Scorpio Tankers, Inc. (NYSE:STNG) Q4 2020 Results Conference Call February 18, 2021 8:30 AM ET

Company Participants

Brian Lee - Chief Financial Officer
Emanuele Lauro - Chief Executive Officer
Lars Dencker Nielsen - Commercial Director
Robert Bugbee - President
Cameron Mackey - Chief Operating Officer
Dencker Nielsen - Commercial Director
David Morant - Managing Director
James Doyle - Senior Financial Analyst

Conference Call Participants

Ken Hoexter - Bank of America
Omar Nokta - Clarksons Platou Securities
Amit Mehrotra - Deutsche Bank
Greg Lewis - BTIG
Randy Giveans - Jefferies
Ben Nolan - Stifel
Jon Chappell - Evercore
Liam Burke - B. Riley

Operator

Hello, and welcome to the Scorpio Tankers, Inc. Fourth Quarter 2020 Conference Call.

I'd now like to turn the call over to Brian Lee, Chief Financial Officer. Please go ahead, sir.

Brian Lee

Thank you and thank everyone for joining us today. Welcome to the Scorpio Tankers' fourth quarter earnings conference call. On the call are Emanuele Lauro, our Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer; Lars Dencker Nielsen, Commercial Director; David Morant, Managing Director; James Doyle, Senior Financial Analyst.

Earlier today, we issued our fourth quarter earnings press release, which is available on our website. The information discussed on this call is based on the information as of today, February 18, 2021, and may contain forward-looking statements that involve risks and uncertainties. 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 that we issued today 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 broadcast live on the Internet and is being recorded for playback. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days. There are slides available at scorpiotankers.com on the Investor Relations page, under Reports and Presentations. If you have any specific financial modeling questions, you can contact me later and discuss offline.

Now I'd now like to introduce Emanuele Lauro.

Emanuele Lauro

Thank you, Brian. Welcome everybody to our first quarter of 2021. Thank you for being with us today. On our last call, we said that the rapid rollout of vaccinations would be potentially a game changer and this is proving correct. And as we speak, injections are winning against infections. The rebound potentially in our businesses is now significant. It is estimated that COVID has temporarily reduced 6 million barrels per day of global demand, of which two thirds is in aviation.

As we look across the market, many sectors of the economy like travel and tourism, for example, are already discounting a significant rebound in demand, correctly so in our view. Meanwhile, in large parts of Asia, we are already back to normal levels of demand. So, we do expect rates to move upwards from here. While the short-term opportunity exists for our company, we must not lose sight of the longer term impacts of the virus in our industry. The last 12 months have seen a rapid acceleration of global macroeconomic evolution across different segments, like renewable energy, technology, medical science, and others.

In our business, we have experienced a much overlooked but decisive closure of refining capacity in the developed world. Alongside this, we have experienced the opening of major refineries in the Middle East like Jizan or Al Zour by the way we at Scorpio Tankers have listed the first Jizan cargo three and a half weeks ago on one of MRs. So long after the crisis as receded these positive structural impacts on ton mile demand will be felt. As such, the pandemic has started to accelerate the structural changes in demand from which we can benefit well into the future.

The supply picture in clean product tankers is still benign, and not only benign, but it pre-existed the pandemic. At present, the underwater fleet of modern MRs is starting to shrink. The crisis has only served to deepen and prolong the undersupplied markets. And in the process, in this process, it is now returning pricing power to incumbent owners with modern vessels like STNG. The new building ordering continues to remain very low, which is another encouraging factor.

Before I conclude, I would like to spend the words and think about our seafarers and our teams around the world. I thank these key workers, who in the most demanding and extraordinary circumstances have made significant personal sacrifices away from their families, away from their friends, just to keep the world economy supplied. Scorpio is a proud employer, is proud of its record as a responsible company, a responsible employer. Our teams on land and at sea can continue to rely on our unwavering support through these periods. We employ about 8,000 seafarers and we have more than 14,000 crew movements since the start of the pandemic.

Finally, I will sum up with the following thoughts about hydrocarbons. Hydrocarbons are here to stay. But as a global community, we will likely produce and consume hydrocarbons in a different way or better in an evolving way. We believe that the modern clean ECO tanker has a pivotal role to play in the future, in this future, and in this transition. As such, once the crisis has been painful for many and tragic for some, it has given us the window to the future. This future is a huge step up in product tankers on mine with modern efficient refiners exporting major volumes of refined products to all corners of our worlds.

With this, I've ended my remarks and I would like to turn the call to Robert Bugbee.

Robert Bugbee

Thank you very much, Emanuele. Look, I think this is absolutely super exciting time for the STNG shareholder and the STNG potential investor. We're past the bottom in terms of rates. Now, we're going to -- the inventories been really drawn down, the vessels, you can see from our earnings are moving, that means that there's very little surplus capacity, so any increase in demand is going to immediately move into corresponding higher rates just straight away.

And we would expect that over the next couple of weeks that we will start to get significant movements upwards again in the Asia market as Asia comes back from the Lunar New Year. It's a great opportunity in the sense that our stock is still trading, despite the sort of partial sort of run out from the bottom is still trading at a significant discount to its net asset value. It's trading at an even further discount to where the Company was only 12, 13 months ago.

Despite all cash that the Company earned last year, and the debt that is being paid through that year. We'd expect the NAV to start to move upwards as well and they can move up quite sharply. Yard pricing is going upwards across shipping high input values, high interest in areas like containers, LNG seem to be dry cargo to. Time charter rates have started to from strong inquiry and many fixtures, especially as the modern tonnage and the forward curve is being strengthening too.

In addition to that, it can think of safe to say the last four weeks investors have come out and shown a lot of interest. And as Emanuele pointed out, does these vaccinations are a game changer going forward and a game changes to people's psychology and mood. People are believing and expecting the opposite of last year.

Last year when the rates were high, the stock sold off rapidly because we expected -- everyone expected the market to fall. Today people expect that the vaccines will lead to greater demand in creative move OpEx. So, we're starting to anticipate that improvement and anybody that's short and we still have a lot of significant short interest in staying is really denying, denying the fact that the world is going to get better as a result of COVID.

And with that, we have a lot to talk about today. I’d like to open it up to the questions. Thank you very much.

Question-and-Answer Session

Operator

[Operator Instruction] Your first question comes from the line of Ken Hoexter from Bank of America. Your line is open.

Ken Hoexter

Can you just talk a bit about the effect the storms are having on trading patterns and also just more specifically the MR rates where you showed improving sequentially with your book dates, would you -- others kind of declined? Can you talk about that differential? Is that a trading pattern East and West given where nat gas prices are? Or do you expect that to decline like the other crisis?

Robert Bugbee

Sure. Lars will answer that one.

Lars Dencker Nielsen

Sure, thanks Ken. I mean, going back to Robert's point, I mean. The capacity of the free days is pretty good to be honest, and it doesn't take that much to see what the delays and uncertainty can do to the rebound of the market. Obviously, we have seen that these kinds of dislocations leads to spikes and I guess the live example that you referring to is what's going on in the Atlantic base on MRs right now.

So it's interesting to note that with the U.S. polar vortex, the issues arising around that, the cheesy to market which is the Atlantic base on MRs just this week alone has moved from West 170.5 to 170 and subsidize. This corresponds to pretty much jump up 8,000 per day increased trading days, which of course is remarkable. And obviously is a testament to the capacity of the balance of actually is in place.

Similarly, I guess, completely other reasons have nothing to do with the polar vortex, the market and the men in the Handys, they moved this week as well, 120 miles scale to get to 20, which is a very substantial jump and probably equates to about $12,000 per day increase from what it was on Monday. And I think the point here really is that, it was East or West as we're seated in the East as well is that the market has the volatility that we really need and require the overhang of vessels in the product market, again is limited, I would say.

And it just shows that at the margin, the markets have that immediate capacity to move, and do so very, very rapidly. And it's not hampered by any layoff, or over capacity that we saw back in the 80s really. So I think the reality is normally followed by sentiment. And I think time and time again, it shows that in fairly balanced markets uptrend come very quickly.

Ken Hoexter

Amazing, I guess really well positioned to rate depending on how quickly we see this tightening and price while through. I guess, what does the impact -- let me just quickly get a follow-up on the reversal of the million barrels per day cut from Saudi. Is that something that, I guess, Robert, you've always talked about lengthening the length of hauls? Is this the driver that you're going to finally start seeing that in absorption of capacity? And maybe within that, where does the storage now sit on water? Are we kind of done with that bleed out into the market or will that still pressure us?

Robert Bugbee

So, I think first of all, there's almost no storage on products on the water that's drawn down. And there's still some storage left in the water and VLCCs. And I think that we would I think conventional wisdom would say anyway, the product market will move upwards, just for the VLCC market would move up or the crude market.

But it's fantastic either way, as soon as the Saudis start to reverse their positions and OPEC imagine. We're going to almost all oil analysts say that over the next 10 months or so before the end of the year, we're going to pick up between 5 million and 6.5 million barrels a day where you're going to be stripped going at 500,000 to 550,000 a month increase.

And then that's great Lars can talk about the psychological thing of this, but for us in the product market, and particularly the Saudi question the Saudis put in product exports to into their totals for their exports. So here with their new refineries coming up, that just gives more confirmation, along with the end of the Lunar New Year of our belief that the East market and the LR2 market and whether it's two weeks, three weeks is going to start to crank itself up.

Ken Hoexter

One last one for me if I can, Robert, or I guess for Brian may be particularly the operating costs remain elevated 1600, I presume that's because of COVID and all this stuff that you're doing? Is that something you see lasting through '21? Do you see that starting to come down at all? Maybe just one quick thought on the expense side?

Robert Bugbee

Ken, it's right, because of the COVID crew changes and few other things that are associated with that. So that's at least in the first quarter here, we'll still see that and hopefully, as we mentioned with the vaccines, things are getting better and more places are going to be easier for crew trade changes going forward.

Operator

The next question comes from the line of Omar Nokta from Clarksons Platou Securities. Your line is open.

Omar Nokta

Emanuele, Robert, obviously you in your opening remarks kind of presented a pretty positive outlook, and over the past few months in other shipping sectors, we've seen a real strengthening as each of those came out of their kind of COVID induced downturn. There's some multi-year highs coming out of the gate here for containers as seen as a driver for gas, as you guys think about the tanker market recovery from here, can you see something similar playing out here in the next few quarters? And then with that in mind and how you view that, how do you feel about share buybacks in that context?

Robert Bugbee

Well, I think the first question is yes. I mean there's no, if we think of where we were 13 months ago $40 or whatever, what's changed if we said, okay, in January 2022, the demand was the same as what it was or probably higher, where rates going to be, rates are going to be stronger. They're going to be stronger because we have a number of -- that they're going to be leaving the clean petroleum trades this year, because they'll turn 16 years old.

We will have still a very constricted supply order book, very constricted in terms of its ordering position. And we are having some real positives in refinery changes. James can talk about that in a separate question, I'm sure, but the refinery changes have been accelerated as Emanuele indicated, and we've just seen on in quick succession, what's happening in Australia for example.

So and this big effect on, 10 miles, when it comes to values, there's inflation going on right now, steel prices are moving upwards, the yards through this period of consolidated to shift the odds of already moving their price positions up. There is a scarcity of new modern product tankers. So there's every reason the given the fact that, the share count would be the same, that in a stronger market, you'd recognize where the Company is actually until paid back to in this trailing 12 months, that there's no reason why the stock should be higher than $40, if you look at it that way in 12 months time.

The second question, no, we've been very consistent and that you can see what we're doing. We're continuing to maintain our liquidity. We announced today that we still have excess of $200 million of cash on the balance sheet with the financings that were in the works are the things that we're showing more or less $300 million of liquidity. And so we're able to go through this position. We're getting more and more confident as we see the vaccinations, but we've remained humble in this last two to three months waiting for things to play out.

But certainly, we're indicating that we believe NAV is well above the present stock price and going higher. So there is going to be the room there, the very moment that the rates start to really shift and move and move above let's say $17,000 a day on average, which is all in cash breakeven let's say, but we'd like to see that first that's the prudent thing to do.

Omar Nokta

Thanks Robert. That makes sense. And maybe just kind of thinking about that from, from your vantage point, it's, maybe it's a little early, but wanted to check with you on kind of what you're seeing in terms of potential recovery you mentioned the Lunar New Year holidays and expecting to see an improvement there, when we look at the oil price and the oil curve, obviously Brent is now pushing close to 65 and there's mounting pressure for more barrels to come to market from OPEC. Are you seeing anything in the cargoes you’re carrying or in the refineries that you do business with? Are you seeing any preparations on their part to shift, shift their production, whether it's to ramp up certain types of cargoes including say jet fuel to gasoline, are you seeing anything there that that indicates changes are coming?

Robert Bugbee

Lars would you like to answer that?

Lars Dencker Nielsen

Yes. Hi Omar, that's a really difficult question to answer really, because obviously, people keep their cards very close to their chest. But what we do see is that, to the first point about the ton mile and stuff, how are we seeing the development in what we consider to be a new point in the cycle at the moment. And with the refineries that were shut down in Australia, which was the Quinato one first, and one that was announced the other day Exxon, and we're seeing how these things are developing and what's moving and you look at the numbers, both from January in terms of progress, moves into relative to what was going on last year.

And you can see that 57 MRs were done in January to Australia in ‘21 January and 38 were done in January last year. So we can already see that everything that we've been talking about last year, what are people doing things that they're saying that they're going to do happening? Well, it's certainly been happening very quickly we had the same thing. And I think Emanuele mentioned in the opening remarks about Jizan, and we've moved the first cargo out of Jizan, and we’re seeing that they're ramping up as well.

At the moment we haven't seen very much distillate moving west for obvious reasons. So at the moment it's light and it's moving East where obviously there has been this unbelievable demand for what particularly NAFTA and then in Asia, which of course is held up a lot of the markets from the West going East with the big ships. And what we're waiting for of course is this, this turn, when we're going to stop seeing other parts of the barrel start moving the other direction. We're seeing small sparks of it. We see no first jet cargo. It's still too early to say what that means.

Obviously, jet doesn't have unlimited storage life, but certainly that did you start seeing that things are going to be flying around again, and you have to think about what you're going to do with your jet fuel and have that in the storage, in the right places six to eight weeks prior. So, we are pretty confident that we're starting to see the changes. We can see that people in some markets will start reaching out further out particularly in the West on their fixing windows and stuff like that. But to say that we're seeing the cargo mix as such change, I think is still bit.

Robert Bugbee

I think one of the better ways of gauging the customer's position is the steady taking on and lengthening their books on modern tonnage and that's really where they are. But I think that, as Lars says, This is what do you want to call it, this is just as the tide is changing, the other tides been going out in the last two to three weeks or so the, the tide stopped going out. And we're pretty sure it's, it's going to turn just simply, as you start to see, look at what's happening in the United States and in our own states where we're, where we're living, certain things are starting to open up, whether it's, kids being able to play team sports again, or going to the restaurant or doing driving, and Europe's already started to talk about it. I mean, the rates of COVID in the UK is been falling like crazy. So, I wouldn't say that we're, we are pretty close.

Lars Dencker Nielsen

And I just add the Robert in terms of the time charter we talked about, and that obviously is one of the kind of real leading indicators that always tend to see value of sentiments. And typically, for a lot of traders, the rationale that they do when they take time charters this obviously see the inflection point of days and months, before it happens to make sure that they can be on the right side of that curve. And when we looked at it Paul what's happening in year to date and '21, most of that activity has been on MR vessels. And the thing that's interesting to note now is that most of that has been happening on the ECO vessels. I think, the last time on our own. When we follow these things we see over 40 miles actually done and transfer in this year.

And on the count of a majority of them are ECO, and a large handful of those are also the scrubbers. So, I think it's a really important kind of dynamic is changing here, we can see quite clearly that the end user, the customers using these ships to trade with a business or as a portfolio, they're suddenly pivoting towards a more ECO fleet. Because we then look at the overall numbers of vessels that we follow that every one of these traders they have, on every quarter, they tend to be roughly the same, which that then tells you that this will be the older units out with the newer that are more fuel and certainly carbon efficient.

Omar Nokta

Thanks, Lars. Appreciate that color and Robert as well. Obviously, it's probably, as you mentioned, it's a bit early to tell about the shifting cargoes, but definitely sets up a pretty interesting earnings call, I think in two months time or two months whenever you guys come out with your next results. So, thanks for the car, and I'll turn it over.

Operator

Thank you. Your next question comes from the line of Amit Mehrotra from Deutsche Bank. Your line is open.

Amit Mehrotra

Thanks, operator. Brian, I saw the debt amortization moved around a bit for prospectively, is there more to come on that? Or are we all done there in terms of what you guys want to do in terms of stretching out the tables a little bit?

Brian Lee

We have a few more things that we're working on, as we mentioned, we have some facilities to draw down on and then we're in discussions on a few other ones. So, it is moving around. Unfortunately, it makes your guys life very difficult to keep on top of it. But we have a few more things and then we'll see where we are at that point. Thanks for coming down.

Amit Mehrotra

I bet it's just going down, right. So that's good. My next question is going to be a tough question, but I think it's a completely fair question. So, I just want to warn you ahead of time. Robert, I guess Brian and Emanuele, you guys lost $75 million in the quarter on a GAAP loss basis. We can exclude things like impairment losses, restricted stock awards. I don't know why you would exclude those, but the bottom line is you lost that much money in the quarter. We're now 10 years into this venture called Scorpio Tankers and you guys have reported 70% of the time annually a loss. So the question is, the question is, what is the change in strategy that's going to want to allow you guys to actually create some value to the stocks down 87%, since you took this public? And second, what are you doing to rebuild some goodwill with the shareholders? And I'm really talking about it from the perspective of your related party transactions in the value transfer to SSH?

Robert Bugbee

Thank you. I think we've had a direct question is as we've gone through this process, we've adjusted those relationships. We've dropped various things along the way. We went and did a major change two or three years ago, in conjunction with our lead investors, that we've been very, the actual basic, fees related to OpEx, et cetera. They haven't gone up, there's been no price adjustment for years despite the fact that costs have obviously gone up. I think that this is, the value is going to be created, right now, by the dynamics is going to play out, there's going to play out in terms of the real fundamentals.

Amit Mehrotra

Can you give the public shareholders a holiday on commercial and technical management fees, because you're right, they haven't gone out, but they haven't gone down?

Robert Bugbee

We gave a holiday on commercial fees. When the rates have been consistently low previously, we didn't do any drawback when the rates were really, really high. At the moment, we don't think that that's necessary at all in the Company. I think that the actual margins have been being reduced quite a lot, simply because that hasn't gone up, but costs have gone up, salaries have gone up, et cetera, et cetera, et cetera. So the quality in many ways is improved. I mean, you can see we do very well against the benchmarks and very well against the competitors. It wouldn't make a material difference any way on it, so what we're talking about.

Brian Lee

And there are two things, Robert, if I may. I think that we need to contextualize your question on it because it is a fair question and we like direct questions. I think that the space has been beaten out for the past decade. I think that if you look at our performances compared to others, we are actually right on top. If you look at the fee issue that you've mentioned, apart from the SMPC, which was a 1% SMPC, which we dropped, as Robert has mentioned a few minutes ago, which many other companies charge, then we decided to charge that together with our underwriters when we went public and then decided to drop it because it was creating confusion and staff or noise.

However on the technical and commercial that you've just mentioned, if you look at our peers, look at our OpEx, our OpEx are inclusive of fees, or numbers on the commercial side that are inclusive of fees, we issue net numbers. So post fees, and there is really nothing to look at with criticism, we charge market numbers, we outperform on, or are right at the top of the commercial results, we are right at the bottom, from a quality price standpoint with OpEx.

So there is it's a known argument on the on the general performance, as I said, it is very important to contextualize this, you cited some numbers, which are true that we do welcome, as I said, direct questions or criticism. However, the tanker space and the shipping industry in general has been quite a difficult one, you guys on the analyst from an analyst perspective has changed and struggled to remain relevant in an industry where a lot of investors have not paid attention because of the depressed results that the industry specifically was bringing. So, yes, you're right.

Amit Mehrotra

Really, I don't want to be labeled the point because it's a public call. So, I'll move on. But like, I don't think that has anything to do with the question. The question I had is. You still also have over 200 million of restricted stock awards since 2010, which is basically, share awards to the management team, when the equity public equity prices collapsing 90%. So how do you kind of explain that?

Lars Dencker Nielsen

I think that yes, to cut the Company know, the management isn't getting. The compensation is tied a lot to the stock price. The other way of looking at it is look, the management, are they, we're shareholders, we also buy things and we suffer when the stock doesn't perform. And I think it's a probably a better position overall that a large amount of compensation is tied to the stock price, as opposed to tied to cash bonuses, or cash salaries, et cetera.

Amit Mehrotra

Okay, thank you. I know these are tough questions.

Brian Lee

I'm fine. We're totally fine. But I mean, the other part of it is that, you insiders have been big buyers, you haven't seen many management's buy as much stock or derivatives through stocks. And this one, especially, especially recently, the recent division is we're really backing up the truck at the moment into what we think is going to be a great period for investing shareholders in return.

Lars Dencker Nielsen

And 13 months ago, we were at a great period and then the pandemic came but this question was not you didn't ask the question 13 months ago, I made not because you're shy but because you thought as well as we did, that we were, actually going to enjoy a very prosperous period ahead of us, which then from there make room for many, many other companies and more importantly for many people, so that's where we are, but as you say, happy, happy to happy to discuss whenever you want.

Operator

Your next question comes from the line of Greg Lewis from BTIG. Your line is open.

Greg Lewis

Thank you and good morning. Good afternoon, everybody. As I look at the forward guidance, thank you for that and go through business presentation, which I kind of thought you'd highlight some of those slides. I guess my question is, as I look at the performance for the quarter, is there any way to parcel out how much of that is scrubber related? And really, how we should be thinking about the impact of widening yours spreads on the performance over the next couple of months? And kind of around the scrubbers, are you start -- I realized about a year ago, when scrubbers graduate dollars, you actually had a lot of traders and other entities looking into charter in vessels to take advantage of the scrubbers spread. Is that starting to rear its head again?

Emanuele Lauro

I will do yes, in a first question, how much of our benefit we had so far in our results for our guidance, and not really very much it's only been recently, as you know, that the price of fuels is has moved upwards and the spread has started to rewind and above $100. But, we do see that spread, continuing to open up a bit, we don't necessarily see it going back to $300. But we don't see it going back to much under $100. So it'll become more meaningful, as we continue through this year. I know James if you'd like to add to that?

James Doyle

No, I would, I would completely agree with that Robert. We have a slide in our presentation, which gives you the breakdown at a $200 spread. So you would divide that by 100 to get the savings but we think the spread will continue to widen just because you know we're in a more normalized commodity cycle. And there's limited use for high sulfur fuel oil outside of power generation in the Middle East and scrubber fitted vessels.

Greg Lewis

And then what about and is there been an increased interest for charters looking for scrubber pipe charters to really capture the spread?

Robert Bugbee

Well, I think there's a chapter is looking for anything that can perform better in terms of either total fuel consumption, because of environmental reasons. And then add on top of that they'd like to have scrubbers two, especially as the spread is opening up.

Greg Lewis

Okay. And then and then Brian, shifting gears a little bit. Clearly, there seems to be an expectation of rising asset prices as we come out of this, as we move into your recovery of oil demand mode. Do you have any sense realizing, it's going to be different across banks and houses? Do we have any sense in terms of appetite for additional lease providing of capital from whether it's traditional European banks, Asia leasing houses? Really what I'm trying to understand is that obviously, there's been a lot of right sizing of shipping books over the last one, two, three, four years? And I'm just kind of curious, are we now more than a stable environment? Or are we still seeing some parties involved in commercial shift lending, continuing to pull back?

Brian Lee

Well, you're seeing much more in the sale leaseback and the Asian Financial houses coming into play. And there's actually on Slide 13, James put together a summary there and you can see our credit facilities are about a billion in our lease financing are about just under 2 billion. And I think if you looked at that at any other time, it would be nowhere near I think if we went back just about last year, it'd be roughly equal. So, as you saw over time, that has changed. And we're not the only ones doing it. You're seeing other people doing that. So, I think we're seeing a different market open up for us to borrow from very competitive to.

Greg Lewis

And you get the sense that the appetite from the leasing houses is continuing to grow as it kind of normalized?

Brian Lee

No, I think some of them are, are opening up. There's some more out there as well. At least we're getting inquiry from other people.

Operator

We have a next question coming from the line of Randy Giveans from Jefferies. Your line is open.

Randy Giveans

Good. And then necessarily are struggling with some power outages on Houston. But just wanted to ask about asset values, and how that has been impacted by current market weakness, as well as maybe on the other side, the optimistic outlook for the back half of this year. And then how liquid is that market in a relatively tough still operating environment? And then lastly, you mentioned STNG is trading at a significant discount to NAV. So, just trying to get a better sense for that updated NAV estimate?

Emanuele Lauro

Our last question I can give pretty clearly is that we're not going to give any guidance on what we think our NAV is. The first part is especially linked to the very first question related to, would we ever bought -- would we start to buy our stock back for a certain point? So, we will keep what we think our NAV is, is to our self during, if we adopt that strategy then I think that will be the benefit of the benefit of our shareholders.

Then, in the first question, that hasn't been very many transactions, primarily because the last year was no one really had to sell in terms of distress, because even though the rates have been weak for the last few months, of course, last year is a fantastic cash flow year. So, they've been very few. And most of the owners of modern tonnage have been the stronger owners.

So they've been very few willing sellers, as it were, prices were, values were therefore determined by, whatever discounting new building prices, new building, or the market was really weak last year and OpEx. In many ways you had NAV, so values that we're kind of artificially low, who is very, very few transactions. Now you have an almost a situation where we know that there are lots of people who are potential buyers or product tankers.

Again, those owners of modern tenants certainly don't want to let go of their tonnage as they today's prices because they're seeing, the market rise, time charter activity rise, and that they know that modern tonnage in the water will be a premium, because this market is likely to move and move fast. And so, it's much better to, for all these people to buy tonnage in the water than it will be to the new buildings.

So the little being little is being transacted as a moment. So there's very, very little data points, and -- but you know that the actual trend upward, trend is upwards because you've got the charter activity and you have new building increasing, and you've got the expectations of a market that's going to improve.

Randy Giveans

Sure. Okay. And then in terms of the plans for all the additional liquidity you have raised and are raising via the refinancing to 7% notes due in 2025. What are kind of your sources and uses of cash this year? And then also how big of a priority is maintaining the dividends.

Emanuele Lauro

While the Board is as of today saying it's keeping its dividend, we are indicating that we expect the markets to improve cash flow to come into the market. So I think the Board at the moment we would expect to maintain the dividend. The sources and uses right now on to and have been to ensure that we nothing untoward happens, things have been changing. It was in November, December, perhaps vaccinations were disappointing. Now vaccinations starting to accelerate, we would, we're getting more optimistic, would expect that pipeline to accelerate further.

But as we said earlier, until we cross into $17,000 a day range, maybe we can go a little bit earlier. We would keep liquid, we would keep liquidity on the balance sheet, until we do that, I can say that we have no interest in buying other people's assets right now, like zero, we have a fantastic fleet, fantastic operating leverage, and the first priority to free cash would be buying back after that would be buying back the stock. And we have, and we're not even in discussion with shipyards at all. I mean, the idea of ordering a ship is completely at the bottom of the list.

Operator

Next question is from the line of Ben Nolan from Stifel. Your line is open.

Ben Nolan

Yes, thanks. Hey guys, one of the questions that I wanted to sort of circle back on, I think that you need to talk to in your prepared remarks, just about sort of crew issues. And one of the things we've heard from a few owners is that they were sort of going out of their way to stop by Manila or other places to pick up new crews. I don't know if that's universal, but was curious, if you guys are doing things of that sort and maybe the numbers that we're seeing now, there's some sort of an impact from maybe artificially depressed utilization or something like that as a function. Is it not being an optimum efficient yet?

Robert Bugbee

Cameron?

Cameron Mackey

Yes, thank you for the question. The rerouting of vessels is really an event that that we faced over the last two quarters. And you could see that there is a corresponding impact in terms of declines, utilization or TCE, as you might see it, but also sort of decreasing for the short-term some decreasing travel expense. And then as things start to normalize, you're going to see the opposite.

So again, it was something that we've been through for the last six to eight months that things are slowly returning back to normal, it's still quite a logistical feat to manage the travel not just for our crew, but for technicians, or superintendents or anybody else that needs to visit or maintain the vessel. And so again, as Emanuele said in his opening remarks, the next three, four months, we should say, see things start to normalize

Ben Nolan

Cameron, is there any way to or have you any done any math on sort of what maybe that that TC impact is roughly?

Cameron Mackey

We don't have it at hand, but we can certainly take this conversation offline to talk about some of the examples. Thankfully, the law of large numbers helps us a fair bit. So, spacing these out and taking them one at a time, really, I'm not sure the impact would have been terribly material, you're talking about few $100 a day, maybe across the fleet.

Ben Nolan

And then secondly, for Brian, we're closing in on just a little bit more than a year before the convert comes. There is numbers smaller now that you guys have bought some of the back. But how are you thinking ultimately, about what you want to do there? And I appreciate maybe it's a little early, but is that something that you would envision simply looking to refinance for? And maybe you anticipate that type of capital being in a capital structure long-term?

Brian Lee

It's very possible. We are looking at a few different options. And I think as time goes on, we'll tell you what we're going to do with that, but we're looking at everything at this point. We still have as you say, it's 15 months, it's coming up, it's on our radar.

Operator

We have the line of Jon Chappell from Evercore. Your line is open.

Jon Chappell

Just one, maybe a little bit long winded question from my side. So Emanuele talked a couple times about the 5 million to 6 million barrels a day of demand growth this year, which our house view is very similar to that. So understanding rate of change is going to be positive, we're bouncing off the bottom of oil demand and therefore, the market has to move higher from where it is today. What I'm trying to understand is the kind of extreme optimism about the pace or magnitude of the recovery. We looked at a little demand estimates for '21 and '22 are super bullish oil analysts came out today with 7.6 million barrels over that two year period, but that's up against an 8.7 million barrel decline in 2020. So we're looking at a 2022 demand number that's lower than 2019. Yet the LR2 fleet has grown by 6% or 7% over that period, the MRs will be a couple percent. So, just trying to understand, just pure simple supply demand, what else is happening with ton miles with not scrapping that that gets you to that kind of very optimistic view that not only will we have a recovery, but an incredibly meaningful and sustainable one?

Robert Bugbee

Yes, great question. So firstly, we have to remember that the, what is the effective product tankers supply. So, we expect in clean petroleum products to be, a significant decline, what's in the present fleet of well over 400 air miles over the next two, three years, that will leave the premium fleet of trading clean petroleum products, which needs to be offset against a very small order book games aims, and a second can use those details once they go through the parameters.

So, the supply side effectively is either staying flat going forwards or potentially even declining in terms of an effective basis, then we're seeing a big changes, huge changes in just in this last three months, just as take what's happened in Australia in terms of ton mile changes, as refineries, import refineries improve go, and are replaced by being petroleum product, import terminals. If we look at the mix itself, going forward, out of that 6 million barrels, or 7 million or 8 million barrels this year, by the end of this year, a million of those barrels is going to be product exports.

So, that's a huge change. Just that is a huge change on the actual product position. So you're, you're looking and your oil analyst is looking at total crude oil barrel demand, we're looking at product ton, mild demand. So for us, it's how much product is going to be used in the world? And then it's going to be where is it being shifted to, and we have a theme going on underneath that growth, that the ratio of products carried by sea is going to increase at a far higher rate than that of crude oil in this recovery. James, would you like to provide some details to this, please?

James Doyle

Hi, John. So yes, just to delve on Robert's points, when we think about the capacity closures, we tracked 1.6 million barrels today and estimates have ranged from 2 to 3, but basically, pre-COVID, the refining industry was over supplied. So, we're going to see further consolidation of the refining space. Now, we are obviously highlighting the closure of the Australian refineries, because it's very simple time while demand map shows a country that already imports more than half of its refined product demand, right?

However, if we start thinking about the closures in Europe, a place that's already at a diesel deficit, if you were to ask me a year ago, that's not something I had expected. If we started to look at closures throughout the United States, and certain parts of Southeast Asia, these are areas that in most cases will need to replace the loss production. Obviously, the New Mexico or Wyoming refinery that's quite small closing is not going to have a material impact. But you close a refinery in the Philippines where they only have one remaining and you're going to need to replace those barrels.

On the other side of it, people really didn't start building MR product tankers, so the early 2000s. If you go back to 1998, 1999, you're talking about 20 ships delivered a year in the MR space. One, nothing has ever left the space, really, if you consider that 15 each year. And then two, all the ships that were really started to deliver for the 04 to 08 period are now getting to that 15 to 18 year range. So if you take a 108 MRs order a day and we compare it to 460, that are turning 15 over the next four years, it's considerable. And I'm going to actually pass to Lars on this because he can tell you a little bit more about customer preference and the time charter market, and perhaps some of these emission regulations that are coming forward.

Lars Dencker Nielsen

Thanks, James. I mean, we talked a little bit about before about the MRs fixed on time charter and where the pivot has was towards the ECO fleet. And then I think certainly across the board that we're seeing this. The thing I think that's really going to have to be a game changer over the next couple of years is how we are looking to really grasp around the carbon emission issue. And with the IMO putting the goals and reducing carbon emissions by 40% by 2030, there’s a couple of things on a second place right now, we've got the operational standard that it's been important as we look at product changes on the age, know what they called today, the energy efficiency, existing shipping vehicle the EEXI.

And basically if you want to try and kind of reduce your carbon footprint, you got to look up the efficiency of the vessel that you're utilizing. And we're seeing today a lot of our customers from the 1st of January this year, measuring carbon footprint, on every spot voyage that they're doing in anticipation of what this will mean for the costs of moving cargo from A to B. So when you then think about, well, what does that mean, if you want to lower down your carbon emission footprint as oil transporter? Well, first of all, you look at our more modern ship because they emit a lot less carbon then the gas guzzlers the non-eco vintage.

So that in itself, I think you will stop seeing a true tiering of a market to a much larger extent than we have been seeing over the last couple of years. But there was an age threshold set at 15 years, which was what a lot of the oil majors have put in as a quality question. But now with the introduction of carbon emissions, we're going to see a lot of changes here and where people are going to be really focused on choosing the vessel more on their carbon footprint than anything else at here of course Scorpio will be well-placed.

On that point you know, the only way to reduce the carbon footprint really effectively, for a non-ECO vessel or ECO vessel that kind of voyage reducing the speed. If people start introducing speed reduction as the most efficient way of reducing the carbon footprint, which it would be at least as we look at things today, well then you have the competitive advantage of the supreme ECO vessel coming to the fore again. So this backdrop here is, is supremely important, I believe over the next period.

Operator

Your next question comes from the line of Liam Burke from B. Riley. Your line is open.

Liam Burke

Yes, thank you. We've talked a lot about the refinery disintermediation with the closing and then the re-openings in China in the Mideast. How long does this process take to roll out? We've had closures in 2020. We expect more in 2021 before the ton miles begin to normalize.

Robert Bugbee

To normalize, that will be a new normal. That won't be back. It won't be a normal.

Liam Burke

Yes, that's right, new normal.

Robert Bugbee

So, it's already happening as long as is saying, what he's saying from Australia, that change of Australia January to now, they've been added another refinery closer very recently the Exxon one and I believe that we've already fixed. They already fixed a vessel and clean to that area as a substitution for them closing that down. So it's sort of pretty welcome instantaneously as the refinery that was refining importing crude to refined products just stopped refining the crude then they have to make up for that, especially now that inventories pretty well normalized around the world, they have to make up for that product loss kind of immediately. The actual refineries coming online, they take the sort of step up over a period of months, from zero when they before they start, and then they just move up in incremental levels as they open up that, open up a refinery.

Liam Burke

And on the death front, we've touched on your lease, your lease financing, convert, and everything else. As you're looking at cash flows, accelerating and rising rates, lower CapEx, is there any part of the stack that makes more sense here? Or do you go back and look at or just see a straight cost to that?

Brian Lee

Thanks Liam. It's Brian. We just want to look at some of the highest cost of debt which some of these facilities that we inherited on the navigate deal where we're refinancing those at better rates, better margins. So looking at that, number one and reducing interest costs along the way, then that will give us the ability to keep on paying down more principal, because that's as long as our stock price remains reasonable, which is not right now, but in the longer term, we would -- our number one priority as Robert just said is to pay back that.

Operator

Your next question is from the line of [indiscernible]. Your line is open.

Unidentified Analyst

First of all, congratulations on retaining liquidity in a challenging environment and thank you for having me on the conference call for the first time. I have a question from one of our subscribers who is an ex- [indiscernible] banker, and he just wants to understand a little bit better the flexibility and limitations thing as in financing facilities. He thinks that the debt costs are quite high, and he wants to know apart from reflecting leverage in the business. Do these higher rates represent flexibility in the uses of the financing? For example, if the Company starts seeing a clear pathway to much higher global fuel consumption, and you have some of the bonds to opportunistically buy back shares? Are there any penalties associated with debt repurchases or any other interesting features of the financing facilities?

Robert Bugbee

It simple turnouts to start by following in simple terms, the leases have repurchase options, that they have those at different points, but that's quite efficient and not really -- it's not really penalties and may be a transaction fee related to doing that. And otherwise, they're fairly standard. So, there's nothing that is preventing, as we talked about earlier, nothing really as preventing us in refinancing the more expensive parts of the capital stack or nothing that is preventing us from moving to buy back stock either.

Unidentified Analyst

Okay. And separately, as far as the ESG stuff goes and increasing moves towards reducing emissions, outside of having scrubbers fitted to your ships and having newer ECO ships. Are there any other steps that you guys can take? Or they anticipate needing to take in order to meet newer emission standards?

Robert Bugbee

I think that's a really great question. But before [TAM] goes into that, and maybe other areas of not just the [indiscernible] the ESG is that, first of all, we really appreciate your questions and your interest. And so, hopefully you will create for help great for the market helping one of the things for investors that we're noticing is that there's very poor information related to our actual, market, what it's doing, and what for example, and LR2 market is really doing day-to-day. I mean, we've seen some really polling sort of daily estimates of what an LR2 market is doing.

Now, we've said for many times that Clarksons is, is really being the most accurate, and potentially most accurate in determining what a triangulated LR2 can actually do. There are other services out there and the private shipbrokers non-publishing, recalling, for example, do a very good job. And we think that, your tanker, tanker data is also making the effort to go through and do the hard work to go through the fixtures. And to the answer to a question itself, I'll pass it over to Cameron.

Cameron Mackey

Oh, thank you, Robert. It's a broad question. As a first response, I'd refer you to our sustainability report, which lays out some of these answers in great detail. But additional progress on our carbon footprint in our emissions profile, Lars referred to it a little bit earlier comes from a variety of sources that includes not just this shifts that we thoughtfully designed and constructed three, four, five years ago. But how they're operated the type of sensors, and analytics and analytical tools that are available to us on board and ashore, the training of our crews on the operation of the vessel in the interpretation of these advanced analytics, and obviously a great deal into the interaction of the vessel and its environment.

So, when you think about how you drive your car or how our airplane goes from A to B, that that technology has led the shipping industry a bit, but it's advancing quite rapidly. And this has to do with things to reduce the friction and frictional coefficient between the vessel and the water and increasing its efficiency that way through coatings and different methods of cleaning the vessel. It has to do with routing and the technology around routing vessels optimally to get from one point to another, speed adjustments, course adjustments, all of these things.

And finally and most importantly, it has to do with the management of the fuel because as you know, most people think that bunkers are a commodity. When in fact they vary a great deal, depending on where and when, and from whom you purchase them, and managing that fuel effectively has a huge impact on the efficiency of the vessels in the course of the emissions footprint. So all of this is a big topic and there's a lot more to discuss, but these are the basic points that I would, I would put you in. And again, as far as we've come every year, you'll see improvement as our technology improves and other resource materials also improve.

Unidentified Analyst

Okay thanks. Specifically as far as carbon trading goes, meaning, as the purchase credits being able to sell credit. Have there been any developments that you think are actually going to have a material effect on you guys in the next few years?

Cameron Mackey

Oh, thanks for the question. Actually, it's a great point and it's something we're working on currently. You're just starting to see the monetization of credits come into our industry largely in dry bulk and LNG, but it's slowly coming into tankers and we're currently working with one of our customers on an initial trial on selling them carbon credits. And so, we expect that this to become a more normal activity in the next several years. Obviously, there's a great bit around different jurisdictions and how you take credits from an offshore industry and put them on shore, but we're right in the middle of developing this and we're very excited about it.

Unidentified Analyst

I think I just heard, you said that Scorpio Tankers is selling carbon credits. Did I catch that correctly?

Robert Bugbee

Well, we would be transferring them to a customer in so far as we are ahead of our emissions target that the IMO and the other regulators have set. Yes, we have credits that we can transfer to some of our customers.

Unidentified Analyst

Okay. That's really interesting. Thanks a lot for having me on the call guys and looking forward to see you in the future calls.

Robert Bugbee

Thank you. And as I said at the beginning of your question it's a good question. And a developing question and perhaps you know hidden prejudice will evolve, but generally in terms of communication, just like to sort of say, it's opportunity that we're going to try and communicate better.

We know that we have a widening group of investors and interested, and we also know that we have, let's say two kinds of sets of you know, let's say analysts at the moment is one group of analysts that are following this market every single day and really providing them sort of more daily or weekly information to investors.

And then, we've got what I would call the quarterly analysts that just literally just show up once a quarter and don't really sort of communicate with the companies or the market in between. And then of course, we've got a growing interest from retail, et cetera, et cetera. And we know that that shut out a lot from some of the key webinars and some of the key, let's say conference calls that we make that are not allowed, then just not allowed on, by the actual banks or whatever them gain them.

So, we're going to try and look into providing an opportunity to, let's say, have an investor conference call that's much more open to, really anybody, who's interested asking a call through maybe some intermediaries or through email or Zoom or whatever like that. We haven't finalized how to do that, but hopefully we can work out how to do that. So, we can try and educate the community better. So appreciate your question.

Operator

I am showing no further questions at this time. I would like to turn it back to the speakers for any further comments.

Emanuele Lauro

Thank you for joining us today and I look forward to speaking every soon. Thank you very much. Have a great day.

Robert Bugbee

Thank you.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.