mentioned, a lot of restocking. You're still going to see this refinery dislocation just because of how long it takes to build a refinery. And we'll see how the situation develops, but I think it's very constructive in the short to medium term based off this refinery dislocation.

To add to the future, I think you're going to see us continue to maintain a very healthy overall cash position. I think that we've said that we would even consider doing further sales of the old tonnage. So that would actually result in an even higher cash position than any forecast you guys to make at the moment.

However, we also said that we'd be willing to explore opportunistically continuing our renewal, which would indicate that you might get a few newbuilding orders, not many, but just a few to keep a sort of steady position. And where you're keeping the vast majority of cash generated, but you're giving some of it out on buybacks like you've seen so far this quarter, dividend and newbuilding orders.

We didn't raise the dividend this quarter, but not for any other reason. But look, it was a knockout quarter. It was fantastic. And we'd like to have a look at things when it comes in later in the year, July, September, whether we're likely to increase the dividend again as to how much, whether it continues to be in little smaller steps or whether we feel we could do one slightly bigger step will come. But overall, it's just a continuation of what we've been doing in the last 6, 9, 12 months that are steadily going along, taking advantage of the arbitrage on the curve, taking advantage of some great second-hand prices, which, in fact, there are indications that those prices are still increasing. We're seeing that in the market. And that's it, just a continuation. It seems to be working well so far.

The next question comes from Stephanie Moore of Jefferies.

I wanted to touch on fleet renewal. If you wanted to talk a little bit about if you have a preference, whether it's more LR2s or medium-range exposure in the fleet. Maybe just any general commentary you can have on general fleet exposure within fleet renewals would be helpful. And then I do have one follow-up.

Stephanie, you are welcome. Secondly, you've sort of seen us and we will continue again that we backed off the VLCCs in terms of expanding there. And so -- and the recent renewals have been in the product tankers, both in the MRs and the LR2s. And my expectation would be that that's where we will continue to concentrate and find opportunity.

And then just I wanted to follow up actually on the prior question on the dividend itself. So I guess just given the favorable financial position that you are in now, and I appreciate your stance on flexibility, but wanted to know if you did have any kind of quarterly targeted payout that we should be looking at.

We haven't yet reached that. I can tell you what we won't have. We won't do extraordinary dividends and we won't do these high payout dividends. We're all for what we would call a permanent a dividend that can be met through good times and bad, and that ideally can be improved on in good times and bad. And the payout dividends, high payout dividends, particularly that are tied to percentages of income or whatever historically, they work great in good times and are quite tragic in other times.

The next question comes from Chris Robertson of Deutsche Bank.

This might be one for Lars. This is just a question related to the bunker fuel market. I know initially, there was quite a bit of disruption and a huge spike in prices there. Can you talk about how is that availability going? And is it having any impact on where -- how you're thinking about positioning the fleet, which voyages you're taking? Has that situation gotten any better over the last few weeks?

The short answer is that we do not see issues today in terms of securing bunkers on any of our ships around the world. Prices certainly went very high and elevated place, and there was a lot of questions just as this conflict started, and we were obviously looking at this. But to be honest, this is kind of what we do every single day anyway.

Bunker planning is a very important part of any voyage planning that we do. So these things are looked at any given time so that we can reflect the pricing of the bunker input to the output of the time charter equivalent, and that continues to be the case. But right now, we do not encounter issues that create additional issues for us in terms of supplying bunkers.

This is just a follow-up to many questions here related to the dividend. So apologies for retreading similar ground. But realizing this is a bit of a chicken and egg situation, Robert, if maybe you could talk a little bit more about the philosophy around the dividend. Is it a situation where you're looking for a certain amount of balance sheet strength or a certain breakeven level or a certain market type of environment and rate sustainability? Or what kind of would drive an increase to the dividend, realizing that the ultimate goal is to be at a sustained level throughout various parts of the cycle?

No, that's not the ultimate goal isn't to be a sustained level because what I hear from that is the sustain percentage of stock price, sustain percentage of earnings. That's not what it is. What we hope to do throughout the cycle is to be able to raise the regular dividend. And a dividend is not just being raised and regular and sustainable by us, but it's clear to the most conservative of long-only large institutions, hopefully income growth side too that we would like to develop. That we can pay it under any circumstances. So that's where you're starting to see in the actual presentation, a lot of concentration by Chris on cash breakeven, a lot of slides related to what happens if we re-live the worst market that we've ever lived in, which is COVID, can the company continue to pay and grow the dividend through that cycle.

But that's how we're evaluating it. And I think at the moment, things are moving -- we raised it in the last quarters actually. I think this was just an unbelievably knockout quarter that we felt that what do we do? Do we raise it $0.01, do we raise it $0.05? It's sort of fairly unclear to us. We just left it aside knowing that we had an incredible quarter. We put steps into the balance sheet, a terrific guidance for the second quarter. I mean, extraordinary, even surprised us. So no one out there can possibly say they expected the guidance that we've given. And that will then later in the year, we can sit there and see what the next level is to -- that we're happy to move to on a sustainable basis, that's all.

The next question comes from Liam Burke of B. Riley.

Even prior to the tensions in the Mid East, the more -- the rates in the Aframaxes were higher, and there had been a lot of shift from clean to dirty. As we post tensions, is there anything that would flip that situation where the Afras would move back to the LR2s and start trading clean?

I mean we're in the perfect situation where you've got LR2s in north of $100,000 per day market, where the alternative in Aframax is trading north of $100,000 per day as well. If you look at the numbers themselves, we only have to go back a couple of years, I think, and we were trading 256 LR2s in the market. Today, we're trading around 170 LR2s in the market.

Obviously, you've had a huge proponent of the LR2s back in the time, they had gone into the sanctioned fleet, the age part as well. And you suddenly have the element of crude also transporting itself longer field further afield. So you have a very strong Aframax market, which is not only now in the Atlantic Basin, you also have a strong Aframax market east of Suez as well. TMX, which is the market that goes from the Pacific Northwest to Asia, has been extremely strong. The market that goes down to the Pacific lightering area has also been very strong, in particular because of the VLCCs being very strong. But then you've got the Suez maxes being very, very strong. And you have every element within that kind of framework that is extremely strong.

So to the question about switching, the last time we saw switching going the other way was when you had a very weak crude market, which had been going on and persisted for a while and the LR2 market, in particular, had ramped up. At that point in time, you had a delta of, I think, it was about $8 million between one to the other and you started seeing a huge amount of vessels going into the clean market.

Today, whichever way you look at it, it's very strong. And then you say, well, what about Venezuela? That's also an Aframax market. TMX is 100% Aframax market. The stuff that goes out of Australia is 100% Aframax market. So the story is good in terms of where you are on a supply-demand perspective when you in aggregate look at LR2s and Aframaxes together, which is, of course, what you have to do today.

So the element of the argument that was the case a while back saying, well, we've got all these ships being built. It doesn't really hold that much when you consider where the average age is of the fleet and also what ships are actually able to trade. So structurally, I think we're looking at a very decent supply-demand story on both Aframaxes and on LR2s.

I think this would be for James. James, you always highlight for the last several years the redistribution of global refinery capacity. Post conflict, a lot of that has been Mid East refinery. Would you anticipate any modification of that redistribution?

Liam, thanks. Good question. It's a challenge. I think the quickest you can probably build a refinery is 7 years. So if you're not starting today, it's not coming in that time frame. One of the things that I think we feel that's likely is people will view storage differently coming out of this. So how much crude and how much product are you keeping domestically. And I think that's going to be great for refinery runs. But in terms of major changes, I think it's going to be a challenge to do anything in a short time frame. But I'm sure certainly that people might look now and they might look at new pipeline opportunities.

This concludes our question-and-answer session. I'd like to turn the call back over to Emanuele Lauro for any closing remarks.

Thank you very much, operator. No closing remarks of any substance apart from thanking everybody for your time and looking forward to connecting in the near future. Have a great day. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

Hello, and welcome to the Scorpio Tankers Fourth Quarter 2025 Conference Call. I would now like to turn the call over to James Doyle, Head of Corporate Development and IR. Please go ahead, sir.

Thank you for joining us today. Welcome to the Scorpio Tankers Fourth Quarter 2025 Earnings 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 fourth 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, February 12, 2026, 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 & Presentations. The slides will also be available on the webcast. After the presentation, we will go to Q&A. [Operator Instructions] Now I'd like to introduce our Chief Executive Officer, Emanuele Lauro.

Thank you, James. Good morning, everybody, and thank you for being with us today. Scorpio Tankers delivered another strong quarter and a transformative year. In Q4, we generated $152 million of adjusted EBITDA. And for the full year, adjusted EBITDA reached $568 million. But the real story is not just earnings. The real story is structural strength. Since 2021, we have reduced net debt from $3.1 billion to a net cash position of $309 million today. This net cash position is increasing by the day and has accelerated sharply in Q1. We have fundamentally reset the company. Today, we hold approximately $1.7 billion of liquidity and growing. Our daily cash breakeven is $11,000 per day per vessel. In the current rate environment, this translates into powerful free cash flow generation. Even under stress conditions similar to the COVID levels, we remain around cash breakeven.

We are structurally resilient with significant operating leverage. We have upgraded the fleet with discipline. We've sold 10 older vessels at a strong valuation, and we've been reinvesting in 10 modern newbuildings. The fleet is younger, more efficient and positioned for higher earnings power. At the same time, we are increasing the quarterly dividend to $0.45 per share, up 12.5% year-over-year. We're growing the dividend because we can, because we have the balance sheet, because the payout is supported by structural cash generation, not temporary conditions. Turning to fundamentals. Rates have improved for 5 consecutive quarters with momentum continuing into Q1 2026. Refinery closures are lengthening trade routes, ton-mile demand is expanding, unprecedented strength in the crude market is tightening effective vessel supply in the product tanker space.

These are structural drivers and not cyclical noise. We cannot control the market cycle, but we can control our preparedness. Today, we operate a modern fleet. We have substantial liquidity. We have structurally low breakevens. We have a net cash balance sheet. This combination creates downside protection and upside torque. Scorpio Tankers is positioned to generate significant free cash flow and deliver durable shareholder returns across the cycle. We're stronger than we've ever been, and we're positioned to capitalize on what comes our way. With that, I'd like to turn the call to Robert.

Thank you very much, Emanuele. Let me first begin with the broader context of the industry, especially for those new to the company. We operate in a cyclical capital-intensive industry during a period of elevated inflation, constrained supply and shifting global trade patterns. In that environment, asset quality, balance sheet strength and disciplined capital allocation matter more than ever. We also operate the youngest fleet in our peer group. That really matters. Younger vessels are more efficient, more commercially flexible and increasingly advantaged as regulatory standards evolve. Shipping will always be volatile. That is not new. And it is not avoidable, what can be controlled as financial structure.

Today, we have done that by materially derisking the company. Today, we operate with a net cash position and low cash breakevens, that provides resilience in weaker markets and meaningful operating leverage in stronger ones. For investors, the case is straightforward, hard asset-backed conservative financial structure and a platform capable of generating substantial cash flow across the cycle. In uncertain environments, preparation and discipline create opportunity. We believe we are well prepared for both the good and the bad. Just one thing just to sort of be very clear on. As Emanuele pointed out, our newbuildings and dispose of older assets for renewal is being done in a very measured and conservative way. We will continue to ensure that if and when we order vessels that we are generating more cash through operations and sale of older vessels than that of the total outlay of the vessel that we are buying.

For those of you concerned about the high amount and building amount of cash on the balance sheet that we expect to continue to happen, you should not worry that we have no absolutely 0 acquisition thoughts of other companies or competitors or large fleets at all. And we're -- you're not going to wake up one day in the morning and find that we've made a 10-ship order. This is a very disciplined approach, balancing the arbitrage of selling the older vessels at steep prices and ordering newer vessels when we see an advantaged price to be arbitraged. And with that, I'd like to pass it over to James. Thank you.

Thanks, Robert. If we could go to Slide 7, please. The past 12 months have brought no shortage of headlines and yet quietly, the product tanker market has strengthened for 5 consecutive quarters. Today, spot rates for LR2s and MRs are approximately $46,000 and $38,000 per day, respectively, rates at which the company generates meaningful free cash flow. And the near-term setup is positive with a lighter refinery maintenance schedule, refinery runs should increase, supporting continued growth in export volumes. For the first time in several years, the crude market is also providing tailwinds. Elevated crude rates are pulling product tankers into crude trades tightening effective clean supply. When we step back, 3 structural forces are driving this market. First, demand remains strong and refining capacity has shifted farther away from end consumers.

Second, effective supply growth is constrained. The fleet is aging faster than it's being replaced. And in a capital-intensive industry, that matters. Third, sanctions and geopolitics are reinforcing both dynamics, reshaping trade flows and tightening supply. Taken together, these forces support a constructive outlook, both near term and longer. Slide 8, please. Global refined product demand is expected to increase by nearly 1 million barrels per day this year, and that growth is translating directly into seaborne exports. In January, seaborne refined product exports averaged 22.1 million barrels per day, up roughly 1 million barrels per day year-over-year. Not only have volumes increased, distances have increased as well.

Slide 9, please. Over the last 5 years, export-oriented refineries in the Middle East have added capacity while closures in the U.S., Europe and parts of Asia have removed it. When refining moves farther away from the consumer, products must travel farther. That increases ton-mile demand. This is not cyclical demand growth. This is structural. Since 2019, product tanker ton miles have increased roughly 20%. Slide 10, please. Aframax and LR2 demand in the Atlantic Basin has strengthened meaningfully with volumes from the U.S. to Europe nearly doubling over the last year. That alone has tightened vessel availability across the region. At the same time, developments in Venezuela present additional upside. Last year, Venezuelan crude exports averaged roughly 800,000 barrels per day, much of it directed towards China on sanctioned tonnage.

Any redirection of those barrels toward the U.S. or increases in production would further increase loading activity in the Atlantic Basin. Importantly, this comes at a time when the Aframax LR2 market is already operating from a position of strength. Slide 11, please. Today, approximately 54% of the LR2 fleet is trading crude oil. Part of the increase is due to soaring crude rates and the other part is structural. The Aframax LR2 crude market is roughly 14 million barrels per day compared to about 3 million barrels per day for clean products. The crude market is simply much larger. The decision to build LR2s instead of Aframaxes is structurally changing the fleet. By 2028, nearly half of the Aframax LR2 fleet will be LR2s. Given that crude accounts for roughly 80% of cargo volumes in this segment, LR2 crossover into dirty trades will persist.

Slide 12, please. Since the EU ban on diesel refined with Russian crude to effect in early January, European imports from Turkey and India have already declined 300,000 barrels per day. Russian refined product exports are still moving, but are traveling farther to find buyers. Before the invasion, roughly 10% of Russian exports went to Africa, South America, the Middle East and Turkey. Today, that figure exceeds 70%. Russian crude has had a more difficult time finding buyers, especially with recent sanctions and retaliatory tariffs. Since July, Russian crude on water has increased from 121 million barrels to 164 million barrels in January. Much of the Russian trade has shifted towards older vessels. As you can see on the bottom right, nearly 50% of Russian crude and product exports now move on ships older than 19 years old, tonnage that is unlikely to reenter the mainstream market.

Slide 13. Today, the product tanker order book is almost 19% of the existing fleet, which may seem high, but context matters. As you can see on the left, 21% of the product tanker fleet is already over 20 years old. By 2028, it will be 30%. Sanctions also further tighten effective supply. Roughly 26% of the Aframax LR2 fleet and 9% of the MR Handy fleet are sanctioned with an average age of 20 to 21 years old. In a normal market, much of this tonnage would have likely already exited.

Slide 14. When you adjust for aging vessels sanctioned capacity and LR2 crossover, effective clean product supply growth is materially lower than the headline order book implies. We expect fleet growth to average roughly 3% over the next 3 years and potentially lower. Putting this together, demand remains strong and refinery shifts are structurally lengthening trade routes. Supply growth is constrained as the fleet ages at a faster rate than it's replaced and sanctions and geopolitics are tightening both points 1 and 2. In both the near term and long term, the market's fundamentals remain supportive. With that, I would like to turn it over to Chris.

Thank you, James. Good morning, good afternoon, everyone. Slide 16, please. This past year, we generated $568 million in adjusted EBITDA and $344 million in net income on an IFRS basis. We've also made $450 million in debt repayments this year, culminating with the fourth quarter prepayment of $154.6 million of secured debt across 4 different credit facilities. This prepaid all of the scheduled principal amortization on our existing bank debt for 2026 and 2027. The principal and interest savings resulting from this prepayment have further reduced our cash breakeven levels, which include vessel operating costs, cash G&A, interest payments and commitment fees and regularly scheduled loan amortization to approximately $11,000 per day over this period. We also entered into contracts to sell 10 vessels at substantial gains and exited our position in DHT.

The cash gain on our investment in DHT was almost $30 million or a 24% return on investment when factoring in dividends received. The chart on the right shows the progression of our net debt since December 31, 2021, which declined $3 billion to a net cash position of $124 million by the end of 2025. As of today, the net cash position is $308 million, and we are still pending the closing of the sales of 2 LR2 vessels for $109.8 million in aggregate. As Emanuele emphasized, achieving this milestone has given us the confidence to raise our quarterly dividend to $0.45 per share. Slide 17, please. The chart on the left breaks down our outstanding debt by type. Starting at the bottom is our last remaining lease financing obligation on one vessel with Ocean Yield.

This obligation is expected to be repaid before the end of this month, thereby leaving us with a debt stack consisting of secured bank debt with the lending group dominated by experienced European shipping lenders and our $200 million 5-year senior unsecured notes, which were issued in the Nordic bond market in January of 2025 and are currently trading at around $103 to par. Further to this, $240 million of our $428 million of secured borrowings is drawn revolving debt, an important tool that we can use if we want to repay the debt but maintain access to the liquidity in the future. The chart on the right is our debt repayment profile. With the exception of the final settlement of our last remaining lease obligation, we have no principal repayment obligations on our existing debt until 2028.

Slide 18, please. As of today, we have $937 million in cash and an additional $767 million in availability under revolving credit facilities for a total of $1.7 billion in available liquidity. Since November of last year, we have signed contracts to purchase 10 newbuilding vessels. The charts on the right reflect our forward payment obligations on these contracts, along with our estimated dry dock schedule through the end of 2027. Note that the timing of the installment payments on our newbuilding vessels and the timing of our dry docks are estimates only and subject to change. Our capital allocation decisions over the past 3 years have afforded us the financial flexibility to meet the obligations under our newbuilding contracts, which total slightly over $700 million.

Hypothetically speaking, we could pay for all of these vessels today in cash without incurring any new debt. But nevertheless, 70% of these installment payments are not due until the years 2027, '28 and '29. With a cash breakeven rate of $11,000 per day, we are in a position to continue to build cash over the construction period. Moreover, the age and specifications of these vessels make them attractive financing candidates, which has the potential to open up opportunities for us to further optimize our capital structure and lower our cost of capital. On top of this, our forward dry dock schedule is light, having undergone the special surveys on over 70% of our fleet in the past 2 years.

Slide 19, please. Our cash breakeven rates are at the lowest levels in the company's history. The chart on the left shows that these expected cash breakeven rates are lower than the company's achieved daily TCE rates dating all the way back to 2013, with the closest point being the aftermath of the COVID-19 pandemic when global oil consumption was at lows not seen in decades. To illustrate our cash generation potential at these breakeven levels, at $20,000 per day, the company can generate up to $292 million in cash flow per year. At $30,000 per day, the company can generate up to $617 million in cash flow per year. And at $40,000 per day, the company can generate up to $942 million in cash flow per year. This concludes our presentation for today. Thank you, everyone, for your time and attention. And now I'd like to turn the call over to Q&A.

[Operator Instructions] Our first question comes from Omar Nokta with Clarksons Platou Securities.

Congratulations on officially reaching the net cash milestone. I wanted to ask about the dividend. You bumped it here after having bumped it also last quarter. Understanding your aim is really to keep the payout sustainable through the cycles. You've got plenty of free cash flow in today's market. You 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 of quarters or maybe revisit on an annual basis? Any color you're willing to share?

Yes. Thank you very much, Omar. So the dividend, first of all, the main premise is to see if we can -- what we'd like to do is to grow the dividend through the cycle, pay the dividend through the cycle. That is -- the actual momentum of that is dependent on a lot of things. I think you've seen our, let's say, goodwill in the sense that immediately following the implementation of an increased dividend in the -- after the third quarter results, we immediately stepped up now. That's -- as Emanuele point out, really is a reward for all of us for the strength and finish of the fourth quarter. So apart from that, I'd like to keep that undetailed. We're in a -- we will review everything regularly.

All right. That's fair, Robert. And maybe just a follow-up. You exercised the option on the LR2s. I wanted to ask about the VLCCs. There's definitely been a lot of interest lately in that segment, whether it's from the equity markets, charters themselves or owners placing orders. You sort of got ahead of it a bit last year with those 2 orders you put in. I think it was back in October, November. I wanted to ask how you're thinking about those right now and whether you have options that came with those that you could potentially add to your tally?

Sure. We had options. The VLCC market was, as we all know, is like a very hot commodity. Those options were very short-lived. They were options that were valued only until the end of December. At that time in December, we were in the middle of the holidays, not complete -- we didn't have complete visibility of how we felt the cash flows were moving in the market at the time, and we didn't have a strong visibility because of the holidays as well related to potential sale of our own assets, et cetera. So we felt on balance that we could pass that, remain disciplined, especially as we had the LR2 options still, let's say, up our sleeve. So those VLCC options have gone, they've expired. That's the answer, Omar.

Okay. That's very good. I'll have pass it back.

I think as a statement, I think that's a point of proof that we're not hell bent on spending money because we have to feel any urge to do that or as fast as we can. We just -- as we pointed out at the beginning, we're just going to do this in a very measured way.

Our next question comes from Greg Lewis with BTIG.

Robert, a lot of cash. I'm 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 steadfast that the LR2s are going to primarily focus on the product side. I guess it seems like the market is kind of merging as older crude Afras are getting retired and some -- and everyone's -- if you're ordering an Aframax, you're going to quote it. Does that at all change how maybe Scorpio would think about its LR2 fleet, i.e., do we see a path or could we see opportunities for STNG to potentially bounce those LR2s back and forth between the crude market? Or should we just assume they're going to stay in the products?

Lars?

Greg, I think it's fair to say that the Scorpio approach in terms of LR2 clean or dirty switching has always remained opportunistic. I mean we have a number of our ships in crude already. I think it's important that considering that the global approach that we have is to remain disciplined on these things. So we don't 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 kind of cross-trade has increased between the LR2s and the Aframaxes.

The case in point is I think there's about 515 LR2s trading globally in the world today. And you only got 220-odd trading clean today, which is probably the lowest we've seen since 2020 or 2021. Now that can then give you kind of a thing, do you go dirty or not dirty is always a tactical question. And we obviously follow all these markets. And if you normalize the period, it has a little bit of a different picture than if you just look at quarter. But the short answer to your question really is that, of course, we look at it and we trade it as well.

Okay. Great. And then just as -- I just -- that's funny. I forgot what I was going to ask you. Just I feel like I ask you all the time. I feel like every time I talk to you, I talk about this. But I guess I'll word it this way. 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 of multiyear time charters. Has the appetite from customers increased for multiyear term, i.e. are we seeing more opportunities over the last month or 2? Or is that something where really just thinking about previous cycles or previous periods of time, summer is coming. Does that have any impact on the opportunity for term charters to pick up, i.e., hey, if this strength in market continues, I imagine customers will be more apt to fix multiyear deals because they know next winter is already around the corner.

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

Okay. Super helpful.

The next question comes from Ken Hoexter with Bank of America.

This is Tim Chang on for Ken Hoexter. A lot of momentum for STNG and net cash. Congrats guys with breakevens coming down and raising the dividend. But perhaps a question for Lars. How do you see rates progressing over the next few months or 40 to 60 days? It's 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.

Yes, I think -- sorry, go ahead.

I was just going to start off, Lars just saying things. Look, I think you very well summarized all of the factors that are almost certainly going to lead to a relatively strong second quarter. Lars, would you like to add on to that?

Yes, absolutely. I mean, first of all, the clean market, if we look at that first, right, is operating with very little slack at the moment. So you could say, well, you've got some headlines on geopolitical stuff. You've got headlines around ton miles, you've got headlines around all these things. But structurally, I think we've got a very positive product market in front of us. You've got some things around some turnarounds taking place, but that's already started in the Atlantic Basin and so on. And still, you've got a lot of product moving. And you've got open arbs from the West to the East, perpetually on the light end, you've got the ton miles we talked about. So it's not just a cyclical spike in my view.

I think we've got 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. So you've had very strong Asian markets. You've had, of course, the Atlantic Basin, and that's been reported widely in terms of -- we've seen multiyear highs in TC14, et cetera, over the last couple of weeks. So today, it's not really about short-term spikes in my view. I think we're 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.

Got it. That's very helpful. And just another quick follow-up, and then I'll pass it on. But more of an opportunity longer term, nevertheless, seeing any incremental uplift yet in Afra LR2 demand from Venezuelan exports. I know you've spoken in the past that some just kind of illustrative numbers, like an additional 1 million barrels per day equating to roughly 23 incremental vessels, but any update there would be great.

I mean I think -- yes, why don't you go for it, and then I can follow up afterwards.

Yes, Tim, as you highlight, that's the math. I think so far, we've 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's 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'd say on the margin, it's very positive. Lars?

No, that's exactly what I would say as well. I mean, the margin is going to be very positive with the ships that would have need to move that are not in the sanctioned fleet.

I appreciate it.

The next question comes from Chris Robertson with Deutsche Bank.

Just as a follow-up on the topic of Venezuela, we talked a bit about exports here, but what's the view around naphtha imports in terms of it being a diluent for the crude? Is that market picking up? Kind of 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's the dynamic there now?

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, which, of course, is the way that you would normally transport your naphtha into Venezuela. I think there's other things in the Atlantic Basin that has a lot greater kind of impact in terms of why the market is so strong. It just adds to the fire in the sense that it just is an additional positive.

Got it. Okay. Turning towards just global inventory levels at the moment on the product side, James, I think you've talked about this in the past. Any update around our inventories kind of remaining low and flat? Are they starting to pick up here and grow in OECD? What's the current status there?

Sure. Thanks, Chris. Look, you always have a buildup of inventories ahead of maintenance. So we've seen that. And the most up-to-date numbers we have are the U.S. distillate is still below the 5-year average. It's been declining in the last few weeks. We've had cold weather, right, more heating oil demand and maintenance in the U.S. Gulf is just picking up. So we expect inventories to come in. OECD looks to be relatively in line. So I think from a product perspective, we haven't seen huge builds, which is great as you go into maintenance.

So we think things are going to be tight. And so I think that's constructive. And then on the crude side, we were anticipating kind of large builds in the overall market that haven't happened. A lot of that is due to a lot of the crude on water that's built up is really sanctioned. And if you recall, there's been these forecasts of up to 4 million barrels of crude oversupply. We haven't seen that yet. There have been disruptions in Kazakhstan. But overall, we think that the crude oversupply is going to be less than anticipated. And I think that's very constructive because it speaks to how strong demand is in the global system.

James, really helpful. I'll turn it over. I appreciate the time.

The next question comes from Liam Burke with Riley Securities.

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

Thanks, Liam. Well, look, we anticipate it to continue in the sense that there's 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, that's 300,000 barrels, for example, that the California market needs. And if you speak to those oil and refining companies, they highlighted they're going to import it from foreign markets. So in many ways, we haven't seen the benefit of those flows largely coming from Asia.

And we still think there's 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 your question, emerging markets are not building much refining capacity. It takes a minimum of 5, but probably 7 years to build a refinery, and that hasn't started yet. So I think going forward, that's very constructive from a ton-mile demand perspective for us as well.

Great. And on the fleet management, you've had a lot of activity in 2025, both on new builds and divestitures. You've got $1 billion liquidity position. Is there any -- and rates seem to be in a good place here. Is there any additional tweaking you need to do with the fleet? Or you're happy with the assets in place and your new build and your liquidity?

We will -- we are at present engaged in the secondhand market, and you should fully expect that we would sell assets single or plural over a reasonably short time. And that sale and purchase market is super strong. I mean, perhaps, Emanuele, you might like to talk a little bit about that.

Sure. We -- as you said, we continue to engage opportunistically on inbound inquiry on the existing fleet we have. And as we've 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 don't 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, very hot. There is a lot of interest for tankers. What has happened in the last 6 to 8 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 MRs, I would say.

And this is proven by the fact, as Lars has mentioned, I think, in his remarks earlier, there are about 220 LR2s trading clean today, which in order to see that little vessels, number of vessels trading in the cleaning market, we have to go back 5 -- at least 5 years, right, to 2021. So this shows the level of interest and the hype that the crude market has the long-awaited crude market momentum has captured in the last 8 weeks and continues to do so. I mean it's -- the level of interest is super high.

Great.

Sure.

Our last question comes from [ Christopher Shea with Arctic Securities ].

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

Well, I think I'll go back to what I said initially is that we look at these things opportunistically on every single day. But to look at it in a very kind of 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 we 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 you say that there's a $40,000 difference, I think that $40,000 difference is in a very kind of 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 normalized period, I think that if you look over the quarter, it's been around maybe $10,000 a day, which does not necessarily justify large-scale switching quarter-on-quarter. So that outperformance that you referred to is probably something we should look at on a longer perspective. So I'll 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 this. So I guess the key point is we dirty out when the COGS clearly justify it.

Okay. I understand. And just on term rates, we see now VLCCs, VLCCs being done for 1 year at $90,000 a day. And it seems like LR2s are more or less flat recent months. So -- but if VLCC rates stay at $900, what would you say is a fair level that LR2 should be at? Do you see any upside potentially here?

If I may, and then Lars, please jump in. But I think that LR2s have not -- or Aframaxes for the matter have not remained flat. I think that today, you can fix an Aframax/LR2 for 1 year in the high 40s. And there are the rates for 3 and 5 years and the demand for 3- and 5-year deals, which has come in strong and has been reconfirmed, we've fixed a couple of ships for 5 years in Q4 last year. And today, those rates would be starting with a 3 for a 5-year deal or comfortably with the 3 for a 5-year deal. So definitely, the interest is there and the rates have increased for our classes of vessels as well.

I would just add that the market on LR2 Aframax has kind of relatively outperformed VLCCs. It's taking a while for the VLCCs to come. So it's -- we're very happy to see that the VLCC market finally is coming really to its own and good for that, and it's going to be great for the overall market. So we're happy to see that we are firing on all cylinders now.

Perfect. That's it for me.

Yes, I would also do. It's quite interesting. If you did a cash-on-cash return valuation between either where the product stocks are valuing the vessels or even where the vessels are valued, their return on equity at the moment is every bit as strong as the VLCCs and if you in physical side. And in terms of stock side, obviously, the returns for the product tankers are higher as their stocks are selling at less of a premium to NAV than the crude is.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Lauro for any closing remarks.

Thank you very much, operator. No closing remarks other than thanking everybody for your time and attention today and look forward to being in touch going forward. Thank you.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Goodbye.

Hello, and welcome to the Scorpio Tankers Inc. Third Quarter 2025 Conference Call.

I would now like to turn the call over to James Doyle, Head of Corporate Development and IR. Please go ahead, sir.

Thank you for joining us today. Welcome to the Scorpio Tankers Third Quarter 2025 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 third 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, October 30th, 2025, 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 Presentations. The slides will also be available on the webcast. After the presentation, we will go to Q&A. [Operator Instructions]

Now I'd like to introduce our Chief Executive Officer, Emanuele Lauro.

Thank you, James, and good morning, everyone, and thanks for joining us today. We are pleased to report another quarter of strong financial results. In the third quarter, the company generated $87.7 million in adjusted EBITDA and $72.7 million in adjusted net income. The product tanker market continues to benefit from enduring structural trends like strong demand for refined products, evolving trade patterns and long-term shift in global refining that are lengthening voyages and increasing ton miles.

Those dynamics have been reflected in freight rates, which have strengthened over the past quarters. The company is financially, operationally and commercially strong. Our focus is clear, building a shipping company that is investable through the cycle.

Today, our liquidity stands at approximately $1.4 billion, including cash, undrawn revolving credit and our investment in DHT. Over the past 4 years, we've reduced our daily breakeven from roughly $17,500 per day to $12,500 per day. And with our recent decision to repay amortizing debt, we expect that figure to fall further to around $11,000 per day. Today, we also announced a 5% increase in the quarterly dividend. And going forward, we'll continue to review the dividend at least annually.

Our goal, as mentioned, is to make the dividend sustainable, durable and steadily growing over time, rewarding shareholders while building a company that remains investable through the cycle. Shipping will always be volatile, that's its nature. But through our efforts of strengthening the balance sheet, lower our breakeven and increase charter coverage, we've meaningfully reduced that volatility.

Looking ahead, we remain optimistic as our outlook for both crude and refined products remains constructive. With a modern fleet, robust liquidity and a conservative balance sheet, Scorpio Tankers is well positioned to navigate uncertainty and continue creating long-term value for shareholders.

With that, I'll turn the call to James for a brief presentation. James?

Thanks, Emanuele. Slide 7, please. Product tanker rates remain firm and have increased over the last week with MRs earning around $28,000 per day and LR2s about $35,000 per day, levels that continue to generate substantial free cash flow for the company. Refining margins have strengthened, inventories remain low and fourth quarter demand, excluding fuel oil is expected to be nearly 900,000 barrels per day higher than last year.

With seasonality turning in our favor, a strong crude market and several near-term catalysts emerging, the backdrop for product tankers looks increasingly constructive as we move through year-end. Slide 8, please.

Despite significant refinery maintenance, over 8 million barrels per day offline in September and 10 million in October, seaborne exports have continued to rise. In September, excluding Russian volumes, product exports averaged 20 million barrels per day, approximately 600,000 barrels per day higher than the same month last year. Slide 9, please.

A rise in drone attacks on Russian refinery capacity has reduced refined product exports from 1.5 million barrels per day to about 1 million, a decline of 30%. At the same time, OFAC's new sanctions on Rosneft and LUKOIL are expected to further disrupt Russian exports. Even before these measures took effect, Brazil's imports of Russian barrels had fallen sharply from 250,000 barrels per day to just 50,000 with much of the shortfall replaced by U.S. supply, a shift that lifted MR rates across the Atlantic Basin. In addition, importers of Russian products begin seeking alternative sources, product tanker rates could tighten further. Slide 10, please.

Increasing sanctions from OFAC, the EU and U.K. have made exports more challenging. The rise in crude on the water has been driven primarily by sanctioned countries, Iran, Venezuela and Russia, which together accounted for roughly 70% of the increase. The number of sanctioned vessels continues to grow, now representing nearly 8% of the MR fleet, 14% of the LR2 fleet and 34% of the Aframax fleet.

These vessels are, on average, almost 20 years old and are unlikely to return to non-sanctioned trades. As sanctions expand and enforcement tightens, additional vessels will likely be absorbed into these trades, further limiting available tonnage for legitimate cargoes. In short, the sanctioned fleet is large, old and increasingly isolated, effectively shrinking the number of ships competing in the mainstream market. Slide 11, please.

We continue to see closures in global refining capacity. Over the past 5 years, net capacity growth has been only 300,000 barrels per day, driven by additions in the Middle East and offset by closures in Europe and North America. In California alone, 250,000 barrels per day of capacity is scheduled to close this year and in Q2 next year, which could effectively double U.S. West Coast product imports largely coming from Asia. These refinery closures and changes have been a key driver in ton-mile demand growth for product tankers. Slide 12, please.

In October, China announced new fees on vessels calling at U.S. ports. As of this morning, it appears that President Trump and Xi have agreed to postpone both the USTR tariffs and the Chinese port fees for up to a year. If these measures were to return, China accounts for only about 3% to 4% of the global seaborne refined product market, and we would not expect any material impact on the overall market. We will continue to monitor the situation closely. Slide 13, please.

The product tanker order book currently stands at 18% of the existing fleet, a figure that may appear elevated at first glance, but context matters. Newbuilding activity has slowed considerably. Year-to-date, only 44 product tankers have been ordered. LR2s now make up almost half the current order book. However, 49% of LR2s currently on the water are trading crude oil, a trend we expect to continue. In short, effective fleet growth in clean products looks far more modest than headline numbers suggest. Slide 14, please.

As shown in the left-hand chart, a 20-year-old vessel generates 50% fewer ton miles than a modern one, reflecting limitations in trading opportunities, efficiency and regulatory access. The drop-off is even steeper, over 75% if the vessel was not involved in Russian trade. This isn't a short-term story. Between 2003 and 2010, we saw a significant expansion of the product tanker fleet. The result, a large cohort of vessels now approaching or surpassing 20 years of age. The chart on the right makes this clear.

Including the order book, 17.8% of the fleet is over 20 years old. By 2028, that figure climbs to 31%. The implications are structural. The fleet is aging, utilization is falling and effective supply is tightening even without a dramatic increase in scrapping. Slide 15, please.

Given the age profile of the fleet and the high share of LR2s trading crude, actual fleet growth could be -- could prove lower than headline expectations. Assuming no decline in utilization for vessels older than 20 years and a portion of LR2 newbuilds trading crude, effective fleet growth could average around 3.5% a year. However, adjusting for lower utilization on older ships, effective fleet growth could fall closer to 1% per year.

In contrast, ton-mile demand has increased more than 20% since 2019, driven by refinery rationalization, shifting trade routes and ongoing dislocation of global energy flows. We expect ton miles to continue to outpace supply. In both the short and long term, the market fundamentals remain strong, driven by structural shifts in global refining, longer trade routes and an aging fleet.

With that, I'd like to turn it over to Chris.

Thank you, James, and good morning or good afternoon, everyone. Slide 17, please. This quarter, we generated $148.1 million in adjusted EBITDA and $72.7 million or $1.49 per diluted share in adjusted net income. Our operating cash flow, excluding changes in working capital was over $135 million this quarter and approximately $375 million on a year-to-date basis. We are pleased to announce both an increase in our quarterly dividend in addition to new agreements with our lenders to prepay the principal amortization on certain of our loans for $154.6 million in aggregate. This prepayment is expected to take place in the fourth quarter of 2025 and represents all of our scheduled loan amortization for 2026 and 2027.

The principal and interest savings resulting from this prepayment will further reduce our cash breakeven levels, which include vessel operating cost, cash G&A, interest payments and commitment fees and regularly scheduled loan amortization to approximately $11,000 per day over this period.

In addition to this, we continue to be opportunistic with our investment in DHT, having sold 5.3 million shares in September and October at over $12.50 per share. This is an almost 20% return on investment when factoring in dividends received.

The chart on the right shows our liquidity profile. As you can see, we have access to over $1.4 billion in liquidity as of today. Our liquidity consists of cash of $627 million, along with $788 million of drawdown availability under 3 revolving credit facilities. Slide 18, please.

The chart on the left shows the progression of our net debt since December 31, 2021, which has declined to $2.7 billion to a net debt balance of $255 million. On a pro forma basis, our net debt position is $34 million, which takes into account the expected receipt of the October higher payment from the Scorpio Pools, which are expected within the next 2 weeks and the net proceeds from the sales of 3 vessels, which are expected to close in the fourth quarter.

Chart on the right breaks down our outstanding debt by type. Starting at the bottom is our $69 million of legacy lease financing obligations on 3 vessels with Ocean Yield. These leases are the most expensive financing in our debt structure with margins of over 400 basis points. In June and July, we submitted notice to exercise the purchase options on these vessels.

Two of the purchases are scheduled for December for $23.4 million each and 1 purchase is scheduled for February for $18.9 million. In the middle is our secured bank debt with a lending group dominated by experienced European shipping lenders whom we have strong relationships with.

As I mentioned, we expect to prepay $154.6 million of this debt in the fourth quarter of 2025. As a result of this prepayment, we will have no scheduled principal amortization on our existing debt for all of 2026 and 2027. Further to this, $290 million of our $615 million of secured borrowings is drawn revolving debt, an important tool that we can use if we want to repay the debt yet maintain access to the liquidity in the future.

At the top is our $200 million 5-year senior unsecured notes, which were issued in an oversubscribed offering in the Nordic bond market in January of this year at a 7.5% coupon rate. Slide 19, please.

By the end of the first quarter of 2026, we expect to make a total of $234 million in unscheduled prepayments on our debt. $14 million of this amount has already been paid in advance of the pending sales of 2 vessels. And as I mentioned, we have committed to repay $65.7 million to exercise the purchase options on 3 lease finance vessels, along with $154.6 million across 4 different credit facilities to cover our scheduled loan amortization for 2026 and 2027.

The chart on the right is our dry dock estimates through the end of 2026. Our forward dry dock schedule is light after having undergone the special surveys on over 70% of our fleet in the last 2 years. Slide 20, please.

Once we complete our unscheduled debt prepayments, our cash breakeven rates are expected to be at the lowest levels in the company's history. The chart on the left shows that these expected cash breakeven rates are lower than the company's achieved daily TCE rates dating all the way back to 2013, with the closest point being the aftermath of the COVID-19 pandemic when oil consumption was at lows not seen in decades.

To illustrate our cash generation potential at these cash breakeven levels, at $20,000 per day, the company can generate up to $315 million in cash flow per year. At $30,000 per day, the company can generate up to $666 million in cash flow per year. And at $40,000 per day, the company can generate up to $1 billion in cash flow per year.

This concludes our presentation for today. And now I'd like to turn the call over to Q&A.

[Operator Instructions] First question comes from Omar Nokta with Jefferies.

Thanks for the update. Obviously, very good detail. And clearly, Scorpio is in a very strong financial position as kind of outlined throughout the call here and with Chris here on the breakeven. And just as we kind of think about Scorpio here, you've been building cash, paying down the debt, breakeven is obviously coming down. You're putting Scorpio in the strongest financial position in its history and preparing for, say, the unknown given the geopolitical environment. Just maybe kind of thinking about the platform and how it is at the moment, do you feel like you're building towards something here, something more significant for this balance sheet to be put to use at some point down the line? Or do you think this is a bit more of a new normal for Scorpio to be in a net cash position long term with an eye on keeping that dividend sustainable throughout the cycles?

It's a great question, Omar. So, I think that can answer the last bit first, that's the easy one. We're very convinced that the right thing we should do is to maintain a regular dividend and have a dividend that is clearly sustainable. And so to do that, we [Technical Difficulty] a strong balance sheet, and we have to be able to show like we can do and as Chris has gone through, that we can clearly go through the absolute bottom of the cycle and still maintain that dividend.

The second aspect as to whether we are building things for long term, et cetera, et cetera, is the honest answer is that we've been focused on getting the debt down, getting the cash breakeven down, getting our self into the position that we're in right now. Chris is indicating that very soon we'll start to move to net debt negative or building of cash. And that simply by definition, gives you -- why you maintain overall discipline gives you tremendous options. It allows you to go into -- at any different point in the market, it allows you to properly -- if you wanted to renew your fleet, for example, without changing your leverage very much.

As Chris was pointing out that even at very low rates, we'd still be generating tremendous cash flow. But -- so I think that's the best way to answer it.

Clearly, that's helpful. And I guess maybe just a follow-up, and I'll pass it on is a question that's come up in the past. And when does it make sense, do you think, to start buying ships to offset perhaps some of the sales of the older ones? You clearly got critical mass, but are you content to keep kind of scaling back a bit, selling some more of the older ones without replacing?

I think we have a different situation right now. We're very soon. We're getting to that primary objective where we get, we're able to create that balance sheet, take the debt right down. And Vick and Chris are showing outlines whereby we can pre-bet principal, et cetera, lowering that cash down. So that part is kind of finished. So now you're really left to mathematics.

Mathematics would be -- I'll give you an example is we don't need to renew for renewal sake. There's no point in that. We also have consistently said that we are confident in the product market. Our last call was we are confident that the latter half of the year will be very strong and that the fundamentals are there and that's playing out. And Lars will probably go into later, the market is, as we expected, strengthening and strengthening quite significantly now across the tanker space.

So, we have no necessity. So, it's a question of choice. So unless the easiest position one could look at is, let's say, you could get a great -- it's where the curve is, you might be able to get a great price for older vessels in your fleet, for example, and then maybe you get a place in line with somebody, you're not necessarily you ordering yourself, but you may be able to get a prompt new vessel or a delivery or something like that, where mathematically, the curve is such that your newer vessel has far greater value, both in its operational specification and age compared to the older vessel, which older vessels as they start to move towards 15, we haven't got many of those left.

But as they do, they start to depreciate like options do much more rapidly. But that's a mathematical example. So, I think now that I don't think you -- but at the same time, we -- if someone offered us a great price for our older vessels, sure, we would sell them because that's the smart thing to do to maintain the optionality. I think the optionality for a company in shipping, anybody, whether it's investors or its companies is the value of that optionality is underrated strategically.

The next question comes from Ken Hoexter with Bank of America.

This is Tim Chang on for Ken Hoexter. Obviously, been a very constructive market for product tankers fundamentally recently with record levels of seaborne exports. How do you see rates progress -- is there a way you see rates progressing higher than levels with little under half of the days booked quarter-to-date? And maybe just a little bit more color on what pushes them there over the next 40 to 60 days. I know you've spoken to the OPEC production cut unwind, increased sanctions, the seasonally stronger period. Maybe some more detail on how importers of Russian product would be seeking alternative products.

Lars, do you want to take that?

Yes, sure. I mean just take a step back first. Q3 has kind of surprised to the upside. We haven't seen as much of a seasonal summer lull as you normally would do. There were a lot of refineries that were kind of in turnarounds, and we anticipated a drop in rates across the board. We did see that drop in rates, and we're at the tail end of those refinery turnarounds now. And I think we have another 5 million barrels of capacity that's coming on stream in November. That's going to supercharge the clean market. But there's a combination of factors to why I'm quite constructive the product tanker market.

First of all, OPEC has played a role in terms of starting to come to market with opening up the taps the whole issue around Russia has become a really important thing as you look at how now the Americans have also come in to sanction the barrels. And those sanctioning barrels have certainly had a market follow-through on the crude markets. If you look at the crude markets first before going to products, the VLCC markets today have ramped up to a very high level, so has the Suezmaxes and the Aframaxes as well.

We have also seen a sudden change in interest from LR2 owners to move into Aframaxes count from September, probably around 18 ships have already dirtied up. It wouldn't surprise me that there's going to be another 5 or 10 ships in a short order that's going to start moving into the Atlantic Basin into dirty. This obviously will kind of tighten the product market as well. So you've got more product coming into the market. You've got a tightening of supply. And the market that where the product is coming is primarily the AG and also the U.S. Gulf, where we're going to start seeing a lot of ton mile movements because of the sanctioning of barrels that people are now going to start securing supply from further afield.

I mean Brazil is now taking more product out of U.S. Gulf rather than the Russian barrel and so on. It is clear to me that we are just on the cusp of the bottom of that market. The LR2 market has moved up tremendously and will continue to do so. I envisage over the next couple of weeks. The -- and that's both from the Middle East going West, and that's Middle East going East TC1, but it's also certainly the West moving to the East, which has also moved up progressively over the last week.

The same thing goes also with a very strong but volatile market in the U.S. Gulf, and we can see underlying strength as the utilization level of the refineries are starting to creep up after their turnarounds in the U.S. Gulf and then underpinned by this longer-haul business. So there is all the ingredients for the market as we move properly into Q4 to see a certain rebound. And it's now firing on all cylinders. It's not only on the crude, which has been the headline over the last 48 hours, but it's certainly -- I can see on the product market as well, we're going to see a strong ramp-up into Q4 proper.

At the same time, I would also just add, this is an interesting combination because what we have seen in years gone by as we move into January and February, people talk about cannibalization of newbuilding with virgin tanks from Via Suezmaxes, Aframaxes that are not coated, which I have to be honest, it's very few today because everybody is building Aframaxes with coated tanks due to the price. But those vessels probably with the market trading TD 3 at worldscale 125 will probably think twice to take on a clean cargo at a discount at a lower demurrage rate than trading $140,000, $130,000, $130,000 on pure round voyage.

So, I also envisage a lesser degree of cannibalization, which will also underpin a very strong follow-through as we move into Q1.

If I could just add to that. So, I think what Lars on behalf of the company is saying, so we now -- he's now moving or we are moving as a group from the last, let's say, public discussion that we were confident that the market would strengthen into the end of the year. Lars is now creating a position where we see that there's a strong chance now of the market being very strong into the first quarter as well and through that first quarter because of the dynamics he's outlaid.

The next question comes from Chris Robertson with Deutsche Bank.

I just wanted to turn towards -- you guys mentioned you had extensive number of dry docks completed during 2025. I wanted to touch on that just in terms of asking what types of uplifts and efficiency that you've realized from those dry docks this year? And is that translating into slightly higher rate premiums? Or can you speak to the details around that?

Sure. I'm happy to take that. The dry docks and themselves did not -- did not involve a great deal of CapEx because we already think the designs for our vessels are sufficiently economical, fuel efficient, et cetera. Really, it's much more about general maintenance, the coatings of the vessels, the friction, not only exogenous but endogenous to the hull and getting that back to a place where you're really resetting the vessel back to something similar to what it was 5 years before.

The effect and the bottom-line impact is immediate, like I said, because you're basically resetting the ship to a condition it was 5 years before. But until we have line of sight on the return of a host of additional CapEx possibilities and what the returns actually mean, there's a lot of hyperbole smoke and mirrors about uplifts and other efficiency steps one could undertake. But until we really have line of sight and the benefit of more data in that area, we're not going to be spending shareholders' money on those types of gambles.

Got it. Interesting. Okay. My next question is just related to Chinese export quotas for next year, if you guys have a view around the increasing amount of refining capacity in China, it doesn't seem to have kept pace with kind of the quotas being kept flattish this year, slightly down. Do you have a view around next year and what they might do? And do you think there's a possibility that we'll see increased quotas from China next year?

I'll start and then maybe go ahead, James.

Thanks, Lars. Maybe, Lars, you can add. So, we saw the last quota increase in September, which is, as you highlighted, Chris, pretty consistent with what's been announced in the past. I think the interesting part is if you look at -- when you look at the Chinese data, total crude imports and domestic production were around 15.9 million barrels in September and runs were 15.4 million. So, the crude build was only about 400,000 to 500,000 barrels per day.

So, to answer your question, I think we would need to see it in the crude volumes first. But a lot of this production and quota system is really determined by the government. And in previous periods where crack spreads 2 years ago were very, very high, they didn't export. So it's a tough one for us to kind of predict.

The next question comes from Liam Burke with B. Riley FBR.

You've been very clear about the benefits of deleveraging and your plans to do so and the reasons why. But where do buybacks come into the capital allocation equation as we move forward here?

I don't think we'd ever say when the buybacks come into the equation. We have the ability to act whenever we want to. And we're not going to wave a flag and say, "hey, guys, this is when we're going to buy back. And let me remind you, we're $2 away for that or we're $100 million of cash away from that. That's not material. I think we'll pass on that question, if you don't mind.

Okay. That's fair. And then as we go into the stronger period, sometime we have 30 tankers trading clean. Is that going to be just part of the everyday business? Or do you anticipate strength in the crude market to keep those -- that part of the fleet dirty?

Lars?

Yes, the short answer to that, Liam, is yes. We anticipate that. It's quite expensive for a VLCC to clean up to trade clean. The last time we saw that was, of course, when the LR2 market suddenly spiked to about $8 million for an AG West run and the VLCC market was languishing at around $20,000 a day, where the spread was so wide that it was beneficial for a VLCC owner to clean up. That margin certainly has flipped. There is no VLCC owner or Aframax owner that's going to go and think about cleaning up at this point in time. It certainly is going to be the other way around. And we will start seeing, as I said earlier, probably a number of more ships going into the dirty market, further restricting supply on LR2s.

The last question comes from [ Jonas Shum ] with Clarkson.

So looking at the broader shipping space, there's been quite a bit of deleveraging across most segments, I would say. But you have been really kind of leading the way. You've been cutting net debt from around $3 billion in 2021 to less than $300 million today. And if you include the transactions that are set to close, I guess, this quarter, it looks like you could kind of be in a net cash position already by this year's end. And at the same time, you also have kind of a relatively young fleet compared to the sector average. So my question, as you now reach this kind of very conservative leverage profile with still a young fleet, is there any kind of limit to how low leverage you would like leverage to go? And -- and I guess that is also kind of related to Omar's first question. How should we think about kind of your considerations around fleet renewal versus growth and the shareholder returns? How will you balance this going forward?

I think that -- I think, first of all, to sort of echo what I said to -- first, by the way, thank you very much for your credit report. It was -- we thought it was very constructive and very well done. So, I'd like to echo what I said to Omar earlier that or somebody earlier that I think people underestimate the value of optionality and a strong balance sheet, an increasingly strong balance sheet provides great optionality in different circumstances. You can always buy ships. You can always buy stock. But sometimes people very rarely as the public side of the shipping industry had the ability to take opportunities of geopolitical crisis, almost never. And many times, those crisis themselves have resulted in bankruptcy of public shipping companies or severe stress. And right now, we have indicated over and over again that we consider that there is a high degree of geopolitical and economic uncertainty out there.

Only yesterday, I mean, the Fed itself in the United States doesn't know whether it's coming or going. It goes from, oh, we're going to have 2 more interest cuts before the end of the first quarter to, well, we have to warn you, we may not even have one in December. And they can't -- they're still trying to balance between inflation and potential recession. And that's not to mention all the other things in the world that are worrying and you've got countries in Europe and a lot of crises. We are extremely confident in the actual product market itself. And we are uncertain in the geopolitical position. So at this particular point, theoretically, there isn't much of a limit at the moment. You could just pile on cash every single day. There's no urgency to buy stock.

There's no requirement to as you pointed out to buy other assets. But you have the ability to do both depending on what situations there are and how your whole view looks at the moment. There's no rush. I mean it's not the bad. We've only just achieved this position that's pretty special. So, I don't think there's any -- I don't think I've ever seen a public shipping company that's had too much cash. I really haven't.

That's a good point. Yes. And then in terms of -- just more of a housekeeping question, I guess. You have agreed with your banks to prepay $155 million of debt. Is that -- could you kind of break that down in the different facilities? And how much will then be available for free liquidity?

Sure. I'm happy to do that in terms of the facilities. It's -- we have our $94 million credit facility, that's $19 million, our $1 billion credit facility, that's $92 million, our $117 million credit facility, that's $34 million and our $49 million credit facility, that's $9 million. Of that amount, $7 million is going to be revolving. So, it will be paid into part of the revolving facilities. The rest is term debt that we cannot redraw.

I hope that answers your question?

This concludes our question-and-answer session. I would like to turn the conference back over to Emanuele Lauro for any closing remarks.

Thank you. I don't have any closing remarks apart from thanking everybody for the time dedicated to us today and look forward to catching up soon. Thanks very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.

Hello, and welcome to the Scorpio Tankers Second Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to James Doyle, Head of Corporate Development and IR. Please go ahead, sir.

Thank you for joining us today. Welcome to the Scorpio Tankers Second Quarter 2025 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.

Earlier today, we issued our second 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, July 30, 2025, 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 Presentations. The slides will also be available on the webcast.

After the presentation, we will go to Q&A. [Operator Instructions] Now I'd like to introduce our Chief Executive Officer, Emanuele Lauro.

Thank you, James, and good morning or good afternoon to everyone. Thank you for joining us. We are pleased to report another quarter of strong financial results. In the second quarter, the company generated $144.5 million in adjusted EBITDA and $67.8 million in adjusted net income. When we last spoke in May, markets were dealing with rising concerns over trade policy, tariffs and geopolitical instability, factors that pointed to the potential for an economic slowdown. As few major issues have been resolved regarding trade, tariffs and geopolitics, the likelihood of a recession seems lower today than it was last time we spoke.

We see 2 narratives unfolding. The first is one of strength. The product tanker market continues to benefit from strong demand for refined products and long-term structural changes in global refining that are extending trade routes and increasing ton miles. The second is one of caution. The policy landscape remains uncertain and geopolitical risks continue to create noise, clouding visibility. Scorpio Tankers is stronger today financially, operationally and commercially than it was just 1 quarter ago. We've continued to fortify our balance sheet, expanding revolving credit capacity, maintaining a cash breakeven of $12,500 per day and giving notice to repurchase our final 3 vessels under sale leaseback financing.

At the start of 2022, our lease obligations totaled $2.2 billion. Today, that figure is below $70 million. And in just a few months, it will be 0. Today, our liquidity is approximately $1.4 billion, including cash, undrawn revolving credit and our investment in DHT. Operationally, we completed dry docks for 8 vessels in the second quarter and 71 vessels over the last 7 quarters, enhancing fleet efficiency and positioning us well for the quarters ahead.

Commercially, we added 1 vessel on a 12-year bareboat charter with a time charter equivalent rate in excess of $21,000 per day. Our approach to capital allocation remains measured, not because our view on the product tanker market, which remains constructive, but due to the broader global uncertainty that continues to persist. This quarter, we trimmed our investment in DHT, selling 2.7 million shares at over $12 per share, realizing a 16% return.

Looking ahead, we remain optimistic. OPEC's recent production increase should provide a tailwind to tanker demand. Our view on both crude and refined products remains positive. With a modern fleet, robust liquidity and a strong balance sheet, Scorpio Tankers is well positioned to navigate uncertainty and continues delivering long-term value to our shareholders.

Thank you, and I will pass the call to James for a brief presentation. James?

Thank you, Emanuele. Slide 7, please. In the second quarter, strong demand, low global inventories and improving refining margins supported a steady rise in product tanker rates. That strength has carried into the start of the third quarter with bookings to date averaging approximately $22,000 per day for MRs and $31,000 per day for LR2s, levels at which the company continues to generate significant free cash flow.

While tensions between Israel and Iran did not disrupt flows through the Strait of Hormuz, the return of Houthi attacks in the Red Sea and the ongoing conflict in Ukraine serve as reminders of how fragile the geopolitical backdrop remains. That said, several near-term catalysts, including the unwinding of OPEC+ production cuts and increasing sanctions could further tighten supply-demand balance heading into year-end. And looking beyond the near term, the long-term story remains intact. Structural shifts in refining, longer trade routes and an aging fleet all support a positive outlook. We view the setup, both near and long term as increasingly constructive.

Slide 8, please. Strong demand and low global inventories have led to higher exports, and we expect this to continue. Excluding fuel oil, refined product demand will grow 900,000 barrels per day higher in the second half of this year compared to last. In July, seaborne product exports averaged 21.1 million barrels per day, about 400,000 barrels per day higher than the same month last year.

Slide 9, please. Since April, OPEC+ has committed to restore 1.9 million barrels per day of production. While these barrels have been slow to appear, partly due to seasonal power demand in the Middle East, we expect them to come, supporting crude tanker demand with some spillover to products. Last year, in a weaker crude market, some crude tankers shifted into clean trades moving 50 million barrels of refined products between May and July. This year, that figure is just 20 million barrels in the same period. With current earnings spreads offering little incentive for crossover, we see limited crude cannibalization on products, further tightening the product tanker balance.

Slide 10, please. Two weeks ago, the EU introduced its 18th sanctions package on Russia, lowering the crude price cap, banning imports of products from refined Russian oil and sanctioning 101 additional tankers. While transition periods may delay immediate effects, the longer-term impact could be meaningful. Vessels operating under the price cap or swing capacity will be challenged by a lower price cap, likely pushing more ships into the shadow fleet to maintain Russian exports. Many of the vessels doing strictly Russian trades will struggle to reenter Western markets because of their age,, operating history and insurance or maintenance shortcomings.

For example, 89% of the MR vessels sanctioned by the EU and U.K. are older than 18 years. Additionally, banning imports of products refined from Russian crude could lengthen trade routes as Europe would need to replace diesel from countries that are importing Russian crude. The result, increasing inefficiencies, tightening effective supply and potentially longer ton miles.

Slide 11, please. Over the medium term, refinery rationalization is arguably one of the most important drivers of refined product trade flows. We continue to see closures in global refining capacity. Planned shutdowns such as Valero's Benicia Refinery in California are unplanned like the Lindsey refinery in the U.K. At the same time, the lack of new capacity is being developed in emerging markets. Over the last 5 years, global net refining capacity growth has only been 500,000 barrels.

Refineries face steep capital outlays to stay compliant with tightening regulations, and for older refineries, the economics may no longer work. As we have seen, refinery closures don't eliminate demand, they simply reroute it and often across oceans and longer distances. This has been a key driver in ton-mile demand, which has increased 20% since 2019.

Slide 12, please. The product tanker order book currently stands at 20% of the existing fleet, a figure that may appear elevated at first glance, but as always, context matters. A wave of fleet renewal was inevitable. Between 2001 and 2008, nearly 1,500 product tankers were ordered. Many of those are now reaching 20 years of age with a growing share approaching the end of their commercial lives. Meanwhile, new build activity has slowed considerably. Year-to-date, only 23 product tankers have been ordered.

As we discussed on the last call, LR2s now make up half the current order book. However, it's important to note that 51% of LR2s on the water today are trading in crude oil, and we expect this to continue. In short, the effective growth in clean product capacity looks far more modest than it appears, especially when you consider utilization.

Slide 13, please. One of the less visible but no less important contributors to market tightness is the lower utilization of older tonnage. We often speak about supply in binary terms, newbuild deliveries and vessel scrapping, but the reality is more nuanced. As ships age, their utilization gradually declines. As shown in the left-hand chart, the ton-mile demand of a 20-year-old vessel is 45% less than a modern vessel today, reflecting limitations in trading opportunities, efficiency and regulatory access. That drop off could be even steeper, closer to 70% without the Russian trade.

This isn't a short-term story. Between 2003 and 2010, we saw significant growth in the product tanker fleet. The result, a large cohort of vessels now approaching or surpassing 20 years of age. The chart on the right makes this clear. Including the current order book, 17.5% of the fleet is older than 20 years today. By 2028, that figure climbs to 30%. The implications are structural. The fleet is aging, utilization is falling and effective supply is tightening, even without a dramatic increase in scrapping.

Slide 14, please. Given the lower utilization and the likelihood of LR2 vessels trading crude oil, fleet growth could be lower than expected. In scenario 2, we assume 40% of LR newbuilds carry crude oil and scrapping remains minimal. The product tanker fleet would increase by 2.8% per year over the next 3 years. In scenario 3, using the same LR2 crossover and carrying capacity declines for vessels 21 to 27 years old, effective fleet growth drops to less than 1% per year, and we think effective fleet growth is likely to be somewhere in the middle of that range.

By contrast, ton-mile demand has compounded at 3.6% annually since 2000. Strong demand, modest supply growth and structural shifts in refining capacity continue to add ton miles to every barrel. In our view, the growing gap between demand and effective supply sets the stage for a sustained favorable rate environment in both the near and long term. With that, I will turn it over to Chris.

Thank you, James. Good morning, good afternoon, everyone. Slide 16, please.

This quarter, we generated $144.5 million in adjusted EBITDA and $67.8 million or $1.41 per diluted share in adjusted net income. Our operating cash flow, excluding changes in working capital, was over $130 million this quarter and approximately $240 million on a year-to-date basis. In April, we prepaid $50 million into our $225 million revolving credit facility, covering all remaining quarterly principal repayments through the maturity date of January of 2028 with the exception of the balloon payment. These amounts can be reborrowed in the future, subject to the facility's amortization profile.

We were recently opportunistic with our investment in DHT, having sold 2.7 million shares at over $12 per share. This is an almost 16% return on investment in less than a year when factoring in dividends received. We still retain a 5.5% ownership interest in DHT and continue to highlight that this investment has the dual benefit of having meaningful exposure to the VLCC market while also having the liquidity to move in and out of the position as opportunities arise.

The chart on the right shows our liquidity profile. As you can see, we have access to over $1.3 billion in liquidity as of today. This is $1.4 billion if our investment in DHT is included. Our liquidity consists of cash of $472 million, along with approximately $834 million of drawdown availability under 3 revolving credit facilities.

Slide 17, please. The chart on the left shows the progression of our net debt since December 31, 2021, which has declined $2.5 billion to a net debt balance of $438 million as of today. The chart on the right breaks down our outstanding debt by type. In uncertain times such as these, we believe that it is important to maintain a diverse capital structure with multiple sources of low-cost funding and maximum flexibility. Starting at the bottom is our $69 million of legacy lease financing obligations on 3 vessels.

In June and July, we submitted notices to exercise purchase options on these vessels. These leases are the most expensive financing in our debt structure with margins of over 400 basis points. Two of the purchases are scheduled for December for $23.4 million each and one purchase is scheduled for February for $18.9 million. In the middle is our secured bank debt with a lending group dominated by experienced European shipping lenders whom we have strong relationships with. All of this debt matures in 2028 and bears interest at margins below 200 basis points. These facilities are flexible and can be repaid at any time without penalty. Further to this, $290 million of our $642 million of secured borrowings is drawn revolving debt, an important tool that we can use if we want to repay the debt, yet maintain access to the liquidity in the future.

At the top is our recently issued $200 million 5-year senior unsecured notes, which were issued in an oversubscribed offering in the Nordic bond market in January of this year at a 7.5% coupon rate.

Slide 18, please. The chart on the left shows our debt repayment obligations through the end of 2026. Our scheduled quarterly obligations are modest, and we also have $78 million of voluntary unscheduled payments, which includes the early repurchase of 3 lease finance vessels from Ocean Yield and a $12.7 million repayment for one vessel on our $1 billion credit facility, which was made earlier this month. This repayment was triggered by the entrance of this vessel into a long-term bareboat charter out arrangement to the U.S. government's Tanker Security Program, which is expected to commence in August.

Additionally, since the beginning of last year, the company has recently completed the periodic special surveys on 67% of the fleet. The work performed during these dry docks has enhanced the operating efficiency of each vessel as can be seen by the continued quarter-over-quarter improvement in vessel operating costs. Our forward dry dock schedule is light as we come to the end of the year with far fewer off-hire days as compared to last year.

Slide 19, please. The strength of our balance sheet positions us to continue to generate excess cash flow even in challenging rate environments given our low cash breakeven levels. Further to this, our operating leverage positions us to benefit from spikes in spot market rates that have become commonplace over the past 3 years. To illustrate our cash generation potential, at $20,000 per day, the company can generate up to $271 million in cash flow per year. At $30,000 per day, the company can generate up to $632 million in cash flow per year. And at $40,000 per day, the company can generate up to $994 million in cash flow per year.

This concludes our presentation for today. Now I'd like to turn the call over to Q&A.

[Operator Instructions]

The first question comes from John Chappell from Evercore ISI.

James, great presentation on the market. I think there's been a lot of starts and stops to the product tanker market, and there's a lot of optimism now, whether it's between what you booked quarter-to-date or even the recent activity in the spot market. Between now and when we speak to you again in 90 days, what's going to happen that's going to make either your quarter-to-date number look higher or your quarter-to-date number look lower? And just we think about the risk reward from here over the coming 45 to 60 days.

It's a good question. I mean, look, I think the European next round of sanctions have a transition period, right? So it's 90 days on the price cap. It's 180 days on the Russian refined crude product exports. So I think that's a little bit later, but it does seem like OPEC barrels are going to be coming back in September. And last summer, we did obviously have some cannibalization, which is down over 50% of these crude vessels carrying product.

That said, it's also a seasonally slower period as we get to the end of August and you go into the summer maintenance season. So I think there's some catalysts there kind of short term, but it's always difficult to make a call. But we've basically seen a market that's been steady as she goes. MR rates have been $20,000 to $25,000 and LR2 rates have been high $20,000s to low $30,000s, and we think there's a good reason that, that continues. So maybe you don't see an immediate uplift, but things remain positive.

So John, I'd just like to add to that, that just listening to what James has been saying is that even the OPEC thing coming back in September is not really going to affect much of the third quarter because even if you have 2, 3 more fixings -- weeks of fixing now, the majority of the third quarter is done with. But it's -- I agree with James. There is things to do with Russia, other structural things that can lead to as usual seasonally stronger in the fourth quarter as well as...

Got it. Chris, for you, you've derisked this corporate capital structure significantly over the last 3 years. All these slides that you've just laid out showing tremendous liquidity, very little repayments, very little capital commitments and then all the cash flow potential that you can generate. And James just laid out, I think, a more favorable outlook than maybe 3 months ago, as Emanuele said, maybe less recession risk.

I know that you never want to pin yourself to a priority use of capital, but we've gotten to the point now where there's a lot of cash flow. It continues to accelerate, and there's really nothing identifiable to spend it on. So prepare for black swans, I get it. But if this market plays out the way that James has just laid out, how do we think about capital allocation shifting in '26 versus, call it, the last 3 years?

John, thanks for the question. I guess the first thing I just want to point out is while things look better today, the issues we were highlighting in May are still unresolved. There's still a lot of uncertainty, and that's how we look at it on a point-in-time basis. We don't have -- we're not going to set out a long-term capital allocation strategy in the midst of this uncertainty. And for now, I think conservative is our approach. I don't know, Robert, if you have anything to add to that, but that's my view on that.

Yes. I would totally agree with Chris. I mean we are literally just trying to -- nothing has changed as far as we're concerned fundamentally. I mean the tariffs is still there, very much there. The 2 big economic blocks, Europe and China, nothing has been resolved yet. I mean there's an agreement that was just made in Europe to be ratified. So there's no absolute certainty over the next 30, 40 days that that's going to happen.

Still dealing with China, which just seems to be postponed out. The actual geopolitical things of Russia-Ukraine, Gaza-Israel, nothing has actually been resolved either way. So we will certainly spend the next part of the summer just doing what we've done before, which is just adding to cash and adding to liquidity.

The next question comes from Omar Nokta from Clarksons Platou Securities.

Maybe just wanted to follow up, obviously, on this topic that you're just discussing in terms of capital allocation in this market backdrop. Obviously, it sounds like the fundamental outlook on product tankers remains fairly solid. It's really just the geo macro, as Robert, you were just outlining. I guess maybe just in terms of the buyback itself, has there anything that's changed in your view on that as a tool? Or is it just really -- it's simply about the uncertainty in all of the just angst that's going on in the geo macro?

Yes. We're maintaining the position that we're having. Otherwise, nothing else has changed. I'd say the stock itself has performed better in the last month or 2. We're hoping that some of the signs could happen that we have a more benign risk environment. And then we can see where we are. But we're unlikely to -- I can't imagine that we're going to sort of make some announcement and say, okay, this is now our capital strategy. I cannot imagine that, that will happen. We're much more likely to act rather than say what we are now going to do.

Okay. And I guess maybe just in terms of thinking about the fleet from here, obviously, you still have a very young fleet under 10 years of age. You've been a bit on, say, cruise control, harvesting the cash, paying down the debt, building up the -- I guess, the balance sheet strength. When does it make sense to start thinking about buying ships again. Modern ships to replace some of your older ones, not talking perhaps about say expansion, but maybe just rejuvenation. Is that in the cards here near term?

Nothing right now is on the cards other than we're operating the company, and we're continuing what we're doing. The company is monitoring the S&P market, monitoring the new building market, whether it's for sales or for purchases and that's what we're doing.

The next question comes from Greg Lewis from BTIG.

I wanted to touch on real quick the TSP program. It looks like a great contract. Kind of curious if you could talk a little bit more about that program. And then the comments around the subject annual renewal, is that ongoing where the TSP renews that annually? Or is that at a later date?

Greg, it's Cam. We're not at liberty to discuss the -- our transaction or our contract to put a ship as a substitute vessel into TSP. But on a general basis, I'll make a few observations. The annual renewal is subject to funding by the federal government, which there has never been a case of this funding not being renewed. So I would say the renewal risk is quite low. But in today's day and age, who knows. But we expect -- our expectation is that the bareboat runs for the full 12 years.

And obviously, what it does is the government has an interest in having a strong U.S. flag fleet that resonates, I think, with other initiatives that the current administration is taking by way of shipbuilding and preference for U.S. operators. So this deal came to us at the right time, of course. But I think it's an indicator that we'll look to do further transactions like this to the extent that they're available and offer really good returns.

Okay. Great. Super helpful. And then, James, in the presentation, you kind of walked through maybe some crude vessels cannibalizing some product volumes, and you laid out the OPEC ramp. Any kind of -- realizing that it's hard to pinpoint numbers. But any kind of view on how many vessels we could see shift back to trading crude from product kind of as OPEC spare capacity finishes that initial unwind that is expected to happen, I guess, pretty much in the next month or 2?

Yes. Well, look, on the crude vessels carrying product, it's really the Suezmax and VLCCs that we were comparing to last summer. So there's been obviously switching on the smaller segments. But when we talk about the cannibalization, it's really those vessels. And of the 17 crude vessels that have been delivered this year, 11 of them loaded clean product on their first voyage. And on the next voyage, 8 of them have already loaded crude oil. So I think speaking to the larger segments, that looks constructive.

On the Aframax LR2 side, what we've seen is 34 LR2s dirty up this year. But I think this goes back to the kind of the order book being LR2s and people building LR2s more than building Aframaxes because the Aframax volumes are 4x as large as clean products, but we keep building LR2s. So for example, by the time all these LR2s deliver, 46% of the Aframax LR2 fleet will be LR2s, but the crude market is 4x as large. So this is actually a trend we think that's going to continue for the foreseeable future because also on the Aframax side, the vessels are quite old and a lot of them are also tied up in Russian trade.

I think just a mention on that, being the crude market. I think the crude oil market continues to disappoint everybody. It's been the same story for 3 years at the moment. Yes, everything is going to be great. Next quarter, things are going to be stronger. And it hasn't happened so far. And I think that the product market itself is acting, I think, extremely well in the light of that disappointment and that uncertainty.

I think we do see very strong reasons why that crude market coming into September with the OPEC increases and the continued low inventory and people having to move. We see very strong signs of that market could get significantly stronger coming into the back end of the year, which just like the product market, we think the same, and that would be beneficial to the product market.

The next question comes from Tim Chang from Bank of America.

This is Tim Chang, on for Ken Hoexter. I saw that vessel OpEx stepped down sequentially and year-over-year, somewhat materially normalizing to 2023 levels. So do you see the run rate OpEx going forward stepping down a bit, particularly for LR2s? Or would you still advise us to look at kind of a last 4-quarter running average?

Tim, this is Chris. Yes, I would step it down a little bit, but also, yes, use the trailing 4-quarter average. So if you do that, it does step down about $200 a day from what we guided last quarter. And just to be specific, that would bring the LR2s down to about $8,800 per day on a run rate basis, the MRs at about $7,800 on a run rate basis and the Handys at about $7,600 on a run rate basis.

The next question comes from Chris Robertson from Deutsche Bank.

Just a follow-up on Tim's question on OpEx. Chris, you mentioned that vessel OpEx benefits here from ships that have been in for special survey. So I was wondering if you could talk about how long do those efficiencies last post those surveys? Do they step down over time? Or does that create kind of a permanent structure there?

Thanks, Chris. I would say there -- as you get closer to dry dock, vessel OpEx tends to tick up. That's natural. These are depreciating assets that require more work as they age. So we're reaping the benefits of the recent dry docks, but I would caution to use a low run rate through the rest of the useful life of the vessel just because of natural sort of wear and tear. Cam, do you have anything to add to that?

No, I think that's right, Chris. I'd say it's a combination of things. It's special survey, you address equipment that needs to be replaced. So in some areas, the vessel is operating as if it were new. In other areas, you are providing temporary maintenance that is temporary. And you'd expect that to reset to some increased costs over a period of time. So it's a very, very mixed picture that doesn't lend well to a simple answer, unfortunately.

Got it. Yes. No problem, understandable. Just shifting focus to the market. Do you guys have any current color or thoughts around Chinese export quotas for the remainder of the year?

Chris, it's James. Look, in the past, they granted the quotas and you see an uptick over the summer. We have seen that so far this year. July exports were up around 900,000 -- up to 900,000 barrels, up from around 600,000 barrels, which is their kind of standard, but it's very in line with what we saw last summer. That said, we have seen strong refining margins globally, but particularly in China. So we'll see, but it is very much controlled at the top level.

The next question comes from Liam Burke from B. Riley Securities.

You announced a deployment of a carbon capture system on one of your vessels. Is this a significant capital investment on your part? And is there any sense on how effective this technology might be?

Liam, thanks for the question. What we're trying to do in a period of uncertainty, not just uncertainty about revenues, but also uncertainty about technology and emissions and future propulsion is we're trying to be curious while also staying thrifty. So the answer to your question is this is not a significant investment by the company. It is part of an ongoing effort to understand the potential of onboard carbon capture, which can be or is promoted to be a very powerful tool to meet emission standards for vessels operating under fossil fuels for years to come.

Where you will find us skeptical is in this transition period of jumping to technologies or fuels that don't yet have the infrastructure or the maturity to provide for the type of commercial deployment, which we have, i.e., tramp trading. So whether it's methanol or ammonia or other fuels, we just feel that this transition is going to take a little longer than regulators and other sort of onlookers have promised. And so we are trying to get the most out of our traditional vessels, and that includes finding ways like carbon capture to keep them cost efficient and energy efficient.

The pilot will be running for several months. And only then after the results are analyzed, do we get to see whether this really has the potential that we think it does. But in the meantime, it's really a cooperative effort. We're not putting in a lot of capital, but we are providing, obviously, one of our LR2s as the platform to run this pilot.

Great. And James, refinery redistribution of refinery capacity globally has been a theme for several years now. Where are we on this redistribution? Do you see any continued benefit here? Or have things sort of equalized?

Continued benefit. So this year, we're expecting net capacity growth of actually in the line of 600,000 barrels. And we expect older refineries to continue to close. What is interesting is demand has remained strong. So you see today, obviously, refining margins have continued to rebound, underlying demand continues to surprise to the upside. And I think that's very encouraging for the long term because on average, it takes 7 years to build a refinery. And a lot of refineries that have recently developed in emerging markets have had delays, cost overruns and taken a while to come to market. So if you're not building a refinery today, there's very little kind of change in the near term as we go forward. And I think that's extremely positive for our business.

The next question comes from Frode Morkedal from Clarksons Securities.

I wanted to discuss oil demand. It seems to be coming in stronger than expected. I guess you see it in the crack spreads are quite strong, the shape of the future curve, still in backwardation, so there is no large inventory builds happening, which have been forecasted for some time. And even the treatment market, right? So the summer lows has been pretty good, I guess. Rates have been holding up quite well, right? So are you seeing anything from your side that points to this underlying demand is better than expected? I don't know, maybe in chartering activity, the level of time charter opportunities, arbitrage flows and stuff like that?

Frode, Emanuele. I think we agree with your views. The lows have been -- I think you said pretty good. We agree. The seasonal lows are okay compared to others, seasonal low that we've experienced in the past. The time charter appetite from oil major companies and major traders remains quite healthy. There is a little bit of caution in going longer periods. So you find yourself with owners pushing for longer-term charters and charterers wanting to still maintain shorter periods with optionality, of course, as you expect, which for the time being, not many owners are caving in for.

But it is understandable that charterers want this because the uncertainty and the clouded visibility that we are all experiencing is what they are seeing as well. So as we said, we remain optimistic -- cautiously optimistic, but certainly optimistic about what the future lies ahead for the product tanker market. So that's where we are.

Great. What about ship values? I just noticed that the ship brokers have lifted the estimated by up -- by a few million dollars, like a prompt resale MR above $50 million, which I thought was quite interesting, right? Given there's still big discounts to NAV in the sector, stability and even increase in ship values are positive. So any insights into that? What's driving secondhand values?

We've seen the correction in secondhand values. So as you know, we've been capturing the opportunities on the sales side for the last 24 months. We stopped as the market has dropped a little bit faster than expected. Levels that the S&P market has reached were lower than we expected. And I think that it was a factor of people just chasing and rushing for the next deal and the market has gotten a little bit out of end without real reasons. So we see this adjustment as justified -- this adjustment upwards, I'm saying, as justified.

And we, of course, welcome it. And we are always remain open to any S&P activity, but we are selective and focused on maintaining the right strategic balance for our fleet. So we are not in any specific trend at the moment. We are watching what lies ahead, summer period, as we just discussed in the previous question. Usually, this is the low season and the fact that the market has been higher than expected is probably what is also driving the S&P values up.

Frode, just one thing. As -- if you get sort of a real sort of crunching down on Russia sanctioning and/or changes -- significant changes in Iran, then that's another reason it's just becoming more and more risky to hold the, let's say, the very older tonnage that's being traded in those areas in the tanker market. So in that sense, you could start to get a mark or continue to have a market where the newer vessels, whether they are 10, 12-year-old MRs and upwards or LR2s, Aframaxes, whatever move in one direction and the older assets either stay the same or move in the other direction.

This concludes our question-and-answer session. I would like to turn the conference back over to Emanuele Lauro for closing remarks.

Thank you, operator. I do not have any further remarks. Just thanking everybody for their time and questions and looking forward to speaking with everybody soon. Thanks a lot.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.