Scorpio Tankers Inc. Reports Third Quarter Net Loss of $73.3 Million

Scorpio Tankers Inc. yesterday reported its results for the three and nine months ended September 30, 2022. The Company also announced that its Board of Directors has declared a quarterly cash dividend of $0.10 per share on the Company’s common stock.

Results for the three months ended September 30, 2022 and 2021

For the three months ended September 30, 2022, the Company had net income of $266.2 million, or $4.84 basic and $4.31 diluted earnings per share.

For the three months ended September 30, 2022, the Company had adjusted net income (see Non-IFRS Measures section below) of $264.8 million, or $4.81 basic and $4.29 diluted earnings per share, which excludes from net income (i) a $2.7 million, or $0.05 per basic and $0.04 per diluted share, gain on the sale of a vessel, (ii) $1.4 million, or $0.03 per basic and $0.02 per diluted share, write-off or acceleration of the amortization of deferred financing fees on certain debt or lease financing obligations and related debt extinguishment costs, and (iii) $0.1 million, or $0.00 per basic and $0.00 per diluted share, gain recorded on the repurchase of the Company’s Convertible Notes due 2025.

For the three months ended September 30, 2021, the Company had a net loss of $73.3 million, or $1.34 basic and diluted loss per share.

For the three months ended September 30, 2021, the Company had an adjusted net loss (see Non-IFRS Measures section below) of $76.1 million, or $1.39 basic and diluted loss per share, which excludes from the net loss a $2.9 million, or $0.05 per basic and diluted share, gain recorded as part of the refinancing of the lease financing for five vessels.

Results for the nine months ended September 30, 2022 and 2021

For the nine months ended September 30, 2022, the Company had net income of $372.8 million, or $6.74 basic and $6.07 diluted earnings per share.

For the nine months ended September 30, 2022, the Company had adjusted net income (see Non-IFRS Measures section below) of $446.0 million, or $8.06 basic and $7.21 diluted earnings per share, which excludes from net income (i) a $66.5 million, or $1.20 per basic and $1.04 per diluted share, aggregate net loss on the sale of vessels, (ii) $7.1 million, or $0.13 per basic and $0.11 per diluted share, write-off or acceleration of the amortization of deferred financing fees on debt or lease financing obligations and related debt extinguishment costs and (iii) $0.5 million, or $0.01 per basic and $0.01 per diluted share, gain recorded on the repurchases of the Company’s Convertible Notes due 2025.

For the nine months ended September 30, 2021, the Company had a net loss of $188.4 million, or $3.46 basic and diluted loss per share.

For the nine months ended September 30, 2021, the Company had an adjusted net loss (see Non-IFRS Measures section below) of $184.5 million, or $3.38 basic and diluted loss per share, which excludes from the net loss (i) a $2.9 million, or $0.05 per basic and diluted share, gain recorded as part of the refinancing of the lease financing for five vessels, (ii) $5.5 million, or $0.10 per basic and diluted share, of aggregate losses recorded on the March 2021 and June 2021 transactions to exchange the Company’s existing Convertible Notes Due 2022 for new Convertible Notes Due 2025, and (iii) a $1.3 million, or $0.02 per basic and diluted share, write-off of deferred financing fees related to the refinancing of certain credit facilities.

Declaration of Dividend

On October 31, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per common share, payable on or about December 15, 2022 to all shareholders of record as of November 17, 2022 (the record date). As of November 1, 2022, there were 56,294,672 common shares of the Company outstanding.

Summary of Third Quarter 2022 and Other Recent Significant Events

Below is a summary of the average daily Time Charter Equivalent (“TCE”) revenue (see Non-IFRS Measures section below) and duration of contracted voyages and time charters for the Company’s vessels (both in the pools and outside of the pools) thus far in the fourth quarter of 2022 as of the date hereof (See footnotes to “Other operating data” table below for the definition of daily TCE revenue):
Below is a summary of the average daily TCE revenue earned by the Company’s vessels during the third quarter of 2022:
During the third and fourth quarters of 2022, the Company entered into time charter-out agreements on five vessels (four LR2s and one MR). The terms of the agreements are for three years averaging between $30,000 and $35,000 per day for the LR2s, and for three years for $25,000 per day for the MR. During 2022 and through the date of this press release, the Company has entered into a total of 13 time-charter out agreements (eight LR2s and five MRs), the terms of which are described in the fleet list below.
The Company has given notice to exercise its purchase options on an aggregate of 17 vessels that are currently financed under sale and leaseback arrangements, consisting of two Handymax product tankers (STI Battersea and STI Wembley), nine MR product tankers (STI Ville, STI Texas City, STI Meraux, STI Brooklyn, STI Duchessa, STI Mayfair, STI San Antonio, STI St. Charles and STI Yorkville), and six LR2 product tankers (STI Alexis, STI Rose, STI Rambla, STI Sanctity, STI Steadfast and STI Supreme). The leases bear interest at LIBOR plus a margin of 3.00% – 5.40% per annum. The purchases, which are expected to occur in the fourth quarter of 2022 and in 2023, are expected to result in an aggregate debt reduction of $302.2 million.
In October 2022, the Company repaid the outstanding debt of $17.5 million, which had financed one LR2 product tanker (STI Madison).
In August 2022, the Company exercised its purchase options on six 2014 built MR product tankers (STI Opera, STI Virtus, STI Venere, STI Aqua, STI Dama, and STI Regina), which resulted in an aggregate debt reduction of $95.0 million.
Since July 2022 and through the date of this press release, the Company has repurchased an aggregate of 3,120,341 of its common shares at an average price of $38.66 per share.
In July 2022, the Company repurchased $1.5 million in aggregate principal amount of its Convertible Notes Due 2025 in the open market.
On October 31, 2022, the Company’s Board of Directors authorized a new Securities Repurchase Program to purchase up to an aggregate of $250 million of the Company’s securities.
During the first and second quarters of 2022, the Company entered into agreements to sell 18 vessels, consisting of three LR2s, 12 LR1s, and three MRs. Seven of these sales closed within the first quarter of 2022 (six LR1s and one MR), raising $91.7 million in aggregate new liquidity after the repayment of debt and selling costs, nine of these sales closed within the second quarter of 2022 (two LR2s, six LR1s, and one MR), raising $139.9 million in aggregate new liquidity after the repayment of debt and selling costs, and the remaining two of these sales closed in the third quarter of 2022, raising $33.7 million in aggregate new liquidity.

New $250 Million Securities Repurchase Program

On October 31, 2022, the Company’s Board of Directors authorized a new Securities Repurchase Program to purchase up to an aggregate of $250 million of the Company’s securities which, in addition to its common shares, currently consist of its Convertible Notes due 2025 and Senior Unsecured Notes due 2025 (NYSE: SBBA). As of today, there is $250 Million available under the new $250 Million Securities Repurchase Program.

In September 2020, the Company’s Board of Directors authorized a Securities Repurchase Program to purchase up to an aggregate of $250 million of the Company’s securities. This program was terminated on October 31, 2022, and any future purchases of the Company’s securities will be made under the new $250 million Securities Repurchase Program. Below are purchases of the Company’s securities made in 2022 under the September 2020 authorization.

During the third quarter of 2022, the Company repurchased an aggregate of 2,241,881 of its common shares at an average price of $37.87 per share. These repurchases include the repurchase of 1,293,661 common shares from Eneti Inc., a related party, for $38.65 per share and 948,220 common shares in the open market for an average price of $36.80 per share.
During the fourth quarter of 2022, the Company repurchased an aggregate of 878,460 of its common shares in the open market at an average price of $40.67 per share.
In May and July 2022, the Company repurchased $10.8 million and $1.5 million, respectively, in aggregate principal amount of its Convertible Notes Due 2025 in the open market for $12.5 million and $1.7 million, respectively. The consideration paid includes the accreted principal balance, which has accrued since the issuance date and equaled approximately 106% and 107% of par at the May and July repurchase dates, respectively.
Debt and Lease Repayments

In August 2022, the Company exercised its purchase options on six MR product tankers (STI Opera, STI Virtus, STI Venere, STI Aqua, STI Dama and STI Regina) that were previously financed under the China Huarong Lease Financing. These transactions resulted in an aggregate debt reduction of $95.0 million.

In September 2022, the Company gave notice to exercise its purchase options on two Handymax product tankers (STI Battersea and STI Wembley) and two MR product tankers (STI Texas City and STI Meraux). These vessels are currently financed under the COSCO Lease Financing. The purchases, which are expected to occur in the fourth quarter of 2022, are expected to result in a debt reduction of $55.3 million.

In September 2022, the Company gave notice to exercise its purchase options on two MR product tankers (STI Brooklyn and STI Ville) and two LR2 product tankers (STI Rose and STI Rambla). These vessels are currently financed under the AVIC Lease Financing. The purchases, which are expected to occur in the fourth quarter of 2022, are expected to result in a debt reduction of $77.8 million.

In September 2022, the Company gave notice to exercise its purchase option on an LR2 product tanker (STI Sanctity). This vessel is currently financed under the Ocean Yield Lease Financing. The purchase, which is expected to occur in the first quarter of 2023, are expected to result in a debt reduction of $27.8 million.

In October 2022, the Company gave notice to exercise its purchase option on an LR2 product tanker (STI Alexis) and five MR product tankers (STI Duchessa, STI San Antonio, STI Mayfair, STI St. Charles, and STI Yorkville), which are currently financed under the $157.5 Million Lease Financing. The purchases, which are expected to occur in the fourth quarter of 2022, are expected to result in a debt reduction of $85.8 million.

In October 2022, the Company gave notice to exercise its purchase options on two LR2 product tankers (STI Steadfast and STI Supreme). These vessels are currently financed under the Ocean Yield Lease Financing. The purchases, which are expected to occur in the second and third quarters of 2023, are expected to result in a debt reduction of $55.6 million.

In October 2022, the Company repaid the outstanding debt on an LR2 product tanker (STI Madison), which was previously financed under the 2021 $21.0 Million Credit Facility. This transaction resulted in a debt reduction of $17.5 million.

Diluted Weighted Number of Shares

The computation of earnings or loss per share is determined by taking into consideration the potentially dilutive shares arising from (i) the Company’s equity incentive plan, and (ii) the Company’s Convertible Notes due 2025. These potentially dilutive shares are excluded from the computation of earnings or loss per share to the extent they are anti-dilutive.

The impact of the Convertible Notes Due 2025 on earnings or loss per share is computed using the if-converted method. Under this method, the Company first includes the potentially dilutive impact of restricted shares issued under the Company’s equity incentive plan, and then assumes that its Convertible Notes Due 2025, which were issued in March and June 2021 were converted into common shares at the beginning of each period. The impact of the Company’s Convertible Notes Due 2022, which were repaid in cash upon their maturity in May 2022, are included as part of the weighted average number of shares under the if-converted method for the portion of the period that they were outstanding. The if-converted method also assumes that the interest and non-cash amortization expense associated with these notes of $4.7 million and $16.8 million during the three and nine months ended September 30, 2022, respectively, were not incurred. Conversion is not assumed if the results of this calculation are anti-dilutive.

For the three and nine months ended September 30, 2022, the Company’s basic weighted average number of shares outstanding were 55,003,149 and 55,334,147, respectively. For the three and nine months ended September 30, 2022, there were 57,666,495 and 57,917,873 weighted average shares outstanding, respectively, including the potentially dilutive impact of restricted shares issued under the Company’s equity incentive plan.

For the three and nine months ended September 30, 2022, there were 62,820,207 and 64,172,301 weighted average shares outstanding, respectively, under the if-converted method.

Diluted earnings per share for both the three and nine months ended September 30, 2022 was calculated under the if-converted method.

Current Liquidity

As of October 28, 2022, the Company had $490.9 million in unrestricted cash and cash equivalents. Within the next two weeks, the Company is expected to receive approximately $105 million from the Scorpio pools with respect to the monthly cash distribution for October.

Drydock, Scrubber and Ballast Water Treatment Update

Set forth below is a table summarizing the drydock, scrubber, and ballast water treatment system activity that occurred during the third quarter of 2022 and the estimated expected payments to be made, and offhire days that are expected to be incurred, for the Company’s drydocks, ballast water treatment system installations, and scrubber installations through 2023:

Debt

Set forth below is a summary of the principal balances of the Company’s outstanding indebtedness as of the dates presented.

Set forth below are the estimated expected future principal repayments on the Company’s outstanding indebtedness as of September 30, 2022, which includes principal amounts due under the Company’s secured credit facilities, Convertible Notes Due 2025, lease financing arrangements, Senior Notes Due 2025, and lease liabilities under IFRS 16 (which also include actual scheduled payments made during the third quarter of 2022 through October 28, 2022):

Explanation of Variances on the Third Quarter of 2022 Financial Results Compared to the Third Quarter of 2021

For the three months ended September 30, 2022, the Company recorded net income of $266.2 million compared to a net loss of $73.3 million for the three months ended September 30, 2021. The following were the significant changes between the two periods:

TCE revenue, a Non-IFRS measure, is vessel revenues less voyage expenses (including bunkers and port charges). TCE revenue is included herein because it is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance irrespective of changes in the mix of charter types (i.e., spot voyages, time charters, and pool charters), and it provides useful information to investors and management. The following table sets forth TCE revenue for the three months ended September 30, 2022 and 2021:
TCE revenue for the three months ended September 30, 2022 increased by $337.7 million to $456.3 million, from $118.6 million for the three months ended September 30, 2021. Overall average TCE revenue per day increased to $44,222 per day during the three months ended September 30, 2022, from $10,139 per day during the three months ended September 30, 2021. The average number of vessels was 113.5 during the three months ended September 30, 2022 as compared to 131.0 during the three months ended September 30, 2021. The decrease in the average number of vessels was due to the sales of vessels during 2022 as described above.
TCE revenue for the three months ended September 30, 2022 reflected the continued momentum in the product tanker market that began in the first quarter of 2022 and has continued through the date of this press release. Initially, the easing of COVID-19 restrictions around the globe resulted in increased personal mobility which served as a catalyst for underlying demand for refined petroleum products. This buoyant demand, combined with low global refined petroleum product inventories and strong refining margins, have incentivized refiners to increase and maintain high utilization levels thus driving substantial increases in refined petroleum product export volumes throughout the world. Lastly, the volatility brought on by the ongoing conflict in Ukraine has continued to disrupt supply chains for crude oil and refined petroleum products, changing volumes and trade routes, and thus increasing ton-mile demand for the seaborne transportation of refined petroleum products.
TCE revenue for the three months ended September 30, 2021 reflected the continued adverse market conditions brought on by the COVID-19 pandemic. While underlying demand for crude and refined petroleum products improved throughout 2021, it still remained below pre-pandemic levels thus keeping pressure on daily spot TCE rates. These conditions were exacerbated by longer than expected refinery maintenance along with drawdowns of existing inventories during the third quarter of 2021, which negatively affected the demand for the seaborne transportation of refined petroleum products.
The Company also had an increased number of vessels operating outside of the Scorpio pools during the three months ended September 30, 2022 which led to an increase in voyage revenue and voyage expenses for this period.
Vessel operating costs for the three months ended September 30, 2022 decreased by $10.1 million to $75.8 million, from $85.9 million for the three months ended September 30, 2021. Vessel operating costs per vessel per day increased to $7,256 for the three months ended September 30, 2022 from $7,126 for the three months ended September 30, 2021. Vessel operating costs per day increased across all vessel classes, driven by generalized inflationary pressures, with the largest increases affecting repairs and maintenance, and spares and stores expenses. The overall decrease relates to the sale of 18 vessels during 2022, which resulted in a decrease in the average number of vessels in the Company’s fleet to 113.5 during the three months ended September 30, 2022 from 131.0 during the three months ended September 30, 2021.
Depreciation expense – owned or sale leaseback vessels for the three months ended September 30, 2022 decreased by $8.3 million to $41.4 million, from $49.7 million for the three months ended September 30, 2021. This decrease was attributable to 18 of the Company’s owned or sale leaseback vessels being designated as held for sale or sold during the nine months ended September 30, 2022. These vessels were written down to their net realizable value upon being designated as held for sale, and depreciation expense ceased being recorded upon that designation.
Depreciation expense – right of use assets for the three months ended September 30, 2022 decreased by $0.8 million to $9.6 million from $10.4 million for the three months ended September 30, 2021. Depreciation expense – right of use assets reflects the straight-line depreciation expense recorded under IFRS 16 – Leases. This decrease is attributable to the sale of one of the Company’s right of use asset vessels. This vessel was written down to its net realizable value upon being designated as held for sale during the first quarter of 2022, and depreciation expense ceased being recorded upon that designation. The Company had four LR2s and 17 MRs that were accounted for under IFRS 16 – Leases during the three months ended September 30, 2022.
General and administrative expenses for the three months ended September 30, 2022, increased by $13.4 million to $26.5 million, from $13.1 million for the three months ended September 30, 2021. This increase was primarily due to an increase in compensation related costs.
Financial expenses for the three months ended September 30, 2022 increased by $6.5 million to $42.3 million, from $35.8 million for the three months ended September 30, 2021. This increase was primarily attributable to significant increases in LIBOR rates during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. The increases attributable to the increases in LIBOR rates were partially offset by the overall reductions in the Company’s indebtedness arising from the aforementioned sales of 18 vessels (and repayments of the related debt or lease financing obligations) along with the exercise of purchase options on six 2014 built MR product tankers in August 2022 and the maturity of the Convertible Notes Due 2022 in May 2022.

Dividend Policy

The declaration and payment of dividends is subject at all times to the discretion of the Company’s Board of Directors. The timing and the amount of dividends, if any, depends on the Company’s earnings, financial condition, cash requirements and availability, fleet renewal and expansion, restrictions in loan agreements, the provisions of Marshall Islands law affecting the payment of dividends and other factors.

The Company’s dividends paid during 2021 and 2022 were as follows:

COVID-19

Since the beginning of calendar year 2020, the outbreak of the COVID-19 virus has resulted in a significant reduction in global economic activity and extreme volatility in the global financial markets, the effects of which continued throughout 2021. The easing of restrictive measures that were put in place to combat the spread of the virus, and the successful roll-out of vaccines has served as a catalyst for an economic recovery in many countries throughout the world, which has, in part, led to a vastly improved financial performance during the second quarter of 2022. Nevertheless, the Company expects that the COVID-19 virus will continue to cause volatility in the commodities markets in the future. In particular, the spread of more contagious and vaccine resistant variants, along with the continued implementation of restrictive measures by governments in certain parts of the world, have hampered a full re-opening of the global economy. The scale and duration of these circumstances is unknowable but could have a material impact on the Company’s earnings, cash flow and financial condition. An estimate of the impact on the Company’s results of operations, financial condition, and future performance cannot be made at this time.

Conflict in Ukraine

The ongoing military conflict in Ukraine has had a significant direct and indirect impact on the trade of refined petroleum products. This conflict has resulted in the United States, United Kingdom, and the European Union, among other countries, implementing sanctions and executive orders against citizens, entities, and activities connected to Russia. Some of these sanctions and executive orders target the Russian oil sector, including a prohibition on the import of oil from Russia to the United States or the United Kingdom, and the European Union’s recent ban on Russian crude oil and petroleum products which took effect, or are scheduled to take effect in December 2022 and February 2023, respectively. The Company cannot foresee what other sanctions or executive orders may arise that affect the trade of petroleum products. Furthermore, the conflict and ensuing international response has disrupted the supply of Russian oil to the global market, and as a result, the price of oil and petroleum products has experienced significant volatility. The Company cannot predict what effect the higher price of oil and petroleum products will have on demand, and it is possible that the current conflict in Ukraine could adversely affect the Company’s financial condition, results of operations, and future performance.

Source: Hellenic Shipping News

Scorpio Tankers Inc. Reports Third Quarter Net Loss of $73.3 Million

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