Scorpio Tankers Inc. Stock

Hello, and welcome to the Scorpio Tankers Inc. Third Quarter 2026 Conference Call. I would now like to turn the conference 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 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 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 28, 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 and Presentations. The slides will also be available on the webcast. After the presentation, we will go to Q&A. For those asking questions, please limit the number of questions to two, if you have an additional question, please rejoin the queue.

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

Thank you, James, and good morning or good afternoon, everyone. Over the past quarters, I've spoken about our focus on things we can control, like strengthening our balance sheet, lowering our cost of capital and cash breakevens, optimizing and renewing our fleet and returning capital to shareholders. That approach has not changed. Today, Scorpio Tankers enters the fourth quarter of 2026 in the strongest financial position in its history with a modern fleet and considerable flexibility to navigate the cycles ahead. In the third quarter, we generated an adjusted EBITDA of $172 million and adjusted net income of $127 million. To appreciate how far we have come, 5 years ago, the company had $3.1 billion in debt and just $230 million in cash. Today, we have $655 million in debt and more than $2 billion in cash. At the same time, we've continued to lower our daily cash breakevens, which is now below $11,000 per day per vessel. This gives us significant structural advantage. In a strong market, we're positioned to generate substantial free cash flow. In a weaker market, our low breakevens and strong balance sheet provide resilience and the flexibility to take advantage of opportunities.

We have applied the same discipline to our fleet. As I mentioned last quarter, we've sold older vessels at attractive prices and selectively reinvested in modern fuel-efficient tonnage. This is our approach to fleet renewal, realizing value from existing assets while strengthening the fleet for the years ahead.

Turning to markets. The fourth quarter is off to a much stronger start as we enter what is typically the seasonally strongest part of the year. To date, for Q4, we've booked our LR2s at approximately $181,000 per day, MRs at $56,000 per day and our Handymax vessels at $40,000 per day. While crude tankers have led the broader market in 2026, product tankers have begun to follow. Increasing crude volumes from the Middle East are supporting higher refinery runs and refined product exports. Together with the constrained vessel supply, we believe these dynamics are creating favorable conditions for product tankers and the potential for further strengthening in rates. As always, there is uncertainty around how markets and geopolitical events will evolve. But as I said last quarter, our job is not to predict the cycle. Our job is to be prepared for it. That brings me to capital returns.

Today, our Board increased the quarterly dividend from $0.45 per share to $0.75 per share. This is an increase of approximately 67%. This decision reflects the strength of our balance sheet and our confidence in the company's ability to return capital to shareholders through the cycle. We expect to continue increasing the dividend annually. We have built a platform that can generate meaningful cash flow in strong markets, remain resilient in weaker ones and preserve the flexibility to invest when the opportunity arise. That philosophy has guided us for many years, and it will continue to guide us in the years ahead. Just would like to thank you for your continued support.

My opening remarks are over, and I would now like to turn the call to Robert. Thank you.

Thank you very much, Emmanuel. Wow, what a fantastic report this is. But there are a few things I'd like to highlight that aren't necessarily on this report, clearly. So first of all, the cash balance of today doesn't really demonstrate the real strength of the company. You should note that the spot revenue cash that has been generated for the whole of April has had no distribution yet from our pools to the company. So in this sense, the cash balance is understated. Pro forma, we're still awaiting the conclusion of the sale of $145 million from 2 LR2 sales with later for delivery later this year.

Lastly, we're going to do something unusual. I mean these are special earnings. I think you should see what we are seeing underneath this. But our markets have accelerated quite steadily since July. And as we approach, as Emmanuel indicated, the strongest part of our year, bearing in mind, this is still only October, and we're not even near Thanksgiving yet. I think it's worth looking at the monthly movements since July in our market. The MRs in July earned approximately $29,000, in August $30,000, in September $32,000; in October $53,000 and in November for the first 37%, nearly $70,000. The LR2s in July earned $55,000, August $71,000; September $82,000; October $168,000 and for 37% so far in November, approximately $215,000 a day.

I think this is really showing how the refineries have been steadily receiving more oil. And as they receive more oil, they export it. And all of this is before we get to the strongest -- the real strength in the market traditionally, which normally comes a week -- a week before Thanksgiving and 2 weeks after.

With that, I'd like to pass it over to James.

Thanks, Robert. Slide 7, please. Product tanker earnings have been improving for several months, but the real acceleration has come in just the past few weeks, as Robert has highlighted. Since May, Middle East crude exports have more than doubled from 8 million barrels per day to nearly 17 million. The additional crude supply has helped drive a 4 million barrel per day increase in global refinery runs, translating into higher product exports and stronger tanker rates. And we believe the fundamentals point to further strengthening, low inventories, resilient demand, rising refinery runs, longer trade routes and limited vessel supply. Slide 8, please.

In September, seaborne product exports reached 20.6 million barrels per day, a 14% increase from their May lows. Much of this growth has been driven by Asia, where increased crude availability has allowed refinery runs and exports to increase. Around 20% of Asian exports are going long haul to destinations west of the Suez Canal. This has strengthened LR2 and MR rates in Asia, but also globally as longer voyages and fleet repositioning tighten supply. Slide 9, please.

There has been considerable discussion about inventory restocking with more than 600 million barrels drawn since the start of the conflict. But there's an important point that often gets overlooked, underlying demand remained strong. Much of the additional refinery output will first be needed to meet current consumption, supporting higher product tanker volumes. Only after that can inventories begin to rebuild, creating another potential tailwind for tanker demand. In other words, we see 2 sources of demand, meeting today's consumption and replacing yesterday's draws. Slide 10, please.

Over the past decade, global refining capacity has shifted further away from the end consumer and overall net capacity growth has been limited. And the strength in refining margins today reflects just how tight global refining capacity has become and how far that capacity is from the end consumer. As a result, product tanker ton-mile demand has increased by more than 20% since 2019. And with refinery runs and exports continuing to rise, we expect further growth in ton-mile demand. Slide 11, please.

Turning to vessel supply. Approximately 15% of the global tanker fleet is sanctioned with 70% of those vessels over 20 years old. While sanctions have attracted significant attention, the broader fleet was already aging. Even after next year's scheduled deliveries, approximately 26% of the fleet will be 20 years and older. The aging of the fleet is a structural challenge regardless of sanctions and at some point, will reduce fleet growth through scrapping. Slide 12, please.

This brings us to another important point about vessel supply. Nearly half the product tanker order book consists of LR2s. However, 69% of the existing LR2 fleet is currently trading crude oil, and we expect many of these vessels to remain in that market. Adjusting for LR2s trading crude, effective supply growth could be closer to 4% over the next 3 years. But factoring in accelerated retirements of older vessels, that figure could fall to just 1%. The key takeaway is that underlying fleet growth overstates the actual increase in clean trading capacity. And this is happening against the backdrop of rising demand, increasing refinery runs, low inventories and longer trade routes. We believe this creates a favorable environment for product tankers with room for further strengthening.

And with that, I'll turn it over to Chris.

Thank you, James, and good morning or good afternoon, everyone. Slide 14, please. This past quarter, we generated $172 million in adjusted EBITDA and $127 million in adjusted net income. We also recorded $153 million gain on the sales of 5 vessels, repaid $200 million in debt through the early redemption of our Nordic bonds and paid $23 million in dividends. 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 followed by a disciplined and sustainable dividend and opportunistic share buybacks. As you can see, this approach has resulted in the reduction of our net debt position by $4.5 billion from a net debt balance of $2.9 billion at the end of 2021 to a net cash position of $1.4 billion or $27 per share as of today.

Our balance sheet has never been stronger, and our outlook for the sector is optimistic. It is against this backdrop that we are pleased to announce a 67% increase to our quarterly dividend from $0.45 per share to $0.75 per share. Slide 15, please.

Our focus over the past 4 years has not only been on reducing our debt burden, but also the optimization of our capital structure through transactions, which have lowered the company's cost of capital. The chart on the left shows our outstanding debt by type since December of 2021. As you can see, our capital structure has been completely transformed from $3.2 billion of debt comprising primarily of expensive lease financing to $655 million of debt comprised mostly of fixed rate convertible debt with a 1% yield to maturity. These convertible notes were issued in April and May of this year and have a $605 million face value. $230 million of this amount was issued in a follow-on offering priced at a 10% premium to par. So while the notes carry a 1.75% fixed coupon, the premium to par achieved on the follow-on offering reduced the combined yield to maturity to below 1%.

The notes are convertible under certain conditions at approximately $99 per share. This transaction, along with the sales of vessels at cyclically high prices, enabled us to repay $357 million of legacy secured debt and to redeem our $200 million 7.5% coupon rate senior unsecured notes. The chart on the right shows the significant decline in our borrowing costs over the past 4 years. We have $50 million of secured debt outstanding through a credit facility with Bank of America, which was executed earlier this year. We also recently executed a $90 million credit facility with Standard Chartered Bank and DekaBank. This facility is currently undrawn, and we have until October 31, 2027, to draw down on it. Both of these facilities carry margins at just 120 basis points and have 7-year tenors from their respective drawdown dates. Slide 16, please.

The chart on the left shows our liquidity profile. We had $2.1 billion in cash as of October 26 and an additional $483 million in availability under revolving credit facilities for a total of $2.5 billion in available liquidity. As Robert mentioned, this balance does not include the full hire payments for October, which we expect to be paid within the next week for over $100 million. With the strong fourth quarter outlook and the sales of 2 LR2s for over $140 million, which are pending closing, we expect our liquidity position to grow through the end of the year. We currently have commitments to purchase 17 newbuilding vessels and to contribute equity for the minority interest in a joint venture of 8 VLCCs under construction.

The chart on the top right is a waterfall reflecting our remaining commitments under these agreements, which total approximately $1.3 billion. Our disciplined allocation of capital over the past 4 years has provided us with the financial flexibility to enter into these agreements, and we highlight that we can afford all of these vessels without the need to obtain debt financing. This puts us in a very competitive position, especially during a period when benchmark interest rates are on the rise. Slide 17, please.

Our cash breakeven rates, which include vessel operating costs, cash G&A, cash interest payments and commitment fees and regularly scheduled loan amortization are below $11,000 per day. To illustrate our cash generation potential at these cash breakeven levels, at $30,000 per day, the company can generate up to $520 million in cash flow per year and at $60,000 per day, the company can generate up to $1.3 billion in cash flow per year.

This concludes our presentation for today. I'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] The first question today comes from Omar Nokta with Clarkson Securities.

Clearly, another solid quarter here in the bag and your bookings for the fourth quarter are quite strong. And Robert, as you perhaps illustrated, it's just like a staircase improvement with each passing month. I do have a mix of a market and Scorpio specific question here. On the last call, Lars, I recall you mentioned that it makes sense for us when we think about what you can capture on the LR2s that we should be looking at spot market averages for crude Afras and clean LR2s. And it looks based off of your guidance for the fourth quarter that that's right there right in the middle. Can you just talk a bit about that dynamic a bit more, how you're trading the LR2s today? And I think you mentioned last quarter that 4 LR2s are trading dirty. But just wanted to see if you could give us an update on that. And just in general, how do you think about the LR2 market from here, how it's developing and thoughts as we move forward given a good chunk of the fleet transition to the dirty trade? Sorry for the long-winded question.

Oman, I'm going to try to answer as best as I can. I think if you go back when we had the last call, I think we had -- if you look at the overall spot exposure on LR2s, we had about 1 in 8 voyages in crude. Today, as things stand, we probably have 1 in 3 in the third quarter. And that was kind of a reflection of where we saw the crude market was relative to the clean market. We kept our powder dry on some of our clean ships with the anticipation that the clean was at some point going to ramp up, in particular because you had seen so many of the LR2s, as we also talked last time, moving into dirty. That kind of direction of travel continued. And you've got probably 70% of LR2s now trading in dirty. I think that's by end of September. And you've obviously seen now with the increasing crude exports, et cetera, going in, higher refinery runs and so on. And suddenly, the fuse was lit. And the LR2 rates that you're seeing today are -- they're astronomical. So you today have a kind of a perfect situation really where because of the lack of supply in the crude market because of the sanctioned fleets on the Aframaxes, we have a very strong Aframax market as well, a little bit more volatile. And now you have a resurgence in the LR2s that we see a lot of follow-on, and we can also see it on the fixtures that we've been doing this week as well that rates are extremely high. So as we are looking into and heading into the winter market, and as Robert said, the party hasn't really started yet. So we're very kind of happy with our position in terms of how we position our LR2s vis-a-vis our Aframaxes and are comfortable with that.

Very helpful color and context. And maybe just as a second question, and I'll pass it over. Maybe just sticking with the market. You discussed the LR2s. Can you just maybe talk about the MRs? We saw fireworks during the second quarter, a bit of a moderation in the third, but here, things have gone beyond what we've been seeing and they're at cyclical or, I guess, all-time highs right now in terms of spot rates. What's been driving that strengthening here in the past few weeks?

Well, first of all, it is the first time in my career that I've ever seen a market in Asia being this strong. We have seen spikes in Asia where the West was weak, volatility. We talked a lot about in the U.S. Gulf. We've seen very high rates and then moving down very, very quickly. But as of today, on the 28th of October, you've got rates in the U.S. Gulf trading north of $80,000 and you've got rates in Asia on long-haul round voyages also trading between $70,000 and $80,000. This has never been seen before. So it's -- there's plenty of cargo. And the U.S. story we talked about before. We've talked about the China product export issues. But the thing is that a lot of these ships are going longer haul. And we've had the Australian demand story going on for a number of years, that continues. But now we're seeing a lot more moving into the U.S. West Coast and also into South America -- the West Coast of South America. And obviously, ton mile means a lot in what we're doing in these things. Frankly, and I think it goes across any type of ship you're dealing with every barrel that you're going with is that it's traveling further and it's slower. There's a lot of double handling taking place, a lot more ships are being soaked up in different areas, which is required, in particular, of course, in the Middle East, but it's not only to that area.

So even though you would say purely on ton miles that we are maybe slightly up, but there is a lot more requirement for ships generally in the market that requires the ships to double handle, and we are seeing obviously a kind of a shrinkage in supply of vessels in all markets.

The next question comes from Chris Robertson with Deutsche Bank.

Maybe a question for Chris. Just looking at the convertible with the market strengthening here, presumably, there will be a response in the equity. And I think you alluded earlier that the conversion price would be around $99. So just wondering how you're thinking about that in terms of early redemption, certainly going to be a lot of cash generation here with the current strong market.

Sure, Chris, thanks for the question. Just to be specific, the conversion price is $99. That's convertible at the option of the holders right now. We are in a window where the company cannot redeem it. So if we were to do anything, it would be open market purchases. We're not going to forecast that at the moment. So right now, we're happy with where we are with the convertible, and it's likely to stay at that level.

All right. Yes. Got it. Just turning to a more broader market question, maybe a little bit more specific pertaining to geopolitics here. But -- we've seen some of the Russian cargoes starting to come to the U.S. Is there going to be any impact on the mainstream like legitimate tanker market? Or is this more of a, for lack of a better term, a slide show?

I mean I'll start off and just say it's going to be a slide show. It's a flash in the pan. The volumes are so small in the overall market that it will not move the needle in terms of the normal tanker trade. On top of that, if you were to talk about the ships that were sanctioned, most of them going to be 20 years old and so on. So anything that deals with this particular issue in its narrow sense will have a very limited impact on our market.

The next question comes from Greg Lewis with BTIG.

I would love to hear a little bit more how we thought about setting the dividend where it is. I think in the slide, you have the $11,000 breakeven, but it was a substantial dividend increase. So just kind of curious how we kind of backed into that $0.75 quarterly dividend rate.

Sure. I think that's a great question. So, I think it's very clear that the company, as Emmanuel alluded to right from the beginning of the call, has really taken a quantum step-up in its balance sheet strength. And we are -- and Lars says, we're the party hasn't yet begun in a seasonal basis in products is another good statement. And so we're very confident that we can fulfill our first requirement, any form of dividend that we can maintain its regularity and it's sustainable throughout the cycle. And the second one is that, as Emmanuel said, is that we can raise that dividend every year. And so we wanted to create a point where it was so obvious we're going to make a strong step upwards, which I think we've done, 67% is the strong step upwards and make a strong start whilst knowing that absolutely that even if our hopes or expectations don't come true for whatever reason, that we've still got room to move it upwards even if the market collapses. And we're very -- what we want to do with the dividend is to provide some sort of certainty for shareholders and not just a return, but some sort of certainty in uncertain times, let's say, a trampoline. We have the benefit in the company of interest rate increases at the moment, whatever the Fed does today or doesn't do, if they raise interest rates will be an unusual company that it's accretive. So we're not really worried about that. So that's the thinking behind it. We haven't yet -- we spent so much time in the last month and actually handling a spot market that's been super strong and super volatile and earning as much money. So we haven't created a scientific testing process for this. We have listened to the counseling of some of our top long-only shareholders as to what they would like to see and why they would want to have a dividend and why they'd like to have a sustainable business and why they'd like to have it increasing. So this I would see as a significant step in a number of reoccurring steps.

The next question comes from Stephanie Moore with Jefferies.

Maybe just taking a step back here and talking a little bit about the broader market dynamics here. I guess with the Middle East supply and refinery operations recovering, how are you thinking about the net impact on just overall demand? I mean you definitely called out just the consumption and then restocking opportunity. But maybe if you could just bucket where you see the biggest opportunity in terms of export volumes out of the region? And also timing-wise, how long of a runway would we expect to see some of these demand drivers pan out?

Thanks, Stephanie. I'll take that. So look, from a demand perspective, things have remained quite strong. If you go back to the lows in May, I think refined product demand, excluding fuel oil was around 70 million barrels per day. Right now, we're probably at 74 million. And if you fast forward a year from now, we could be at 76 million. So we could see 2 million barrels more of demand growth. I think the biggest opportunities for where that supply comes from will be the Middle East and also continued exports out of Asia. And we expect that to continue really if you look at forecasted refinery runs through 2027. There could be a chance that supplies are very tight and balances are very tight in Q4 and Q1 of this year. So we wouldn't expect restocking until potentially end of next year. So there's some good runway there. And right now, fundamentals look really strong.

Absolutely. And then just on my follow-up question, I think one area that might be -- we get a question would be just overall appetite to maybe increase your term coverage. Obviously, spot markets are strengthening. How do you kind of balance preserving upside but also maybe locking in some attractive rates as well?

I'll take that to start with Lars adding any detail if he wants to. So I think that we frame everything in, let's say, our overall balance of charters, and we have -- and a risk and reward. As James has said, we have a very optimistic view of the market at the moment. Things changed a lot 4, 5 weeks ago when suddenly we started to see more oil transit through the Strait of Hormuz, which enables those refineries to be back up and exporting and set the stage for what James has just been talking. So within that, we don't have to make a call on a defensive call. There's no reason to make a call on the actual market at the moment that you can see by the rates that have -- it happened very quickly. This ripping up in LR2s, ripping up that's going on right now in the MRs. I mean I spoke earlier about MRs first part of November hitting 70, and Lars is already talking this morning in the 80s. And that is -- we have to wait a little bit for the charter market to catch up.

So right now, we're very happy with the situation. We can -- we're right in front of winter and there's no urgency to put time charter coverage on. As we move forward, we'll do what we've done before. We'll have some vessels coming off, and we're looking to -- one way of looking at it would be what does it take for us in terms of secure income to actually cover all of our everything. So basically, have a charter fleet that is enabling the spot fleet to operate at 0 as a operating cash breakeven. That's one way we could look at this going forward. We haven't yet decided. But I would say that you could expect us to continue what we've been doing, which is at opportune times in the market to continue to add time charter coverage.

But as to timing, I'll pass that to Lars at the moment. Lars?

Thanks, Robert. I think you encapsulated it perfectly well. We look at it opportunistically as ships come off. We see the various market positions are at the time, and then we make a decision that follows that the market in our view and the forward curve.

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

You have a few LR2s trading dirty. Do you just still want to leave them as be? Or is there any thought of bringing them back into the clean market?

As the things stand right now, Liam, they will stay as dirty as they are trading just as fine as they're doing right now. If the spread changes, then we will make a decision. The fungibility, as you probably know, between LR2s and Aframaxes has kind of increased to some extent and the availability of cleanup cargoes have increased and the appetite from end users have also increased, enabling us to do so. But as markets are as they are today, we're not going to change anything.

Great. And I think this is for James. James, refinery margins peaked. They're coming off record highs, I think, here. Is there any concern to rates or all the things you laid out in your prepared comments offsetting any kind of decline in refinery margins?

Look, I think margins, as you highlighted, we were at record levels, right, and they're records for a reason. What we see is high refinery runs, which is beneficial to products, but probably comes at the cost of margins, right? So the tightness you see on the supply-demand side, right, will eventually be used by more exports, which benefits us. So I think margins will still remain healthy because the reality is there's not a lot of refineries being built over the next few years. And actually, 90% of the capacity that's coming on is between India and China. And most of the Indian product or a portion of it gets exported. So we view this as structurally positive.

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

Thank you, operator. No closing remarks other than thanking everybody for their time and attention today and look forward to speaking in the weeks ahead. The call is over. Thank you.

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

Hello, and welcome to the Scorpio Tankers Inc. Second Quarter 2026 Conference Call. I would now like to turn the call over to James Doyle, Head of Corporate Development and Investor Relations. Please go ahead, sir.

Thank you for joining us today. Welcome to the Scorpio Tankers Second 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 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, 2026, and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ 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, and good morning or good afternoon to all. So last quarter, I spoke about our focus on the things that we can control, like strengthening our balance sheet, lowering our cost of capital, reducing our cash breakevens, optimizing our fleet, securing attractive time charter contracts and returning capital to shareholders. That approach has not changed. And during the second quarter, we continued to execute against each of these priorities.

Financially, the results speak for themselves. The second quarter was the strongest in Scorpio Tankers history, generating adjusted EBITDA in excess of $300 million and adjusted net income of $243.7 million. We continue to strengthen our financial position. Today, our cash position stands at more than $1.9 billion. During the quarter, we completed one of the most attractive financing transactions in the company's history.

We've issued $605 million of convertible bonds at a yield to maturity of approximately 1%. We also repaid at the same time, $589 million of debt, which was carrying an interest rate between 5% and 7.5%.

So replacing our highest cost of capital -- that, with our lowest cost of capital further improved our balance sheet and reduced our cost of funding while preserving significant financial flexibility. As a result, our daily cash breakeven remains approximately $11,000 per day, which is one of the lowest in the industry. We also continued during the second quarter to optimize our fleet. Since the beginning of the year, we have sold 19 vessels, most of them 11 or 12 years old, at prices above what we originally paid for them more than a decade ago.

As a point of reference, the last 4 sales, which were all LR2s, were completed at prices above the cost of the LR2 newbuildings we currently have on order. Tomorrow, we will welcome the STI Moxie, our first MR newbuilding is delivering into the fleet tomorrow, as I said. This brings our orderbook down to 13 vessels. This reflects our philosophy on fleet renewal, realizing attractive values from older assets while reinvesting in more fuel-efficient vessels that will strengthen the fleet for many years to come.

Returning capital to shareholders also remains a priority. During the quarter, we purchased approximately 2 million shares for $155 million. And today, our Board declared a quarterly dividend of $0.45 per share. These actions combined represent more than $175 million returned to shareholders during the second quarter.

On the commercial side, we entered into charter agreements for 3 MR vessels for a minimum period of 3 years. These vessels are expected to enter the TC contracts in December of this year, allowing us to benefit on the current strong spot environment that we are experiencing. Customers do not commit to multiyear charters without confidence in the market, and we view these agreements as another encouraging indication of the long-term fundamentals of our business.

While freight rates have moderated from the exceptional levels we've experienced early in the year, they remain at levels that continue to generate meaningful free cash flow for us. At the same time, geopolitical developments, particularly in the Middle East, continue to create uncertainty. We do not pretend to know how or when events will evolve. Shipping has always been and will remain a cyclical business. Markets rise and fall and geopolitical events introduce uncertainty that no one can really predict with precision.

Our job is not to predict the cycle. Our job is to be prepared for it, and this is what we're doing. That is why we continue to strengthen our balance sheet, lower our cost of capital, reduce our cash breakevens, optimize our fleet, renew our asset base and maintain sustainable liquidity. We believe these decisions position Scorpio Tankers to generate meaningful cash flow when markets are strong, while giving us the resilience and financial flexibility to capitalize opportunities when conditions inevitably change. The philosophy has served us for many years, and it will continue to guide us in the years ahead.

My opening remarks are over, and I would like to turn the call back to James, please. Thank you.

Thanks, Emanuele. Slide 7, please. In the second quarter, rates reached record highs. Records by definition aren't meant to last. We've seen geopolitical events drive rates to high levels before. What's more important is not the peak, it's the floor. Today, product tanker rates remain above $30,000 per day despite lower seaborne volumes in what is typically the seasonally slower part of the year. At these levels, the company generates significant free cash flow.

As Emanuele said, we don't pretend to know how or when the conflict in the Middle East will be resolved. But what we do know is that global inventories, commercial, strategic and floating have been drawn down meaningfully. We also know the refinery dislocation is structural. Refining capacity has shifted farther from the consumer, and that isn't something that reverses quickly. Looking ahead, we believe the product tanker market is well positioned. A global inventory restocking, combined with the recovery in underlying demand should support higher seaborne exports, ton miles and rates.

Slide 8, please. After the MOU was signed in mid-June, tanker flows through the Strait of Hormuz rose to 12.6 million barrels per day and closer to 17 million, including Saudi Arabia's Yanbu exports. But the region is fragile. Last week, the Houthis attacked 2 commercial vessels in the Red Sea. We've seen this before. In 2024, rising risk in the Bab-el-Mandeb pushed owners to reroute around the Cape of Good Hope, in some cases, more than doubling sailing distances. If that pattern repeats, it would mean incremental ton-mile demand from rerouting alone, adding further support to freight rates.

Slide 9, please. Ton-mile demand has been the defining factor behind today's freight market. In June, seaborne refined product exports declined by 2.3 million barrels per day or 11% year-over-year. However, longer voyage distances have largely offset that decline, tightening effective supply and supporting a strong freight market despite lower volumes. Refinery dislocation has been a key component in driving ton-mile demand, one we expect to continue.

Slide 10, please. Refining margins have reached record levels. Geopolitical disruptions have exacerbated a dislocated refinery system. Since 2019, refined product demand has grown almost 4.5 million barrels per day compared to 1.8 million barrels per day of net capacity additions. Compounding that, much of the new capacity that has come online sits in the Middle East and China, farther from the end consumer.

Slide 11, please. As flows normalize, demand for refined products could increase by more than 3 million barrels per day through year-end. Global visible inventories are down over 400 million barrels since the start of the conflict. So much of that demand will need to be met by increasing refinery runs rather than inventory draws. And given the refinery dislocation, that production increasingly has to be shipped, creating a constructive backdrop for product tankers.

Slide 12, please. The Aframax/LR2 crude tanker market is benefiting from 2 forces at once: disruption in the Middle East, and rising crude production from the United States, Canada and Latin America. Together, they have pushed seaborne volumes up by nearly 1 million barrels per day and spot rates above $100,000 per day. Given the spread, we've moved a few of our LR2s into the crude market to capture the higher earnings.

Slide 13. This is particularly important when looking at the orderbook. While the orderbook is 20% of the fleet, more than half the orderbook is LR2s. Today, 66% of the LR2 fleet is trading crude oil, and we expect this to continue. As a result, the effective product tanker orderbook is smaller than it appears, reinforcing the view that fleet growth will be more moderate than expected.

Slide 14, please. As you can see on the left, 21% of the product tanker fleet is already over 20 years old. By 2028, it will be 31%. On the right, roughly 25% of the Aframax/LR2 fleet and 9% of the MR/Handy fleet are sanctioned with average ages of 19 to 21 years old. In a normal market, much of this older tonnage would have already exited the fleet. The combination of an aging fleet and a meaningful share of sanctioned tonnage points to further tightening of effective supply.

Slide 15, please. When you adjust for aging vessels, sanctioned capacity and LR2 crossover, effective supply growth is lower than the headline orderbook implies. We expect fleet growth to average roughly 3% to 4% over the next 3 years and potentially lower. As refinery utilization and seaborne flows increase to support demand and global restocking, the market should tighten further. Near-term, that means higher refinery runs and seaborne exports. Longer-term refining capacity stays constrained while the fleet ages. We expect ton-mile demand to outpace fleet growth.

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

Thank you, James. Good morning, good afternoon, everyone. Slide 17, please. This quarter, we generated $300.5 million in adjusted EBITDA and $388 million in net income on an IFRS basis. This includes $154 million gain on the sale of 10 vessels during the quarter. Additionally, we declared a $0.45 per share dividend and repurchased $155 million of our common stock, thus returning an aggregate of over $175 million to shareholders.

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. As you can see, this approach has resulted in the reduction of our net debt position by $4.2 billion from a net debt position of $2.9 billion at the end of 2021, to a net cash position of $1.3 billion as of today. To put this balance sheet transformation into context, our net cash position is worth approximately $26 per share as of today. This balance sheet strength provides the company with considerable optionality, particularly in the market environment defined by elevated volatility and geopolitical uncertainty.

Slide 18, please. The chart on the left shows our outstanding debt by type since December of 2021. Over the course of 4 years, we transformed our balance sheet by transitioning out of expensive lease financing into more flexible, lower-cost secured debt. However, our efforts didn't end there. During the second quarter of this year and into July, we executed on a series of transactions that further transformed and strengthened our balance sheet.

In April, we closed on an offering of $375 million in aggregate principal amount of 5-year senior unsecured convertible notes, bearing a 1.75% coupon rate and a conversion price of approximately $100 per share. Upon conversion, we have the option to settle the convertible notes in cash, shares of our common stock or a combination thereof. In May, we executed a follow-on offering of the same convertible notes at a price of over $110 to par for gross proceeds of over $253 million. When taking this premium into account, the yield to maturity on the combined issuances is below 1%.

We also closed on the sales of 15 vessels, all at cyclically high prices. We earned the highest average daily TCE rate in the company's history. We announced 2 new secured credit facilities with 7-year tenors and bearing margins of 120 basis points. We repaid $389 million of legacy secured debt, all of which was due to mature in 2028. We redeemed our $200 million 7.5% coupon rate senior unsecured notes. So as of today, we have $655 million of debt, $605 million of which consists of convertible debt.

The chart on the right shows the trend in the weighted average margins on our secured debt. As I mentioned, in the second quarter of this year, we continue to focus on lowering our cost of debt by repaying over $389 million of debt across 5 credit facilities, all of which were scheduled to mature in 2028, and carried margins of between 170 and 197.5 basis points. And our efforts to lower our cost of capital didn't end there, as can be seen with our recently executed $50 million credit facility with Bank of America and recently announced $90 million credit facility commitment from Standard Chartered and DekaBank. Each of these credit facilities carry margins of just 120 basis points and have 7-year tenors.

Slide 19, please. The chart on the left shows our liquidity profile. We had $2.2 billion in cash as of July 28, and an additional $483 million in availability under revolving credit facilities for a total of $2.4 billion in available liquidity. We've entered into agreements or letters of intent to purchase 14 newbuilding vessels and to contribute equity for the minority interest in a joint venture of 8 VLCCs.

The chart on the right is a waterfall reflecting the commitments under these agreements or letters of intent. Our remaining newbuilding and joint venture commitments totaled just over $978 million as of today, excluding any potential financing. Our disciplined allocation of capital over the past 3 years has afforded us the financial flexibility to enter into these agreements. As shown in the payment waterfall on the top right, these payment obligations are spread out over the next 4 years. But hypothetically speaking, we could pay for all of these vessels today in cash without having to raise any additional capital.

Slide 20, please. Our cash breakeven rate, which includes vessel operating costs, cash G&A, cash interest payments and commitment fees and any scheduled loan amortization is below $11,000 per day and is at the lowest level in the company's history. This rate continued to decline given the cash interest savings resulting from our Q2 repayment of $389 million in secured debt, along with the July redemption of our senior unsecured notes of $200 million. To illustrate our cash generation potential at these cash breakeven levels at $20,000 per day, the company can generate up to $246 million in cash flow per year. And at $30,000 per day, the company can generate up to $520 million in cash flow per year.

This concludes our presentation for today. On behalf of the management team, we'd like to thank you for your time and attention. And now we'd like to turn the call over to Q&A.

[Operator Instructions] Thank you. Your first question comes from Omar Nokta with Clarksons Securities.

I just wanted to ask maybe a couple of perhaps maybe market-weighted questions, but also pertaining to Scorpio. I wanted to ask on LR2 specifically and how that's been developing recently. In the past, it had seemed that there was somewhat of a separation, you would say, for product players that were looking at their LR2s, keeping them clean; and then maybe crude players who owned LR2s, trade them dirty. Has that changed? Are clean owners like yourselves starting to trade the LR2s more actively in the dirty market?

James, you mentioned in your presentation that you switched a few ships into the crude trade and also how 2/3 of the fleet today is also running dirty. But I guess just kind of big picture, as we think about how LR2s are trading today, are they becoming a bit more fungible, if that's the right term, in terms of moving in and out of the crude trade? And I guess I'm asking that because when I look at your performance for the third quarter so far, that $65,000 on the LR2s, it seems that that's perhaps tracking closer to the dirty Aframax average versus, say, the clean LR2s. Any color you can give on that would be helpful.

Omar, this is Lars here. To be honest, we have always been kind of dipping into the dirty market as well on the Aframaxes. And we look at it and have always looked at it from an opportunistic vessel-by-vessel perspective. There's not kind of a broad fleet strategy in terms of that. But you mentioned fungible. I mean, it has been the case for a couple of years now that the fungibility between LR2 and Aframax has been very apparent. And we have seen a lot of cross-trading for the last couple of years. And when we have seen the markets spike on the clean, we have been holding the ships in the clean. And when we have seen, as we have seen over the last period, a very strong Atlantic Basin on the Aframaxes, we decided to tap into that. And clearly, it's not only us that has been doing this. We count today about 170, maybe just over 170 clean LR2s only trading in that market. And you've got over 100 and 250, I think it is Aframaxes trading dirty. A lot of them obviously in the Atlantic Basin.

The thing that's really interesting, in my view, is that even with that amount of ships coming into that market because of the ton mile that James was talking to you about before and of course, the volumes in general, that market has been strong throughout.

There's no doubt in my mind as you've had that kind of low number of LR2s kind of going into the Aframax market that it wouldn't take very much before you start seeing the LR2s, as we have been seeing over the last week now, how rates in the West moving up, suddenly you see a kind of a normalization and it will be the case that you will start seeing ships moving back into clean as well. So I think -- and I've mentioned this before on these calls that you need to today look at LR2s and Aframaxes as a much closer unison unit.

Yes. That's quite helpful commentary. And then maybe just as a follow-up, you just referenced what we've seen in the Atlantic here over the past couple of weeks. Can you maybe just give a perspective on what's driving that? We've seen it, it seems like across the board, whether it's LR2s, LR1s, MRs, everything seems to be moving quite a bit higher here over the past couple of weeks relative to what we've been seeing. And it looks like rates perhaps are approaching kind of maybe not the highest yet, but it seems like they're at their highest levels in at least a few months. What's been behind this latest move?

Yes. Well, I mean, first of all, I've been doing this for a long time. I've never seen a July or August market like this, right? I mean, this is not what you would consider to be a normal kind of summer lull. I mean, first of all, you've got great refining margins, talking about the MRs. The U.S. Gulf has been running at extremely high utilization rates. And then you obviously have all the different geopolitical kind of backdrop, which obviously influences the things, Russia being one, they don't have the exports that they had. You have the issues with the Bab-el-Mandeb, you have the issues with Hormuz. You have the issues with stocks in general being low.

So it's quite clear that the volatility that we have seen talking about the MRs has been profound. I mean, 2Q we know about, then we had kind of a bit of a drop. You're seeing now another resurgence, as you could see on the rate reports today, where TC14 is now moving up from their lows and have now moved north of 320, maybe we will go beyond that. So the triangulation element on the Atlantic Basin has been strong. The same, to be honest, goes also with the Aframaxes. I mean, the activity both in the Mediterranean has been strong. We have the issues around CPC talking about geopolitical issues.

The dislocations tends to be, in any case, always somewhat positive for tankers in general. But the ton-mile story is valid, and we see it every day. The spreads and the arbs are opening stuff for business. And of course, the advent of more oil coming out of South America and the United States has certainly been underpinning the dirty market as well.

Your next question comes from Chris Robertson with Deutsche Bank.

Fantastic job of what you guys are doing on the balance sheet and all the issues that you've raised on what you can control. So kudos to you there.

Just wanted to ask maybe on the market, when the situation in the Mid East kicked off and there were some very unusual, very long distance trading patterns, at least initially during that height of the disruption -- can you comment as to -- have some of those routes been more enduring? And can you give some examples of kind of how things are trading now on some of those longer unusual routes?

Yes. I mean, if we go back when it all kicked off during the second quarter, we saw some really, really uncommon kind of voyages, which obviously, a lot of it is down to the stress factors that were in place and short-term fixes and so on. I think there was a calibration that took place after that, which meant that the long-term routing still very much is in vogue. It has also helped that we have seen a little bit of an uptick on the Chinese exports, so that suddenly there's more of a balance on these things. But it's quite clear that when you kind of overlay that with the issues with the Russian exports having dwindled and South America and other -- Africa as well have been suffering from that, you've been seeing other supply chains being created, which have increased the ton miles as well and then they are then sharing in the kind of the same supply part, if you will.

So we have seen over the last couple of weeks, another kind of uptick in Asia, which has been interesting. The transpac moves has increased substantially. I mean, we haven't really seen China moving up to something that is kind of over what we had anticipated, but there has been a general kind of understanding of where oil is coming from until, I guess, the next shock comes in and we'll see something different. But it tends to be that there is somewhat of a normalization, everything underpinned still by kind of extended turmoil.

Just a follow-up question, maybe as it related to Omar's line of questions around the LR2s trading dirty. Just wanted to better understand the dynamic here just because such a great percentage of the LR2 fleet is trading dirty at the moment. Is that mostly -- in your opinion, is that mostly due to the geopolitical disruptions in the ton-mile dynamics there? And could the downside be the unwinding of geopolitical risk? Or what would keep that as a more enduring force going forward versus more transient?

I think the short answer, to be honest, Chris, is that it's all a question of time charter equivalent. You had the TD25 or the met market ramping up towards $150,000 a couple of weeks ago. You had a quietening LR2 market with all the uncertainties going around with the Hormuz and so on, which, of course, is a primary trade for clean and people were saying, well, the spreads are simply too great for us not to dip into that.

What we know from the last couple of years is that if that spread flips, vessels will very quickly move into clean again. A case in point was, if you recall, a couple of years ago, you had the LR2 market out of the AG trading at, I think it was around $8 million and the Afra stroke VLCC in particular market was languishing at that point. And you saw suddenly what we had not seen before, a large number of vessels kind of cannibalizing into the clean market, which was kind of new to the industry. That kind of flip-flopping, in particular on the Aframaxes, the coated Aframaxes has been taking place over the last couple of years to a larger extent.

There certainly is a lot more runs under the belt for people to understand how you should do this as efficiently as you can and cost efficiently as you can, one company being us as well and being able to do that. So we don't fear or have any issues with that kind of fungibility and I don't consider that to be transient, but to be a lot more market-related in terms of one way or the other.

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

Emanuele and James, great rundown. You emphasized, I think, James, in your presentation, the floor is more important than the peak with rates remaining above $30,000 in this backdrop. And maybe a little bit of your thoughts on the floor in this backdrop, just given, I think, Lars, you were just mentioning never seen a July like this. So maybe thoughts on the floor, thoughts on seasonality and where we go from here.

Lars, do you want me to take that?

Well, you can start, James, and I'll follow on. I thought the question is for you...

Thanks, Ken. Yes. Look, so I mean, typically, you get through peak gasoline season end of the summer and you go into maintenance. And what we've seen is because of the longer voyage distances, the rerouting, we're seeing unique voyages, as Lars highlighted, and we think that's going to continue as disruptions and potentially rerouting as a result of Red Sea specifically, as vessels go around the Cape of Good Hope, and also disruptions with refining capacity in Russia.

So Russia's export ban on gasoline and diesel. That's going to increase Atlantic Basin MR volumes for compliant ships, Africa, Latin America. And at the same time, we expect more naphtha to go from the U.S. Gulf to Asia. So I think there's a constructive dynamic there. And then Lars highlighted the strength on the LR2s and Aframaxes trading crude oil. We think that's going to pick up as you get into maintenance here because there'll be more crude volume from the Atlantic Basin that needs to go to Asia.

All right. Lars, do you want to jump in or you want me to follow-up? I guess I'll throw a follow-up and anybody can jump in. But you mentioned inventories were down about 400 million barrels since the start of the conflict with much current demand needs to be met by refinery runs versus inventory draws. Maybe your thoughts on the time frame, I guess, in terms of if we're going into maintenance season, the drawdown or the ability for refineries to continue to meet that demand versus then time frame for beginning to restock?

Yes. So there was a lot of crude that was shipped in June, and it takes about 30 days for that to get to Asia, 45 days to get to Europe, and that's arriving now. And so I think runs are going to pick up in those regions, and you'll get increased regional trading, which is going to be fantastic for the medium range ships.

And if you looked at refinery runs year-over-year, I think July was down about 5 million barrels per day. But out of the Middle East refining capacity, the only refinery that's actually down right now is Jizan. So as things normalize, we expect runs to pick back up here. So while you might have kind of the U.S. Gulf maintenance coming in, say, September, we expect runs throughout the rest of the world to pick up at the same time. So that's going to create a constructive dynamic for us. And also the fleet is really out of its normal positioning. So I think that's going to be constructive as well.

Your next question comes from Stephanie Moore with Jefferies.

I think maybe just continuing -- basically continuing to the last conversation here. Do you think that the events that's really we've seen over the last -- certainly the last 6 months, but maybe in the last 12 months have structurally changed really that LR2 market from anything we've historically seen? And how are you weighing maybe the supply and demand landscape over the next 12 months?

I'll start, James. What's happened over the last 6 months, it's just a good question. What's going to happen tomorrow? We don't know. I mean, what we want to look at is just the pure fundamentals in terms of what are we looking at. One thing I think is for sure is that the longer voyage distances that are in place, they certainly tighten supply. This has been a key thesis over the last number of years for the reasons that James mentioned in his prepared remarks. That has not changed. It has also not changed that the issues of the sanctioned fleet and the age of the same is certainly getting to a place where in a normal market environment, those ships will not exist. And I'm of the opinion that those sanctioned vessels will never enter into the primary trade again.

So we know that crude has kind of developed in further field areas. We know where the refineries are, that's also further afield. That certainly has not changed. What certainly has changed is that there's a lot more dislocations and disruptions that take place and have been taking place over the last more than 6 months, a couple of years, I would even say that.

In terms of any dislocations that we have seen, has always created a potential for product tankers and now also for the crude market. And it's clear that if you then look over the medium-term and say, well, we're in a position right now where considering the issues that we've had facing the global economy and the stock draws that have been taking place and the flat price that also kind of follows, you'd say, well, at some point in time, you're going to have to think about how you're going to get into a [ build up ] situation. So I think underlying, that's all great.

And I'll just kind of reiterate James' point about what are we looking at here in terms of age profile of ships as we move over the next couple of years, what is the fleet profile coming on board over the next couple of years. And you put all those things in there and in a normal circumstance, it doesn't look scary to me. And but we are living in a very highly uncertain political environment. We've got things coming in left/right field every single day more or less. And one of the key elements that we try to do at any given time from an operational and commercial perspective is be as nimble as we can to react to these changes as they come on a very frequent basis.

Understood. Just for my follow-up here, I think following the refinancing activity, your debt profile is now heavily weighted towards the converts. So how should we think about this potential dilution conversion scenarios that may be your preferred method of settlement, especially should the stock trade meaningfully above the conversion price?

Stephanie, thanks for the question. Look, we just -- we're fresh off the convertible. So we're obviously happy with the transaction and the execution of it. One of the biggest features of the notes is that we can settle it in cash or shares. The trigger for that is 130% over the conversion price. So I think everybody here on the call would be thrilled if we get to those levels. And we will address that if it happens in terms of how we'll choose to settle it.

Right now, the maximum number of shares that can be issued is 6 million shares. That's what the conversion rate is. So that's something for down the road. But right now, we're just -- we're happy with how it fits into our capital structure and in particular, the low cash costs, which have driven down our cash breakevens on the notes.

Your next question comes from Sherif Elmaghrabi with BTIG.

Just one for me today. During the quarter, one of your LR2s had its time charter extended. And just looking at the rest of the fleet, there's a handful of other tankers rolling off time charter in the next year or so. So I'm wondering if you see -- you're seeing a higher likelihood that these time charters get extended, if there's even options to do so? And maybe your thoughts on what you're seeing in the time charter market more broadly.

On that particular time charter, it was an option historically that was in place. Any time charters that we would do today would be new time charters in the market. In terms of time charter strategy, we've always been very opportunistic about it to have a balanced view on how much of our fleet would be on time charter. We have a number of ships rolling off. We have been looking and it has also been reported that a few time charters have been secured at levels that we have not seen before.

It's also an interesting point, I guess, is that time charter inquiry, generally speaking, even over the summer months has been high, which is interesting. The people that are looking at time charters tend to be the oil companies and now some of the traders are coming in as well. And so there is a generally good level of demand on that. But when it comes to ourselves, very much a balanced approach as we've had for a while, but certainly dominated by a view that we would look at this opportunistically and very much so that the people that -- the counterparties that we deal with are people that we have long-standing strategic relationships that we can build around it.

[Audio Gap]

Liam Burke.

Prior to the dust -- early in 2026, prior to the dust-up in the Mid East, the outlook for the product tankers was great. You had an aging fleet. You had redistribution of global capacity. Presuming that things get to normal someday, are we looking at redistribution to continue? Or are some of the traditional refiners not in the Mid East, not in China? Will they continue to refine oil? Or do you expect the process to continue?

Lars, I can take that. Liam, thanks for the question. No, we absolutely expect the refinery dislocation to continue. It takes at a minimum 7 years probably to build a new refinery and many of those refineries haven't started construction today. If you think about demand in emerging markets where we see a lot of growth, there's not refining capacity being built there. And in developed markets, Northern United States, West Coast United States, we closed capacity.

So we see a scenario where ton miles are going to continue to grow over time. And if anything, what we've seen as a result of this conflict, if you look at crude price changes versus product price changes in cracks, cracks have moved meaningfully. So I think that reflects how dislocated the refining capacity system is, and we'll be happy to transport those cargoes to consuming regions.

Okay. And I guess on the supply side, we've got an aging fleet, especially on the MR side. Have extended rates going to, at the far end, extend the life of some of these older MRs? Or would you anticipate the traditional rule of once it hits a certain age, refiners don't want to use the vessel?

I think -- yes, I think it's fair to say that there is a hard stop at 20 these days for vessels. We've been seeing that even in strong markets. It's not that long ago where people were looking at 15 and people were saying, well, I don't want to time charter ship that's more than 10. That kind of has moved towards a higher level of -- in terms of age. But even during the very strong markets from a primary trade perspective, it's very, very uncommon that we've been seeing ships over 20 being traded, Bugbee being obviously the exception.

But it's clear that if you look at overall from a fleet segment perspective and you look at the age profile on MRs, as you rightfully point out, but also on the Aframaxes, it is an interesting kind of picture that's being drawn over the next couple of years in terms of what that age profile is going to look like.

Your last question comes from Kristoffer Skeie with Arctic Securities.

I was just wondering if you can comment on the VLCC joint venture and the rationale behind the investment. Who are the other partners? Where are the vessels ordered and at what price typically? And what type of leverage levels you are aiming for? So in other words, what's the equity commitment there?

Thanks for the question. I think from a financial standpoint, the exposure, as you can see, is not meaningful compared to our balance sheet. So the reason why we did this investment is more strategic. The partner is the UBO of the largest private shipbuilder in China. And we have a relationship with this gentleman for many years. And this opportunity came about where he was looking for a partner in the shipping side and not only potentially in order to operate the vessels once they get delivered. And we thought that it made sense for us to get the opportunity even though as you see financially, it's not a meaningful transaction for our balance sheet. So that's the reason.

On the expectations on the rates, the ships are delivering far away. We are going to take delivery of the Hanwha ships before that. And so far, I think that is too early to talk about market expectations and our guess is as good as anyone's. So we like the sector. We believe in the sector. We've been looking at getting exposure gradually. You may remember with the DHT investment. Once we divested from DHT in the latter part of 2025, we decided to get into the physical part of the investment by ordering the ships at Hanwha and this joint venture is a nice top-up with a strategic twist for us.

That concludes our question-and-answer session. I would now like to turn the call back over to Emanuele Lauro, CEO, for the closing remarks. Please go ahead.

Thank you very much, operator. I don't have any closing remarks. Just wanted to thank everybody for their time and continued support and look forward to speaking with you going forward. Thank you.

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

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.