Scorpio Tankers (NYSE:STNG) reported third-quarter adjusted EBITDA of $172 million and adjusted net income of $127 million, while management pointed to sharply stronger product-tanker markets entering the fourth quarter and raised the company’s quarterly dividend by roughly 67%.
Chief Executive Officer Emanuele Lauro said the company entered the fourth quarter in its strongest financial position to date, citing $655 million of debt and more than $2 billion of cash, compared with $3.1 billion of debt and $230 million of cash five years earlier. Scorpio’s daily cash break-even rate is now below $11,000 per vessel, he said.
The board increased the quarterly dividend to $0.75 per share from $0.45 per share. Lauro said the company expects to continue increasing the dividend annually, while maintaining flexibility to invest across market cycles.
Fourth-quarter bookings accelerate
Scorpio said it has booked a portion of its fourth-quarter fleet at substantially higher rates as the seasonally stronger period for product tanker markets begins. To date, the company has booked its LR2 vessels at about $181,000 per day, its MR vessels at $56,000 per day and its Handymax vessels at $40,000 per day.
President Robert Bugbee said market conditions had improved steadily since July. He cited monthly MR earnings of approximately $29,000 per day in July, $30,000 in August, $32,000 in September and $53,000 in October. For the first 37% of November, he said MRs had earned nearly $70,000 per day.
LR2 earnings increased from approximately $55,000 per day in July to $71,000 in August, $82,000 in September and $168,000 in October, according to Bugbee. For the first 37% of November, LR2 earnings were approximately $215,000 per day.
Chief Commercial Officer Lars Dencker Nielsen said about 70% of the LR2 fleet was trading in the crude market as of the end of September. Scorpio had increased its own crude exposure, with about one in three LR2 voyages trading crude in the third quarter, compared with roughly one in eight at the time of the prior earnings call.
Nielsen said LR2 rates had strengthened alongside the Aframax crude tanker market, while MR rates had also reached unusually high levels in both the U.S. Gulf and Asia. He said longer-haul movements to destinations including the U.S. West Coast and South America were increasing ton-mile demand and absorbing vessel supply.
Management cites refinery runs, long-haul trade and limited supply
James Doyle, Scorpio’s head of corporate development and investor relations, said Middle East crude exports had more than doubled since May, rising from 8 million barrels per day to nearly 17 million barrels per day. The increased crude availability helped drive a 4 million barrel-per-day increase in global refinery runs, supporting refined-product exports and tanker rates, he said.
Seaborne product exports reached 20.6 million barrels per day in September, up 14% from May lows, Doyle said. Asia accounted for much of the growth, with approximately 20% of Asian exports moving on long-haul routes to destinations west of the Suez Canal.
Doyle also said low inventories could provide an additional source of future demand. In his view, refinery output will first be needed to satisfy current consumption before inventories can be replenished. He said refined-product demand excluding fuel oil was about 70 million barrels per day at the May lows, approximately 74 million barrels per day currently, and could reach 76 million barrels per day a year from now.
On vessel supply, the company said approximately 15% of the global tanker fleet is sanctioned, with 70% of those vessels more than 20 years old. Even after scheduled deliveries next year, Scorpio estimates that about 26% of the fleet will be at least 20 years old.
Doyle said nearly half of the product-tanker order book consists of LR2s, but 69% of the existing LR2 fleet is trading crude. After accounting for LR2s operating in the crude trade, the company estimates effective clean-trading supply growth could be closer to 4% over the next three years, or about 1% if older-vessel retirements accelerate.
Balance sheet, liquidity and fleet commitments
Chief Financial Officer Chris Avella said Scorpio recorded a $153 million gain from the sale of five vessels during the quarter, repaid $200 million of debt through the early redemption of Nordic bonds, and paid $23 million in dividends.
As of Oct. 26, Scorpio had $2.1 billion in cash and $483 million of available revolving credit capacity, for total liquidity of $2.5 billion. Avella said that figure did not include more than $100 million of October pool-hire payments expected within a week.
The company also expects additional proceeds from the pending sale of two LR2 vessels for more than $140 million. Scorpio has commitments to purchase 17 newbuild vessels and contribute equity toward a minority interest in a joint venture involving eight VLCCs under construction. Remaining commitments total approximately $1.3 billion, and Avella said the company could fund those commitments without debt financing.
Scorpio’s outstanding debt consists primarily of convertible notes issued earlier in the year. Avella said the notes have a $605 million face value, carry a 1.75% fixed coupon and have a combined yield to maturity below 1% after a follow-on offering priced at a premium to par. The notes are convertible under certain conditions at approximately $99 per share.
In response to an analyst question, Avella said the company is currently unable to redeem the convertible notes and would need to use open-market purchases if it chose to take action. He said Scorpio was satisfied with its current position.
Management said it remains open to adding time-charter coverage opportunistically, but Bugbee said there was no urgency to lock in additional coverage given current spot-market conditions and the approach of the winter season.
About Scorpio Tankers (NYSE:STNG)
Scorpio Tankers Inc is a marine transportation company that owns, operates and manages a fleet of product tankers. The company primarily transports refined petroleum products, including gasoline, diesel, jet fuel and heating oil, as well as petrochemical feedstocks and other liquid products.
Its fleet has historically included medium-range, handymax and long-range product tankers, allowing Scorpio Tankers to serve both regional and long-haul trade routes. The company’s vessels transport cargoes between major refining, storage and consumption centers across international markets, supporting energy companies, commodity traders and other commercial customers.
Scorpio Tankers was established in 2009 and is incorporated in the Marshall Islands, with corporate operations based in Monaco.
