Scorpio Tankers (STNG) Q1 2026 Earnings Transcript

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Date

Tuesday, May 5, 2026 at 9 a.m. ET

Call participants

• Chief Executive Officer — Emanuele A. Lauro
• President — Robert L. Bugbee
• Chief Financial Officer — Christopher Avella
• Chief Operating Officer — Cameron Mackey
• Chief Commercial Officer — Lars Dencker Nielsen
• Director of Corporate Communications — James Doyle

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Takeaways

• Adjusted EBITDA -- $214 million, reported for the quarter with management emphasizing margin discipline and operational execution.
• Adjusted Net Income -- $151 million for the period, excluding vessel sale gains.
• Net Income (IFRS, Including Gains) -- $216 million, reflecting a $66 million gain from selling four vessels.
• Vessel Sale Activity -- 12 older vessels sold since the start of the year at prices above original purchase levels, with an additional two sold post-quarter-end and agreements to sell nine more, all built 2014-2015.
• Share Repurchase -- 1.4 million shares bought back in April for approximately $100 million; new $500 million share buyback authorization announced.
• Dividend Declaration -- Quarterly dividend of $0.45 per share declared.
• Cash Position -- Approximately $1.4 billion as of May 1, with pro forma cash rising to $1.8 billion after pending vessel sales.
• Total Liquidity -- $2.5 billion combining cash and $712 million of available revolving credit facilities.
• Net Cash Position -- $479 million actual net cash, or $876 million pro forma including pending vessel sales, marking a reduction in net debt by $3.8 billion since year-end 2021.
• Newbuilding Commitments -- 10 newbuilding vessels contracted since November; $641 million in remaining contractual obligations, with 80% of payments not due until 2027-2029.
• Fleet Average Cash Breakeven -- Roughly $11,000 per day, claimed to be the lowest level in company history.
• Cost of Capital Reduction -- Recent convertible bond ($375 million, due 2031) issued at 1.75% coupon and new seven-year $50 million secured bank credit facility at 120 basis points, both cited as lowest historical margins.
• Product Tanker Order Book -- Only 37 vessels ordered year-to-date; order book is 18% of the existing fleet, but management notes actual effective growth is lower after adjusting for aging and crossover tonnage.
• Fleet Growth Projection -- Management expects effective product tanker fleet growth to average about 3% annually over the next three years, potentially lower after age and segment mix adjustments.
• Product Tanker Rates -- Average clean tanker daily earnings described as "over $70,000 per day" with voyage distances increasing to support higher rates.
• Seaborne Export Decline -- April seaborne exports reported down by 1.9 million barrels per day compared to prior year; refined product demand expected to rebound by 2.4 million barrels per day in the third quarter.
• Inventory Drawdown -- High-frequency refined product inventories down more than 80 million barrels since year start; U.S. inventories drawn in 12 of the past 13 weeks.
• Fleet Age Profile -- 21% of product tanker fleet over 20 years old now, expected to reach 30% by 2028; about 25% of Aframax/LR2 and 9% of MR/Handy fleets are sanctioned and average 20-21 years of age.
• Illustrative Cash Flow Generation -- At $20,000 per day TCE, implied annual cash flow is up to $260 million; at $50,000 per day, up to $1.1 billion.
• Time Charter Market -- Management comments on "generational highs" for multiyear charters, with willingness to lock in longer-term contracts due to favorable breakeven levels.

Summary

Scorpio Tankers (NYSE:STNG) presented a quarter marked by significant balance sheet fortification and flexible capital allocation, underpinned by ongoing fleet optimization and low cash breakeven levels. Management highlighted high spot and time charter earnings, record inventory draws globally, and a consistently constrained vessel supply that may continue supporting tight market conditions. Capital deployment strategy was clarified as opportunistic and non-pivoting, with priority given to maintaining robust liquidity and selectively renewing the fleet through vessel sales and newbuildings. Discussion of the impact of geopolitical disruptions focused on structural trade route shifts, extended ton-miles, and evolving refinery utilization patterns, while segment fleet exposure and dividend policy were described as adaptively balanced rather than targeting fixed payout ratios.

• Management stated, "We are announcing a new $500 million share buyback authorization and a quarterly dividend of $0.45 per share," delineating near-term capital return intent.
• Chief Financial Officer Avella reported, "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 nine vessels that are pending closing," directly reflecting leverage reduction achievement.
• Significant restocking and demand normalization prospects were supported by data evidencing, "High-frequency refined product inventories have declined by more than 80 million barrels since the start of the year."
• Management emphasized that "the effective product tanker order book is smaller than it appears," framing the supply picture as more constrained than headline numbers suggest.

Industry glossary

• LR2: Long Range 2 product tanker; typically 80,000-119,999 deadweight tons, used to transport refined petroleum products.
• MR: Medium Range product tanker; typically 40,000-54,999 deadweight tons, engaged in refined products shipping.
• Aframax: Tankers sized between 80,000-119,999 deadweight tons, often used for crude and product trading.
• Handymax: Smaller product tankers of approximately 40,000-50,000 deadweight tons.
• TCE (Time Charter Equivalent): A standard shipping industry metric, expressing revenue per vessel per day as if the vessel were on a time charter, stripping out voyage-specific costs such as bunker fuel.
• Crossover: Vessels that can switch between transporting clean products and crude, notably in the LR2 segment.
• Spot Market: Shipping contracts executed on a per-voyage basis rather than long-term time charters.
• Backwardation: A market condition where future prices are below current spot prices, influencing fleet replacement and capital allocation strategies.
• Sanctioned Capacity: Vessel capacity excluded from main trading routes due to international sanctions, often aging and less effectively utilized.
• TMX (Trans Mountain Expansion): Pipeline project facilitating crude oil exports from the Pacific Northwest to Asia, affecting Aframax trade routes.

Full Conference Call Transcript

James Doyle: Welcome to the Scorpio Tankers Inc. First Quarter 2026 Earnings Conference Call. On the call with me today are Emanuele A. Lauro, Chief Executive Officer; Robert L. Bugbee, President; Cameron Mackey, Chief Operating Officer; Christopher Avella, Chief Financial Officer; and 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 Scorpio Tankers Inc.’s SEC filings, which are available at scorpiotankers.com and sec.gov. Call participants are advised that the audio of this conference call is being broadcast live on the Internet and is 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 would like to introduce our Chief Executive Officer, Emanuele A. Lauro.

Emanuele A. Lauro: Thank you, and good morning, and thank you for joining us today. 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. We have built a platform that can return capital through the cycle while 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 and $151 million of adjusted net income. For years, we have focused on what we can control: strengthening the balance sheet, optimizing the fleet, 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 substantial free cash flow; but in a stressed environment similar to the depth 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, the lowest margins in our history. These were proactive and opportunistic actions 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.

This 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. By any measure, this was one of the strongest quarters in the company’s history, not only in earnings but also in execution. Rates have improved for consecutive quarters, and that momentum not only continues, but has strengthened further into the second quarter.

While the timing of geopolitical developments in the Middle East remains uncertain, we remain constructive on the underlying fundamentals that are driving the tanker market. We expect restocking and demand to reassert themselves as disruptions normalize. Critically, our low breakeven model allows us to perform across all environments. We can be resilient in a weaker market and highly levered in stronger ones. We believe Scorpio Tankers Inc. 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.

James Doyle: Thanks, Emanuele. Slide 7, please. Today, product tanker rates are at unprecedented levels, with average clean tanker earnings over $70,000 per day. It is 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 and 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 are 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. This aligns with what we are seeing on the water, with seaborne exports down 1.9 million barrels per day in April compared to last year. As transit through the Strait of Hormuz normalizes, 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 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 have 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. 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, please. When adjusting for aging vessels, sanctioned capacity, and LR2 crossover, effective clean products supply fleet growth is materially lower than the headline order book implies.

We expect fleet growth to average approximately 3% over the next three 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 would like to turn it over to Chris.

Christopher Avella: 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 four vessels during the quarter. We sold another two vessels in April and have reached agreements to sell another nine vessels, all built in 2014 or 2015, 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 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 nine 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 five-year senior unsecured notes, which were issued in the Nordic bond market in January 2025 and are currently trading above 103% of par. Last is our $375 million convertible notes due 2031, which were 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 four 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-tenor structures are ongoing, as you can see with our recent announcement of a $50 million secured credit facility with Bank of America at just a 120 basis point margin and a seven-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 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. If we consider the sale of three 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, 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 three years has afforded us the financial flexibility to enter into these newbuilding contracts.

Our remaining newbuilding commitments total just over $641 million as of today, after the payment of $69 million towards these vessels in 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. 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, up to $548 million per year; at $40,000 per day, up to $836 million per year; and at $50,000 per day, up to $1.1 billion per year. This concludes our presentation today. We would like to thank everyone for their time and attention. We will now open the call for questions.

Operator: We will now open the call for questions. To ask a question, if you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. Our first question will come from Gregory Lewis of BTIG. Please go ahead.

Gregory Lewis: Hi, thank you, and good morning and good afternoon, and thanks for taking my questions. First question is either for Chris or Robert. Could you walk us through the decision on the convertible bond? Clearly, you laid out how strong the balance sheet is. There is a lot of cash on the balance sheet. How are we thinking about the liquidity and opportunities for staying with the convert?

Christopher Avella: 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 are 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 are going to continue to look at opportunities to execute on low-cost transactions, and this is just one of those.

Robert L. Bugbee: I do not have anything to add to that, Greg.

Gregory Lewis: Okay, great. And then on the market, James, you touched on volumes being a little bit light. Roughly a little over two months into the conflict or the war in Iran, have we started to see pockets of hoarding or anything that is translating into new trade routes or expanding ones, replacing others? What are you seeing?

James Doyle: Lars, would you like to take this one?

Lars Dencker Nielsen: Sure, I will start. We have seen what you would consider to be genuinely unique voyages and instances. Ton-miles have obviously elongated across the board. We have seen a huge increase in U.S. Gulf Coast exports going much further afield than before. From a pre-conflict into-conflict level—being the situation 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, were asked to go to the Middle East and then a day later to go back to Asia where they had actually loaded from. The price of oil and products has made it such that the price of freight has become insignificant.

We are not seeing any issues of freights being curtailed because of the price of freight, because the underlying oil is so valuable and important for security of supply. That also goes into the structural reshuffling of product in the United States. We saw the headline of the Jones Act being waived for a brief moment in time, and that has also moved the needle relative to anything we have seen in the past. So, yes, there certainly has been a lot of change.

Operator: The next question comes from Omar Nokta of Clarkson Securities. Please go ahead.

Omar Nokta: Clearly, things are moving in a really nice direction for Scorpio Tankers Inc., certainly from a financial perspective—going deeper into net cash. You just re-upped the buyback to $500 million. Does this signal a pivot in how you are viewing the use of capital from here? And is there any preference at this point in terms of interest in the shares versus the unsecured notes or the converts?

Robert L. Bugbee: I do not think it creates a pivot in strategy. It creates a point where we feel ready enough to give ourselves the largest ever buyback the company has ever had, if we decide that is the right thing to do. There is no pivot; it is the development of the strategy. The first thing is to de-leverage. The second is to start to renew the fleet and take advantage of backwardation in the curve. The third, as Chris says, is to use the balance sheet to get very effective cheaper finance. Being able to put up the largest-ever buyback for the company is a continuation of strategy.

We will watch and act and react when and if we see the opportunity. We have developed, in a sense, both a hammer and an anvil here: the tremendous cash position and the ability to get debt cheaply, and underneath it the anvil, so that if you had a wobble in the stock or a continuing dislocation between NAV and stock price, we can take advantage because we believe very much in the long-term development and continued health of the company.

Omar Nokta: Makes sense. As a follow-up on the fleet and taking advantage of the backwardation, how are you thinking about the fleet as it is now? You sold a bunch of vessels this year. You have about $500 million coming in the second quarter from those sales. Are we getting to a point where the active selling slows down? Is it more about fine-tuning the fleet? Is it looking at newbuildings? How are you thinking about the fleet position from here?

Robert L. Bugbee: We have not changed on that. We will continue to take opportunistic sales and pursue opportunistic longer-term time charters too. At the same time, we might continue to gently and responsibly—where it is clear that the financing is not changing our hammer—engage in renewal. You are not going to see some massive, great big order or an acquisition of a competitor. It is going to be continuing to gently move each of the parameters along the way—much of the same.

Operator: The next question comes from Jonathan B. Chappell of Evercore ISI. Please go ahead.

Jonathan B. Chappell: Thank you, and good morning. James, regarding the disruption, a lot of it seems to be focused around once the flows normalize. Can you help us with scenario analysis? There is still a lot of uncertainty. What are some of the upside opportunities and downside risks as this situation continues to evolve?

Robert L. Bugbee: I will take the start of that one. I do not think we are in control of that, and we do not spend much time going through hypotheticals. Information changes—whether or not the straits are open, whether or not there were incidents involving international ships just yesterday. We will pass on the hypotheticals, if that is okay, John.

Jonathan B. Chappell: Okay. How about how your operations have changed? We see headline rates—are you fully absorbing them? Have you had to move the fleet around, creating any imbalance or better exposure to certain regions? How should we think about these headline rates translating to you—top line and potential disruption or cost/bunker perspective?

Lars Dencker Nielsen: This is part and parcel of what we do every day. We assess where we anticipate the market to react as fleets are deployed. When this happened, we made a conscious effort to move our ships West where the market dislocation was greatest and there were stronger market movements taking place at the margin. We moved ships a lot—both through the canal and around the Cape of Good Hope—and we made sure that ships opening in New Zealand, Alaska, and North Asia made decisions to move across. It took a bit of time, but it paid off.

Even with high volatility—rates moving 15% to 20% intra-week—structurally the West market has benefited more from a rate perspective than vessels trading East of Suez.

Operator: The next question comes from Analyst at Bank of America. Please go ahead.

Analyst: Great, good morning and good afternoon. Can you talk about any increased interest in multiyear charters given the environment and your thoughts on that? Do you want to keep the same exposure to the spot market? And any incremental developments from Venezuela, in terms of short-haul moves?

Robert L. Bugbee: Our reduced breakevens—the lack of debt and low borrowing costs—now open up situations where we can look quite favorably at five-, six-, and seven-year charters: locked-in, simple, profitable, secure returns. That adds to a base of income which has always been lacking in tanker companies. We are not only looking at opportunities that arise but are favorable to them because of our financial breakeven dynamics.

Lars Dencker Nielsen: We reported a couple within the quarter. In my experience, these are generational highs in terms of long-term charters, and to very bankable, first-class end users—which we have not seen before. We will always have a balance between spot and time charter. We still have a very large component towards spot, but the ships on time charter reflect the quality of the paper and partners we are strategically aligned with. That relationship enhances the spot business we also do for them and has benefited the business over the years. We continue to look at period charters every day.

There has been continued interest in both MRs and LR2/Aframax—today we consider LR2s and Aframaxes as one segment—and there has been substantial interest. We have seen one-year deals at extremely elevated numbers, as well as interest in three- and five-year deals. Eight-year deals, like one we have done, are less frequent, but it is clear that not only shipowners see the market as attractive—our counterparties are willing to put pen to paper on long-term charters.

Analyst: If I can get two rapid ones: are you seeing any shortages now on some products—jet fuel, different areas? And you mentioned $2 billion in cash by this summer. With the $500 million buyback plan, thoughts on the other $1.5 billion usage?

James Doyle: On shortages, in Southeast Asia we have seen methods to reduce travel. At a high level, it appears more about inefficient supply meeting demand. Demand has been quite strong. The issues fall to the fact that there is not a lot of spare refining capacity, and we have talked about this for years—closures around the world and capacity moving further away from the consumer. You are seeing the result of this. Going forward, you are going to see a lot of restocking, and you will still see this refinery dislocation because of how long it takes to build a refinery. It is very constructive in the short to medium term.

Robert L. Bugbee: On future cash, we will continue to maintain a very healthy overall cash position. We have said we could consider further sales of older tonnage, which could result in even higher cash than any forecast you can make at the moment. We also said we would be willing to explore, opportunistically, continuing our renewal—which would indicate a few newbuilding orders, not many, to keep a steady position. We are keeping the vast majority of cash generated, but allocating some to buybacks, the dividend, and newbuilding orders.

We did not raise the dividend this quarter—not for any reason other than it was a knockout quarter and we would like to look later in the year, July/September, at whether we increase it again, and by how much—smaller steps or one slightly bigger step. Overall, it is a continuation of what we have been doing the last 6–12 months: taking advantage of the curve arbitrage and great secondhand prices, which we see indications are still increasing.

Operator: The next question comes from Analyst at Jefferies. Please go ahead.

Analyst: Good morning and good afternoon. On fleet renewal, do you have a preference for more LR2 or MR exposure in the fleet? Any general commentary on fleet exposure within renewals would be helpful. And I have a follow-up.

Robert L. Bugbee: We have backed off the VLCCs in terms of expanding there. The recent renewals have been in product tankers, both MRs and LR2s, and my expectation is that is where we would continue to concentrate and find opportunity.

Analyst: Thank you. On the dividend itself, given the favorable financial position and your stance on flexibility, do you have any quarterly targeted payout that we should be looking at?

Robert L. Bugbee: We have not reached that. I can tell you what we will not have: we will not do extraordinary dividends, and we will not do a high-payout dividend. We favor a permanent dividend that can be met through good times and bad, and ideally improved in good times. High-payout dividends tied to percentages of income work great in good times and are quite tragic in other times.

Operator: The next question comes from Christopher Robertson of Deutsche Bank. Please go ahead.

Christopher Robertson: Good morning, everyone. Thank you for taking my questions. This might be one for Lars. On the bunker fuel market, initially there was quite a bit of disruption and a huge spike in prices. How is availability now? Is it impacting where you position the fleet or which voyages you take? Has the situation gotten better over the last few weeks?

Lars Dencker Nielsen: We do not see issues today in terms of securing bunkers for any of our ships around the world. Prices certainly went to a very elevated place, and there were a lot of questions as the conflict started, and we were looking at this. But bunker planning is a very important part of any voyage planning we do. These things are always evaluated so we can reflect bunker input pricing in the TCE output. Right now, we do not encounter issues that create additional complications for bunker supply.

Christopher Robertson: Thank you. One more on the dividend philosophy. Are you looking for a certain amount of balance sheet strength, breakeven level, or market rate sustainability to drive an increase, realizing the goal is a sustained level throughout the cycle?

Robert L. Bugbee: The goal is not the same sustained percentage of earnings or a static sense of stock price. What we hope to do throughout the cycle is raise the regular dividend, and ensure it is clear—even to the most conservative long-only institutions—that we can pay it under any circumstances. That is why you see concentration in the presentation on cash breakeven and slides related to reliving the worst market we have experienced—COVID—and whether we can continue to pay and grow the dividend through that cycle. We waited in recent quarters and moved gradually. This was an unbelievably knockout quarter.

We debated whether to raise it a cent or a nickel and left it aside, knowing we had an incredible quarter, took steps into the balance sheet, and provided terrific second-quarter guidance—extraordinary, even surprising to us. Later in the year, we will see the next level we are happy to move to on a sustainable basis.

Operator: The next question comes from Liam Burke of B. Riley. Please go ahead.

Liam Burke: Yes, thank you. Even prior to tensions in the Middle East, rates in the Aframaxes were higher, and there had been a shift from clean to dirty. Post tensions, is there anything that would flip that situation where the Aframaxes would move back to LR2s trading clean?

Lars Dencker Nielsen: We are in a situation where you have a lot of LR2s north of $100,000 per day, and the alternative in Aframaxes is also north of $100,000 per day. We only need to go back a couple of years and we were trading 256 LR2s in the market; today we are trading around 170 LR2s in the market. A large component of LR2s had gone into sanctioned trades and at older ages, and you now have crude transporting itself further afield. You have a very strong Aframax market not only in the Atlantic Basin but also East of Suez. The Trans Mountain Expansion (TMX)—from the Pacific Northwest to Asia—has been extremely strong.

The market to the Pacific lightering area has also been very strong, particularly because of strong VLCCs. Suezmaxes are very strong. Every element within that framework is extremely strong. The last time we saw switching the other way was when crude was weak for a while and the LR2 market had ramped up. At that point, you had about an $8 million delta and saw many vessels go into the clean market. Today, whichever way you look at it, both are very strong. On Venezuela—that is also an Aframax market. TMX is 100% Aframax. The trades out of Australia are 100% Aframax.

The story is good on a supply-demand perspective when you look at LR2s and Aframaxes together, which you have to do today. The prior argument about lots of ships being built does not hold much when you consider the average ages and what ships are actually able to trade. Structurally, we are looking at a very decent supply-demand story on both Aframaxes and LR2s.

Liam Burke: Thank you. James, you have highlighted the redistribution of global refinery capacity for years. Post-conflict, a lot of that has been Middle East refinery. Would you anticipate any modification of that redistribution?

James Doyle: Good question. The quickest you can probably build a refinery is seven years, so if you are not starting today, it is not coming in that timeframe. One likely outcome is people will view storage differently—how much crude and product to keep domestically. That is great for refinery runs. Major changes are a challenge to do in a short timeframe, but people might look at new pipeline opportunities.

Operator: This concludes our question and answer session. I would like to turn the call back over to Emanuele A. Lauro for any closing remarks.

Emanuele A. Lauro: 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.

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

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