Scorpio Tankers Annual Report 2010

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FY2010 Annual Report · Scorpio Tankers

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2010 Annual Report

About Us

Scorpio Tankers Inc. is a provider of marine transportation of petroleum products

worldwide. As of May 10, 2011, our owned fleet consists of one LR2 tanker, four LR1

tankers, four Handymax tankers, two MR tankers, and one post-Panamax tanker with

an average age of 5.3 years. Additionally, the Company currently has chartered in one

LR1 and four Handymax product tankers, including one vessel which is expected to

be delivered in June 2011. Our capital structure, our management track record, and

our commitment to safety and governance put us in a position to acquire assets and

create value for our shareholders. Scorpio Tankers Inc. is incorporated in the Republic

of The Marshall Islands and has its principal offices in Monaco and New York. Scorpio

Tankers is listed on the New York Stock Exchange (NYSE) under the symbol STNG.

Major Seaborne Refined Products Trades
Principal Load/Discharge Zones

Source: Drewry Research

Financial Highlights

Revenue:
Vessel revenue
Operating expenses:
Vessel operating costs
Voyage expenses
Charter hire
Impairment
Depreciation
General and administrative expenses

Total operating expenses

Operating income/(loss)

Other (expense) and income, net:
Interest expense—bank loan

Realized loss on derivative financial

For the year ended

For the three months ended (unaudited)

December 31, 2010 March 31, 2010

June 30, 2010

September 30, 2010

December 31, 2010

$ 38,797,913

$ 6,155,440

$ 7,262,288

$ 13,358,211

$ 12,021,974

(18,440,492)
(2,542,298)
(275,532)
—
(10,178,908)
(6,200,094)

(2,385,846)
—
—
—
(1,652,055)
(146,051)

(2,920,928)
(373,409)
—
—
(1,649,437)
(1,353,842)

(6,032,457)
(2,136,453)
—
—
(3,371,725)
(2,215,743)

(7,101,261)
(32,436)
(275,532)
—
(3,505,691)
(2,484,458)

(37,637,324)

(4,183,952)

(6,297,616)

(13,756,378)

(13,399,378)

1,160,589

1,971,488

964,672

(398,167)

(1,377,404)

(3,230,895)

(94,624)

(601,941)

(1,220,498)

(1,313,832)

instruments

(279,560)

(222,796)

(56,764)

—

Unrealized (loss)/gain on derivative

financial instruments

Interest income
Other expense, net

Total other expense, net

Net income/(loss)

Earnings/(loss) per share:
Basic
Diluted
Basic weighted average shares

outstanding

Diluted weighted average shares

outstanding

Cash flow from operating activities
before changes in assets and liabilities
Average number of owned vessels
Average number of time
chartered-in vessels

—
36,534
(508,766)

(146,696)
78
(342,930)

146,696
29,315
(81,992)

—
1,480
(31,496)

—
5,661
(52,348)

(3,982,687)

(806,968)

(564,686)

(1,250,514)

(1,360,519)

$ (2,822,098)

$ 1,164,520

$ 399,986

$ (1,648,681)

$ (2,737,923)

$ (0.18)
$ (0.18)

$ 0.21
$ 0.21

$ 0.02
$ 0.02

$ (0.09)
$ (0.09)

$ (0.13)
$ (0.13)

15,600,813

5,589,147

17,551,784

18,406,338

20,659,544

15,600,813

5,589,147

17,554,057

18,406,338

20,659,544

$ 10,935,708
6.19

$ 2,816,575
3.00

$ 2,732,209
3.84

$ 3,646,218
8.24

$ 1,740,706
9.56

0.05

—

0.22

OWNED AND TIME CHARTEREDIN VESSELS
MR

Panamax/LR1

Handymax

LR2

O
P

0
1
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2
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0
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1
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a
M

Dear Shareholders,

I am pleased to report on our progress since our initial public offer-
ing in April 2010, the first full year of operations for Scorpio Tankers
Inc. (the “Company”). We have been executing on our strategy and
building our business in measured steps through a cyclical trough
in the product tanker market. Our fleet now numbers 12 owned
vessels and four vessels time chartered-in, which all together is
more than a five-fold increase in our number of vessels over our
initial fleet last year. Our operational and financial performance
reflects our requirement to be both agile and patient as we exploit
10 year lows in asset values, participate in a fresh wave of market
consolidation, and establish solid cash flows.

We are as confident as ever in the outlook for product tankers
between 37,000 and 160,000 deadweight tons, and we believe we
are positioning the Company to take advantage of improving
industry fundamentals:

• Our young, high quality fleet, with an average age of 5.3 years,
is a significant advantage in our highly regulated and competi-
tive markets.

• The employment of our fleet in pools of largely homogenous
vessels provides for improved commercial utilization and supe-
rior cash flows compared to individually employed vessels.

• Modest amounts of leverage give us increased flexibility, partic-
ularly as we still expect an uneven recovery of our markets.

However, while I reflect on some of our developments, I can assure
you that we are not standing still. We are keenly focused on the
path ahead of us.

INDUSTRY UPDATE
The dramatic correction of the product tanker fundamentals which
began with the credit crisis in 2008 continues to slowly mend.

Voyage returns for our vessels, measured in Time Charter Equivalent
(“TCE”), are subject to significant volatility and often touch cash
breakeven levels. Asset values can be difficult to “mark” but by our
estimates are still off 30% or more below their highs of early 2008.
In addition, various market disruptions can exacerbate these short-
term fluctuations. Generally, instability will work in favor of our mar-
kets as consumers rush to secure strategic commodities such as
fuels and industrial feedstocks. But phenomena such as piracy,
geopolitical instability, and natural catastrophes like the recent
calamity in Japan can bring short-term lulls in ton-mile demand,
which we must be positioned to endure, irrespective of our quar-
terly reporting schedule.

However, we see consistent signs of progress towards supply and
demand balance and a sustained market recovery. Orders at ship-
yards for product tankers have largely run their course, as deliveries
of product tankers have declined. Capital remains scarce for all but
the highest quality shipowners, so new orders have yet to material-
ize. Furthermore, shipbuilding capacity has also been declining as
the existing shipyard capacity is booked with other types of vessels
for the next two years. Finally, but just as importantly, there is anec-
dotal evidence of increasing market consolidation. Stronger partici-
pants are again taking risk and growing their owned or chartered-in
fleets, while the weaker players cannot endure current conditions
and are ceding control of their assets to creditors or well-positioned
competitors.

In terms of demand, we are also seeing improvement. Industrial
activity in the Organisation for Economic Co-operation and
Development (“OECD”) has increased 7.8% year over year. This is an
important baseline indicator for ton-mile demand. However, con-
tinued volatility in the refining and marketing of petroleum prod-
ucts also provides a “multiplier effect” on top of this baseline

PRODUCT TANKER1 NEWBUILDING PRICES: 20002011
US$ MILLIONPERIOD AVERAGES

MR1 30,000 dwt

MR2 50,000 dwt2

LR1 75,000 dwt2

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010 Mar. ’11

(1) Coated Tankers
(2) 45,000–50,000 Dwt prior to 2008; 70,000–75,000 Dwt prior to 2008
Source: Drewry Research

recovery. We observe refining margins and market prices to be
moving in an increasingly uneven manner, separated by physical
distance or time. These price movements create “arbitrage” oppor-
tunities, and traders use vessels, such as ours, to deliver cargoes to
the most profitable end markets, or to store fuels for future delivery
at a known selling price. As the refining industry itself consolidates
and expands in the Middle East and South Asia, we expect that
these arbitrage opportunities will increase and lift the demand for
product tankers.

OUR COMPANY
Our objective in the current market environment is positive cash
flow, low breakeven levels, and low leverage compared to our peer
group. Our net debt to capitalization ratio was 22.5% as of
December 31, 2010. We monitor our leverage particularly closely as
we evaluate market fundamentals and further growth opportuni-
ties for the Company.

In our secondary offering in November 2010, we were able to raise
a further $53.2 million. This capital has proven invaluable to our
development, more than any immediate “use of proceeds” would
have shown. Your support for our vision and strategy was an
important endorsement for our other key stakeholders, including
our lenders and suppliers. The secondary offering also played a
part in our ability to recently execute the time charter-in
agreements of five vessels at attractive terms, four of which have
been delivered to us to date.

We regularly see opportunities to grow our fleet in an attractive
way. Our ability to evaluate opportunities quickly, as well as our
access to established, successful pools for new acquisitions or time
charters has been an important advantage for us. In addition, we
will maintain our flexibility to build value for you through an

intelligent capital structure; going forward, we will not rule out any
of the tools that may be available in the capital markets.

I often get questions about our plans for a dividend. We do not
take this topic lightly. Your Board of Directors regularly reviews the
outlook for a dividend as a means to reward our shareholders. At
this time, we still believe the best use of all of our capital is to grow
the Company and execute our strategy. However, the Board will
continue to review this position as we evaluate market conditions.

The Board also continues to provide valuable guidance on our
growth and our governance. We hold ourselves to a high standard,
but we recognize that our commitment to governance must be
shown through a track record of actions, not promises.

In closing, I want to thank you, our shareholders, for allowing us to
embark upon this journey. Once in a generation we see the poten-
tial to build a business at the right time, in the right way, with the
support of the right stakeholders. We are excited about the path
ahead of us and focused on achieving great returns for you.

EMANUELE A. LAURO
Chairman and Chief Executive Officer
May 10, 2011

Fleet List

VESSEL NAME

YEAR BUILT

DWT

ICE
CLASS

EMPLOYMENT

VESSEL TYPE

Owned vessels

STI Highlander

STI Gladiator

STI Matador

STI Conqueror

STI Coral

STI Diamond

Noemi

Senatore

STI Harmony

STI Heritage

Venice

STI Spirit

Owned DWT

Time chartered-in vessels(***)

Kraslava

Krisjanis Valdemars

Histria Azure

BW Zambesi

TC-IN DWT

Total DWT

2007

2003

2005

2008

2004

2007

2008

2001

2008

2007

2010

37,145

40,083

40,096

40,158

49,900

72,515

72,514

73,919

81,408

113,100

744,657

37,258

37,266

40,394

76,577

191,495

936,152

—

SHTP(*)

Spot(**)

Time Charter(*)

SPTP(*)

SLR2P(*)

SHTP(*)

SPTP(*)

Handymax

LR1

Post-Panamax

LR2

Handymax

LRI

(*) See fleet list on pages 19 and 20 of Form 20-F for a description of the employment for this vessel.
(**) These vessels were delivered on May 10, 2011.
(***) See fleet list on pages 19 and 20 of Form 20-F for a description of these time charter-in agreements.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F

(Mark One)

o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o
For the transition period from _________________ to _________________

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o
Date of event requiring this shell company report _________________

Commission file number

SCORPIO TANKERS INC.
(Exact name of Registrant as specified in its charter)

(Translation of Registrant’s name into English)

Republic of The Marshall Islands
(Jurisdiction of incorporation or organization)

9, Boulevard Charles III Monaco 98000
(Address of principal executive offices)

Mr. Emanuele Lauro,
+377-9898-5716
9, Boulevard Charles III Monaco 98000
(Name, Telephone Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to section 12(b) of the Act.

Title of each class
Common Stock, par value of $0.01 per share

Securities registered or to be registered pursuant to section 12(g) of the Act.

New York Stock Exchange

Name of each exchange
on which registered

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

NONE
(Title of class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2010, there were 24,879,059 outstanding common shares with a par value $0.01 per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.

Yes o No x
If this report is an annual or transitional report, indicate by check mark if the registrant is not required to file reports pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934.

Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.

Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).

Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” in Rule
12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP o
International Financial Reporting Standards as issued by the International Accounting Standards Board x
Other o
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Non-accelerated filer x

Accelerated filer o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Item 17 o 18 o

SCORPIO TANKERS INC.
INDEX TO REPORT ON FORM 20-F

Cautionary Statement Regarding Forward-Looking Statements
PART I.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
INFORMATION ON THE COMPANY
UNRESOLVED STAFF COMMENTS
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MAJOR SHAREHOLDERS AND CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
FINANCIAL INFORMATION
THE OFFER AND LISTING
ADDITIONAL INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
CONTROLS AND PROCEDURES
AUDIT COMMITTEE FINANCIAL EXPERT
CODE OF ETHICS
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
CORPORATE GOVERNANCE

ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.

PART II.

ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16A.
ITEM 16B.
ITEM 16C.
ITEM 16D.
ITEM 16E
ITEM 16F.
ITEM 16G.

PART III.

ITEM 17.
ITEM 18.
ITEM 19.
SIGNATURES

FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS

Page

3
3
3
18
32
32
51
56
61
62
62
69
70

70
70
70
71
71
71
71
71
72
72

72
72
73
74

Part I

Item 1. Identity of Directors, Senior Management and Advisers

Cautionary Statement Regarding Forward-Looking
Statements

Matters discussed in this report may constitute forward-looking
statements. The Private Securities Litigation Reform Act of 1995
provides safe harbor protections for forward-looking statements
in order to encourage companies to provide prospective informa-
tion about their business. Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future
events or performance, and underlying assumptions and other
statements, which are other than statements of historical facts.
The Company desires to take advantage of the safe harbor provi-
sions of the Private Securities Litigation Reform Act of 1995 and is
including this cautionary statement in connection with this safe
harbor legislation. The words “believe,” “anticipate,” “intends,” “esti-
mate,” “forecast,” “project,” “plan,” “potential,” “may,” “should,”
“expect,” “pending” and similar expressions identify forward-look-
ing statements.

The forward-looking statements in this report are based upon
various assumptions, many of which are based, in turn, upon fur-
ther assumptions, including without limitation, our management’s
examination of historical operating trends, data contained in our
records and other data available from third parties. Although we
believe that these assumptions were reasonable when made,
because these assumptions are inherently subject to significant
uncertainties and contingencies which are difficult or impossible
to predict and are beyond our control, we cannot assure you that
we will achieve or accomplish these expectations, beliefs or
projections.

In addition to these important factors, other important factors
that, in our view, could cause actual results to differ materially
from those discussed in the forward-looking statements include
the failure of counterparties to fully perform their contracts with
us, the strength of world economies and currencies, general mar-
ket conditions, including fluctuations in charter rates and vessel
values, changes in demand for tanker vessel capacity, changes in
our operating expenses, including bunker prices, drydocking and
insurance costs, the market for our vessels, availability of financing
and refinancing, charter counterparty performance, ability to
obtain financing and comply with covenants in such financing
arrangements, changes in governmental rules and regulations or
actions taken by regulatory authorities, potential liability from
pending or future litigation, general domestic and international
political conditions, potential disruption of shipping routes due to
accidents or political events, vessels breakdowns and instances of
off-hires and other factors. Please see our Risk Factors in Item 3 of
this report for a more complete discussion of these and other risks
and uncertainties.

In this annual report, “we”, “us”, “our”, and the “Company” all refer
to Scorpio Tankers Inc.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR
MANAGEMENT AND ADVISERS
Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED
TIMETABLE
Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

The following table sets forth our selected consolidated financial
data and other operating data. The selected financial data in the
tables as of December 31, 2010 and 2009 and for each of the three
years in the period ended December 31, 2010 are derived from our
audited consolidated financial statements, which have been pre-
sented herein, and which have been prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB). This data should
be read in conjunction with the consolidated financial statements
and the notes thereto included in “ITEM 18. Financial Statements”
in this annual report and “ITEM 5. Operating and Financial Review
and Prospects.”

The selected financial data as of December 31, 2008 and 2007 and
for the period ended December 31, 2007 is derived from our audited
consolidated financial statements, which have been prepared in
accordance with IFRS as issued by the IASB, and which are not pre-
sented herein. The selected financial data for 2006 has not been
derived from audited financial statements as consolidated financial
statements of the Company for 2006 do not exist. Rather, the
selected financial data for 2006 has been prepared by aggregating
the historical stand alone IFRS financial information of each of the
three subsidiaries which were transferred to us on October 1, 2009.

Prior to October 1, 2009, our historical consolidated financial state-
ments were prepared on a carve-out basis from the financial
statements of our parent company, Liberty Holding Company
Ltd., or Liberty. These carve-out financial statements include all
assets, liabilities and results of operations of the three vessel-own-
ing subsidiaries owned by us, formerly subsidiaries of Liberty, for
the periods presented. For the periods presented, certain of the
expenses incurred by these subsidiaries for commercial, technical
and administrative management services were under manage-
ment agreements with other Scorpio Group entities, which are
parties related to us, consisting of Scorpio Ship Management
S.A.M., or SSM; and Scorpio Commercial Management S.A.M., or
SCM; which provide us and third parties with technical and com-
mercial management services, respectively, Liberty, which pro-
vides us with administrative services; and other affiliated entities.
Since agreements with related parties are by definition not at

3
3

Part I

Item 3. Key Information

arms length, the expenses incurred under these agreements may
have been different than the historical costs incurred if the subsid-
iaries had operated as unaffiliated entities during prior periods.
Our estimates of any differences between historical expenses and

the expenses that may have been incurred had the subsidiaries
been stand-alone entities have been disclosed in the notes to the
historical consolidated financial statements included elsewhere in
this annual report.

For the year ended December 31,

2010

2009

2008

2007

2006

Consolidated Income Statement
Data
Revenue:
Vessel revenue
Operating Expenses:
Vessel operating costs
Voyage expenses
Charter hire
Impairment (1)
Depreciation
General and administrative expenses

$ 38,797,913

27,619,041

39,274,196

30,317,138

35,751,632

(18,440,492)
(2,542,298)
(275,532)
—
(10,178,908)
(6,200,094)

(8,562,118)
—
(3,072,916)
(4,511,877)
(6,834,742)
(416,908)

(8,623,318)
—
(6,722,334)
—
(6,984,444)
(600,361)

(7,600,509)
—
—
—
(6,482,484)
(590,772)

(7,061,514)
—
—
—
(7,058,093)
(376,338)

Total operating expenses

(37,637,324)

(23,398,561)

(22,930,457)

(14,673,765)

(14,495,945)

Operating Income
Other expense and income, net
Interest expense—bank loan
Realized gain/(loss) on derivative

financial instruments

Unrealized gain/(loss) on derivative

financial instruments

Interest income
Other expense, net

Total Other Income and Expense

(3,982,687)

Net (loss)/income

$ (2,822,098)

(Loss)/earnings per common share: (2)
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
Basic weighted average shares
outstanding
Diluted weighted average shares
outstanding

Dividends per share

$
$

1,160,589

4,220,480

16,343,739

15,643,373

21,255,687

(3,230,895)

(699,115)

(1,710,907)

(1,953,344)

(3,041,684)

(279,560)

(808,085)

(405,691)

(523,694)

133,647

—
36,534
(508,766)

(0.18)
(0.18)

956,120
4,929
(256,292)

(802,443)

3,418,037

0.61
0.61

$
$

(2,057,957)
35,492
(18,752)

(1,245,472)
142,233
(9,304)

682,572
152,066
(24,034)

(4,157,815)

(3,589,581)

(2,097,433)

$
$

12,185,924

2.18
2.18

$
$

12,053,792

2.16
2.16

$
$

19,158,254

3.43
3.43

15,600,813

5,589,147

15,600,813

5,589,147

— $

1.55

3.36

1.27

2.01

As of December 31,

2010

2009

2008

2007

2006

Balance Sheet Data
Cash and cash equivalents
Vessels and drydock
Total assets
Bank loan
Shareholder payable(3)
Related party payable(3)
Shareholder’s equity

$ 68,186,902
$ 333,425,386
$ 412,268,440
$
15,826,314
$
$
$ 264,783,182

444,496
$
$
99,594,267
$ 104,423,386
$
36,200,000
— $
— $
$

$
3,607,635
$ 109,260,102
117,111,827
$
43,400,000
$
22,028,323
— $
27,406,408
— $
20,299,166
$

61,328,542

$
1,153,743
$ 116,244,546
$ 122,555,022
47,000,000
$
19,433,097
$
27,406,408
$
26,897,242
$

$
6,016,470
$ 122,727,030
$ 137,728,758
50,600,000
$
27,612,576
$
34,338,356
$
21,936,949
$

Part I

Item 3. Key Information

Condensed Cash Flows
Cash inflow from operating
activities
Cash outflow from investing
activities
Cash inflow/(outflow) from

financing activities

For the Year Ended December 31,

2010

2009

2008

2007

2006

4,906,478

9,305,851

24,837,892

5,830,773

13,226,007

(245,594,809)

—

308,430,737

(12,468,990)

(22,384,000)

(10,693,500)

(14,850,000)

(1)

(2)

In the year ended December 31, 2009, we recorded an impairment of two vessels for $4.5 million, see ITEM 5. “Operating and
Financial Review and Prospects”.

Basic earnings per share is calculated by dividing the net income attributable to equity holders of the common shares by the
weighted average number of common shares outstanding assuming that the transfer of the vessel owning subsidiaries was
effective during the period. In addition, the stock split described in Note 13 in the consolidated financial statements as of and
for the year ended December 31, 2010 has been given retroactive effect for all periods presented herein. Diluted earnings per
share are calculated by adjusting the net income attributable to equity holders of the common shares and the weighted
average number of common shares used for calculating basic earnings per share for the effects of all potentially dilutive
shares. Such potentially dilutive common shares are excluded when the effect would be to increase earnings per share or
reduce a loss per share.

(3) On November 18, 2009, the shareholder payable and the related party payable balances, as of that date, were converted to

equity as a capital contribution.

Average Daily Results
TCE per Revenue day(1)
Vessel operating costs per day(2)

Aframax/LR2
TCE per Revenue day - pool(1)
Vessel operating costs per day(2)
Panamax/LR1
TCE per Revenue day - pool(1)
TCE per Revenue day - spot(1)
TCE per Revenue day - time charters(1)
Vessel operating costs per day(2)
Handymax
TCE per Revenue day - pool(1)
TCE per Revenue day - spot(1)
Vessel operating costs per day(2)

Fleet data(3)
Average number of owned vessels
Average number of time chartered-in vessels
Drydock
Expenditures for drydock

For the year ended December 31,

2010

2009

2008

2007

2006

16,213
8,166

23,423
7,819

29,889
7,875

27,687
6,941

33,165
6,449

12,460
8,293

15,213
2,839
22,729
8,189

9,965
8,077
8,107

6.19
0.05

—
—

21,425
—
24,825
7,819

—
—
—

3.00
0.33

—
—

36,049
—
24,992
7,875

—
—
—

3.00
0.59

—
—

29,848
—
24,382
6,941

—
—
—

3.00
—

—
—

33,165
—
—
6,449

—
—
—

3.00
—

$ 886,050

1,680,784

—

805,845

(1)

Freight rates are commonly measured in the shipping industry in terms of time charter equivalent per revenue day. Vessels in
the pool and on time charter do not have voyage expenses; therefore, the revenue for pool vessels and time charter vessels is
the same as their TCE revenue. Please see “Important financial and operational terms and concepts” section below for
descriptions of TCE revenue, revenue days and voyage expenses.

Part I

Item 3. Key Information

(2)

(3)

Vessel operating costs per day represent Vessel operating costs, as defined in the “Important financial and operational terms
and concepts” section below, divided by the number of days the vessel is owned during the period.

For a definition of items listed under “Fleet Data,” please see the section of this annual report entitled ITEM 5. “Operating and
Financial Review and Prospects”.

B. Capitalization and indebtedness

• weather;

Not applicable.

C. Reasons for the offer and use of proceeds

Not applicable.

D. Risk Factors

Some of the following risks relate principally to the industry in which
we operate and our business in general. Other risks relate principally to
the securities market and ownership of our common stock. The occur-
rence of any of the events described in this section could significantly
and negatively affect our business, financial condition, operating
results or cash available for dividends or the trading price of our com-
mon stock.

RISKS RELATED TO OUR INDUSTRY

If the tanker industry, which historically has been cyclical,
continues to be depressed in the future, our earnings and
available cash flow may be adversely affected.

The tanker industry is both cyclical and volatile in terms of charter
rates and profitability. The recent global financial crisis may
adversely affect our ability to charter or recharter our vessels or to
sell them on the expiration or termination of their charters and
the rates payable in respect of our vessels currently operating in
tanker pools, or any renewal or replacement charters that we
enter into may not be sufficient to allow us to operate our vessels
profitably. Fluctuations in charter rates and tanker values result
from changes in the supply and demand for tanker capacity and
changes in the supply and demand for oil and oil products. The
factors affecting the supply and demand for tankers are outside of
our control, and the nature, timing and degree of changes in
industry conditions are unpredictable.

The factors that influence demand for tanker capacity include:

• demand for oil and oil products;

•

supply of oil and oil products;

regional availability of refining capacity;

• global and regional economic and political conditions;

•

the distance oil and oil products are to be moved by sea;

• changes in seaborne and other transportation patterns;

• environmental and other legal and regulatory developments;

• currency exchange rates;

• competition from alternative sources of energy; and

•

international sanctions, embargoes, import and export restric-
tions, nationalizations and wars.

The factors that influence the supply of tanker capacity include:

•

the number of newbuilding deliveries;

the scrapping rate of older vessels;

• conversion of tankers to other uses;

•

the price of steel;

the number of vessels that are out of service; and

• environmental concerns and regulations.

Historically, the tanker markets have been volatile as a result of the
many conditions and factors that can affect the price, supply and
demand for tanker capacity. The recent global economic crisis
may further reduce demand for transportation of oil over longer
distances and supply of tankers to carry that oil, which may mate-
rially affect our revenues, profitability and cash flows. One of our
ten owned vessels operates on a long-term time charter, while
the remaining nine vessels operate in the Scorpio Panamax Tanker
Pool and Scorpio Handymax Tanker Pool, which are spot-market
oriented. One of our four time chartered-in vessels operates in the
Scorpio Panamax Tanker Pool and the remaining three operate in
the Scorpio Handymax Tanker Pool. Where we plan to employ a
vessel in the spot charter market, we intend to generally place
such vessel in a tanker pool managed by our commercial man-
ager that pertains to that vessel’s size class. If time charter or spot
charter rates decline, we may be unable to achieve a level of char-
terhire sufficient for us to operate our vessels profitably.

We are dependent on spot charters and any decrease in spot
charter rates in the future may adversely affect our
earnings.

We currently operate a fleet of ten owned vessels and four time
chartered-in vessels. Of those, 13 are employed in spot market-
oriented tanker pools, exposing us to fluctuations in spot market
charter rates.

We may employ additional vessels that we may acquire in the
future in the spot charter market. Where we plan to employ a ves-
sel in the spot charter market, we intend to generally place such
vessel in a tanker pool managed by our commercial manager that
pertains to that vessel’s size class. Although spot chartering is

Part I

Item 3. Key Information

common in the tanker industry, the spot charter market may fluc-
tuate significantly based upon tanker and oil supply and demand.
The successful operation of our vessels in the competitive spot
charter market, including within Scorpio Group pools, depends
upon, among other things, obtaining profitable spot charters and
minimizing, to the extent possible, time spent waiting for charters
and time spent traveling unladen to pick up cargo. The spot mar-
ket is very volatile, and, in the past, there have been periods when
spot rates have declined below the operating cost of vessels. If
future spot charter rates decline, then we may be unable to oper-
ate our vessels trading in the spot market profitably, meet our
obligations, including payments on indebtedness, or to pay divi-
dends in the future. Furthermore, as charter rates for spot charters
are fixed for a single voyage which may last up to several weeks,
during periods in which spot charter rates are rising, we will gen-
erally experience delays in realizing the benefits from such
increases.

Our ability to renew the charters on our vessels on the expiration
or termination of our current charters, or on vessels that we may
acquire in the future, the charter rates payable under any replace-
ment charters and vessel values will depend upon, among other
things, economic conditions in the sectors in which our vessels
operate at that time, changes in the supply and demand for vessel
capacity and changes in the supply and demand for the seaborne
transportation of energy resources.

An over-supply of tanker capacity may lead to reductions in
charter rates, vessel values, and profitability.

The market supply of tankers is affected by a number of factors
such as demand for energy resources, oil, and petroleum prod-
ucts, as well as strong overall economic growth in parts of the
world economy including Asia. If the capacity of new ships deliv-
ered exceeds the capacity of tankers being scrapped and lost,
tanker capacity will increase. In addition, according to Drewry’s, as
of the end of March 2011, the newbuilding order book which
extends to 2014 equaled approximately 27.4% of the existing
world tanker fleet and the order book may increase further in pro-
portion to the existing fleet. If the supply of tanker capacity
increases and if the demand for tanker capacity decreases or does
not increase correspondingly, charter rates could materially
decline. A reduction in charter rates and the value of our vessels
may have a material adverse effect on our results of operations
and available cash.

Acts of piracy on ocean-going vessels have recently
increased in frequency, which could adversely affect our
business.

Acts of piracy have historically affected ocean-going vessels trad-
ing in regions of the world such as the South China Sea and in
the Gulf of Aden off the coast of Somalia extending throughout
the Indian Ocean. Throughout 2008, 2009, 2010 and continuing

into 2011, the frequency of piracy incidents against commercial
shipping vessels has increased significantly, particularly in the
Gulf of Aden off the coast of Somalia. For example, in February
2011, the VLCC Irene SL, a tanker vessel not affiliated with us, was
captured by pirates in the Indian Ocean while carrying crude oil
estimated to be worth $200 million. If these pirate attacks result
in regions in which our vessels are deployed being characterized
as “war risk” zones by insurers, as the Gulf of Aden has been since
May 2008, premiums payable for insurance coverage could
increase significantly and such coverage may be more difficult to
obtain. In addition, crew costs, including costs in connection
with employing onboard security guards, could increase in such
circumstances. We may not be adequately insured to cover losses
from these incidents, which could have a material adverse effect
on us. In addition, any of these events may result in loss of reve-
nues, increased costs and decreased cash flows to our customers,
which could impair their ability to make payments to us under
our charters.

If the contraction of the global credit markets and the result-
ing volatility in the financial markets continues or worsens,
this could have a material adverse impact on our results of
operations, financial condition and cash flows, and results of
operation.

Since 2008, a number of major financial institutions have experi-
enced serious financial difficulties and, in some cases, have
entered into bankruptcy proceedings or are in regulatory enforce-
ment actions. These difficulties have resulted, in part, from declin-
ing markets for assets held by such institutions, particularly the
reduction in the value of their mortgage and asset-backed securi-
ties portfolios. These difficulties have been compounded by a
general decline in the willingness by banks and other financial
institutions to extend credit, particularly in the shipping industry
due to the historically low asset values of ships. Although banks
and financial institutions have since resumed extending credit, its
availability remains significantly below its peak. As the shipping
industry is highly dependent on the availability of credit to finance
and expand operations, it has been negatively affected by this
decline. If we are unable to obtain additional credit or draw down
upon borrowing capacity, it may negatively impact our ability to
fund current and future obligations. These outcomes could have a
material adverse impact on our business, results of operations,
financial condition, ability to grow and cash flows, and could
cause the market price of our common shares to decline.

Changes in fuel, or bunkers, prices may adversely affect
profits.

Fuel, or bunkers, is a significant, if not the largest, expense in our
shipping operations for our vessels employed on the spot market
and can have a significant impact on pool earnings. With respect
to our vessels employed on time charter, the charterer is generally

Part I

Item 3. Key Information

responsible for the cost of fuel, however such cost may affect the
charter rates we are able to negotiate for our vessels. Changes in
the price of fuel may adversely affect our profitability. The price
and supply of fuel is unpredictable and fluctuates based on
events outside our control, including geopolitical developments,
supply and demand for oil and gas, actions by the Organization of
the Petroleum Exporting Countries, or OPEC, and other oil and gas
producers, war and unrest in oil producing countries and regions,
regional production patterns and environmental concerns.
Further, fuel may become much more expensive in the future,
which may reduce the profitability and competitiveness of our
business versus other forms of transportation, such as truck or rail.

We are subject to complex laws and regulations, including
environmental laws and regulations that can adversely
affect our business, results of operations, cash flows and
financial condition, and our available cash.

Our operations are subject to numerous laws and regulations in
the form of international conventions and treaties, national, state
and local laws and national and international regulations in force in
the jurisdictions in which our vessels operate or are registered,
which can significantly affect the ownership and operation of our
vessels. These requirements include, but are not limited to, the U.S.
Oil Pollution Act of 1990, or OPA, the International Maritime
Organization, or IMO, International Convention on Civil Liability for
Oil Pollution Damage of 1969 (as from time to time amended and
generally referred to as CLC), the IMO International Convention for
the Prevention of Pollution from Ships of 1973 (as from time to time
amended and generally referred to as MARPOL), the IMO
International Convention for the Safety of Life at Sea of 1974 (as
from time to time amended and generally referred to as SOLAS),
the IMO International Convention on Load Lines of 1966 (as from
time to time amended) and the U.S. Maritime Transportation
Security Act of 2002. Compliance with such laws and regulations,
where applicable, may require installation of costly equipment or
operational changes and may affect the resale value or useful lives
of our vessels. We may also incur additional costs in order to com-
ply with other existing and future regulatory obligations, including,
but not limited to, costs relating to air emissions including green-
house gases, the management of ballast waters, maintenance and
inspection, development and implementation of emergency pro-
cedures and insurance coverage or other financial assurance of our
ability to address pollution incidents. The 2010 Deepwater Horizon
oil spill in the Gulf of Mexico may also result in additional regula-
tory initiatives or statutes or changes to existing laws that may
affect our operations or require us to incur additional expenses to
comply with such regulatory initiatives, statutes or laws.

These costs could have a material adverse effect on our business,
results of operations, cash flows and financial condition and our
available cash. A failure to comply with applicable laws and regu-
lations may result in administrative and civil penalties, criminal
sanctions or the suspension or termination of our operations.

Environmental laws often impose strict liability for remediation of
spills and releases of oil and hazardous substances, which could
subject us to liability without regard to whether we were negli-
gent or at fault. Under OPA, for example, owners, operators and
bareboat charterers are jointly and severally strictly liable for the
discharge of oil in U.S. waters, including the 200-nautical mile
exclusive economic zone around the United States. An oil spill
could also result in significant liability, including fines, penalties,
criminal liability and remediation costs for natural resource dam-
ages under other international and U.S. federal, state and local
laws, as well as third-party damages, and could harm our reputa-
tion with current or potential charterers of our tankers. We are
required to satisfy insurance and financial responsibility require-
ments for potential oil (including marine fuel) spills and other pol-
lution incidents. Although we have arranged insurance to cover
certain environmental risks, there can be no assurance that such
insurance will be sufficient to cover all such risks or that any claims
will not have a material adverse effect on our business, results of
operations, cash flows and financial condition and available cash.

If we fail to comply with international safety regulations, we
may be subject to increased liability, which may adversely
affect our insurance coverage and may result in a denial of
access to, or detention in, certain ports.

The operation of our vessels is affected by the requirements set
forth in the IMO’s International Management Code for the Safe
Operation of Ships and Pollution Prevention, or the ISM Code. The
ISM Code requires shipowners, ship managers and bareboat char-
terers to develop and maintain an extensive “Safety Management
System” that includes the adoption of a safety and environmental
protection policy setting forth instructions and procedures for safe
operation and describing procedures for dealing with emergen-
cies. If we fail to comply with the ISM Code, we may be subject to
increased liability or our existing insurance coverage may be invali-
dated or decreased for our affected vessels. Such failure may also
result in a denial of access to, or detention in, certain ports.

The market values of our vessels may decrease, which could
cause us to breach covenants in our credit facilities and
adversely affect our operating results.

The market values of tankers have generally experienced high
volatility. The market prices for tankers declined significantly from
historically high levels reached in early 2008 and remain at rela-
tively low levels. You should expect the market value of our ves-
sels to fluctuate depending on general economic and market
conditions affecting the shipping industry and prevailing charter-
hire rates, competition from other shipping companies and other
modes of transportation, types, sizes and ages of vessels, applica-
ble governmental regulations and the cost of newbuildings. If the
market value of our fleet declines, we may not be able to obtain
other financing or incur debt on terms that are acceptable to us.
We believe that the current aggregate market value of our vessels

Part I

Item 3. Key Information

will be in excess of loan to value amounts required under our
credit facilities, which requires that the fair market value of the
vessels pledged as collateral never be less than 150% of the aggre-
gate principal amount outstanding for the 2010 Credit Facility and
140% of the aggregate principal amount outstanding for the STI
Spirit Credit Facility. However a decrease in these values could
cause us to breach certain covenants that are contained in our
credit facility and in future financing agreements that we may
enter into from time to time. If the recoverable amounts of our
vessels further decline and we do breach such covenants and we
are unable to remedy the relevant breach, our lenders could
accelerate our debt and foreclose on vessels in our fleet. If we sell
any vessel at any time when vessel prices have fallen and before
we have recorded an impairment adjustment to our financial
statements, the sale may be at less than the vessel’s carrying
amount on our financial statements, resulting in a loss and a
reduction in earnings.

If our vessels suffer damage due to the inherent operational
risks of the tanker industry, we may experience unexpected
drydocking costs and delays or total loss of our vessels,
which may adversely affect our business and financial
condition.

Our vessels and their cargoes will be at risk of being damaged or
lost because of events such as marine disasters, bad weather,
business interruptions caused by mechanical failures, grounding,
fire, explosions and collisions, human error, war, terrorism, piracy
and other circumstances or events. For example, our vessel
Senatore suffered damage to one of its ballast tanks in April 2010
which required a repair and resulted in offhire days. Changing
economic, regulatory and political conditions in some countries,
including political and military conflicts, have from time to time
resulted in attacks on vessels, mining of waterways, piracy, terror-
ism, labor strikes and boycotts. These hazards may result in death
or injury to persons, loss of revenues or property, environmental
damage, higher insurance rates, damage to our customer relation-
ships, market disruptions, delay or rerouting which may also sub-
ject us to litigation. In addition, the operation of tankers has
unique operational risks associated with the transportation of oil.
An oil spill may cause significant environmental damage, and the
associated costs could exceed the insurance coverage available to
us. Compared to other types of vessels, tankers are exposed to a
higher risk of damage and loss by fire, whether ignited by a terror-
ist attack, collision, or other cause, due to the high flammability
and high volume of the oil transported in tankers.

If our vessels suffer damage, they may need to be repaired at a
drydocking facility. The costs of drydock repairs are unpredict-
able and may be substantial. We may have to pay drydocking
costs that our insurance does not cover in full. The loss of reve-
nues while these vessels are being repaired and repositioned, as
well as the actual cost of these repairs, may adversely affect our
business and financial condition. In addition, space at drydocking

facilities is sometimes limited and not all drydocking facilities are
conveniently located. We may be unable to find space at a suit-
able drydocking facility or our vessels may be forced to travel to a
drydocking facility that is not conveniently located to our vessels’
positions. The loss of earnings while these vessels are forced to
wait for space or to travel to more distant drydocking facilities
may adversely affect our business and financial condition.
Further, the total loss of any of our vessels could harm our reputa-
tion as a safe and reliable vessel owner and operator. If we are
unable to adequately maintain or safeguard our vessels, we may
be unable to prevent any such damage, costs, or loss which could
negatively impact our business, financial condition, results of
operations and available cash.

We operate our vessels worldwide and as a result, our ves-
sels are exposed to international risks which may reduce rev-
enue or increase expenses.

The international shipping industry is an inherently risky business
involving global operations. Our vessels are at a risk of damage or
loss because of events such as mechanical failure, collision, human
error, war, terrorism, piracy, cargo loss and bad weather. In addi-
tion, changing economic, regulatory and political conditions in
some countries, including political and military conflicts, have
from time to time resulted in attacks on vessels, mining of water-
ways, piracy, terrorism, labor strikes and boycotts. These sorts of
events could interfere with shipping routes and result in market
disruptions which may reduce our revenue or increase our
expenses.

International shipping is subject to various security and customs
inspection and related procedures in countries of origin and des-
tination and trans-shipment points. Inspection procedures can
result in the seizure of the cargo and/or our vessels, delays in the
loading, offloading or delivery and the levying of customs duties,
fines or other penalties against us. It is possible that changes to
inspection procedures could impose additional financial and legal
obligations on us. Furthermore, changes to inspection procedures
could also impose additional costs and obligations on our cus-
tomers and may, in certain cases, render the shipment of certain
types of cargo uneconomical or impractical. Any such changes or
developments may have a material adverse effect on our busi-
ness, results of operations, cash flows, financial condition and
available cash.

Political instability, terrorist or other attacks, war or interna-
tional hostilities can affect the tanker industry, which may
adversely affect our business.

We conduct most of our operations outside of the United States,
and our business, results of operations, cash flows, financial condi-
tion and available cash may be adversely affected by the effects
of political instability, terrorist or other attacks, war or international
hostilities. Terrorist attacks such as the attacks on the United

Part I

Item 3. Key Information

States on September 11, 2001, the bombings in Spain on March 11,
2004 and in London on July 7, 2005 and the continuing response
of the international community to these attacks, as well as the
current political instability in the Middle East and Africa, continue
to contribute to world economic instability and uncertainty in
global financial markets. As a result of the above, insurers have
increased premiums and reduced or restricted coverage for losses
caused by terrorist acts generally. Future terrorist attacks could
result in increased volatility of the financial markets and negatively
impact the U.S. and global economy. These uncertainties could
also adversely affect our ability to obtain additional financing on
terms acceptable to us or at all.

In the past, political instability has also resulted in attacks on ves-
sels, such as the attack on the M/T Limburg in October 2002, min-
ing of waterways and other efforts to disrupt international
shipping, particularly in the Arabian Gulf region. Acts of terrorism
and piracy have also affected vessels trading in regions such as
the South China Sea and the Gulf of Aden off the coast of Somalia.
Any of these occurrences could have a material adverse impact on
our business, financial condition, results of operations and avail-
able cash.

If our vessels call on ports located in countries that are sub-
ject to sanctions and embargos imposed by the U.S. or other
governments that could adversely affect our reputation and
the market for our common stock.

From time to time on charterers’ instructions, our vessels may
call on ports located in countries subject to sanctions and
embargoes imposed by the United States government and
countries identified by the U.S. government as state sponsors of
terrorism. The U.S. sanctions and embargo laws and regulations
vary in their application, as they do not all apply to the same
covered persons or proscribe the same activities, and such sanc-
tions and embargo laws and regulations may be amended or
strengthened over time. In 2010, the U.S. enacted the
Comprehensive Iran Sanctions Accountability and Divestment
Act (“CISADA”), which expanded the scope of the former Iran
Sanctions Act. Among other things, CISADA expands the appli-
cation of the prohibitions to non-U.S. companies, such as our
company, and introduces limits on the ability of companies and
persons to do business or trade with Iran when such activities
relate to the investment, supply or export of refined petroleum
or petroleum products. Although we believe that we are in com-
pliance with all applicable sanctions and embargo laws and
regulations, and intend to maintain such compliance, there can
be no assurance that we will be in compliance in the future, par-
ticularly as the scope of certain laws may be unclear and may be
subject to changing interpretations. Any such violation could
result in fines or other penalties and could result in some inves-
tors deciding, or being required, to divest their interest, or not to
invest, in our company. Additionally, some investors may decide
to divest their interest, or not to invest, in our company simply

because we do business with companies that do business in
sanctioned countries. Moreover, our charterers may violate
applicable sanctions and embargo laws and regulations as a
result of actions that do not involve us or our vessels, and those
violations could in turn negatively affect our reputation. Investor
perception of the value of our common stock may also be
adversely affected by the consequences of war, the effects of
terrorism, civil unrest and governmental actions in these and
surrounding countries.

Maritime claimants could arrest our vessels, which would
have a negative effect on our cash flows.

Crew members, suppliers of goods and services to a vessel, ship-
pers of cargo and other parties may be entitled to a maritime lien
against a vessel for unsatisfied debts, claims or damages. In many
jurisdictions, a maritime lien holder may enforce its lien by arrest-
ing or attaching a vessel through foreclosure proceedings. The
arrest or attachment of one or more of our vessels could interrupt
our business or require us to pay large sums of money to have the
arrest lifted, which would have a negative effect on our cash flows.

In addition, in some jurisdictions, such as South Africa, under the
“sister ship” theory of liability, a claimant may arrest both the vessel
which is subject to the claimant’s maritime lien and any “associ-
ated” vessel, which is any vessel owned or controlled by the same
owner. Claimants could try to assert “sister ship” liability against
one vessel in our fleet for claims relating to another of our ships.

Governments could requisition our vessels during a period
of war or emergency, which may negatively impact our busi-
ness, financial condition, results of operations and available
cash.

A government could requisition for title or seize our vessels.
Requisition for title occurs when a government takes control of a
vessel and becomes the owner. Also, a government could requisi-
tion our vessels for hire. Requisition for hire occurs when a govern-
ment takes control of a vessel and effectively becomes the
charterer at dictated charter rates. Generally, requisitions occur
during a period of war or emergency. Government requisition of
one or more of our vessels may negatively impact our business,
financial condition, results of operations and available cash.

Technological innovation could reduce our charterhire
income and the value of our vessels.

The charterhire rates and the value and operational life of a vessel
are determined by a number of factors including the vessel’s effi-
ciency, operational flexibility and physical life. Efficiency includes
speed, fuel economy and the ability to load and discharge cargo
quickly. Flexibility includes the ability to enter harbors, utilize
related docking facilities and pass through canals and straits. The
length of a vessel’s physical life is related to its original design and
construction, its maintenance and the impact of the stress of

Part I

Item 3. Key Information

operations. If new tankers are built that are more efficient or more
flexible or have longer physical lives than our vessels, competition
from these more technologically advanced vessels could
adversely affect the amount of charterhire payments we receive
for our vessels once their initial charters expire and the resale
value of our vessels could significantly decrease. As a result, our
available cash could be adversely affected.

If labor interruptions are not resolved in a timely manner,
they could have a material adverse effect on our business,
results of operations, cash flows, financial condition and
available cash.

We, indirectly through SSM, employ masters, officers and crews to
man our vessels. If not resolved in a timely and cost-effective
manner, industrial action or other labor unrest could prevent or
hinder our operations from being carried out as we expect and
could have a material adverse effect on our business, results of
operations, cash flows, financial condition and available cash.

RISKS RELATED TO OUR BUSINESS

We have a limited history of operations on which investors
may assess our performance.

We were formed on July 1, 2009, and our initial three vessel-own-
ing subsidiaries were transferred to us on October 1, 2009. Since
our initial public offering in April 2010, we have acquired seven
additional vessels and chartered-in four vessels. As such, we have
been operating over two-thirds of our vessels for approximately
12 months or less. We have a limited performance record and
operating history, and, therefore, limited historical financial infor-
mation, upon which you can evaluate our operating performance,
ability to implement and achieve our business strategy or ability
to pay dividends in the future. We cannot assure you that we will
be successful in implementing our business strategy. As a young
company, we will face certain operational challenges not faced by
companies with a longer operating history.

We have a limited history operating as a publicly traded
entity and will continue to incur increased costs in future
years as a result of being a publicly traded corporation.

We have only operated as a public company since April 2010. As a
public company, we will continue to incur significant legal,
accounting and other expenses that we did not incur as a private
company. Our incremental general and administrative expenses
as a publicly traded corporation will include costs associated with
annual reports to shareholders, tax returns, investor relations, reg-
istrar and transfer agent’s fees, incremental director and officer
liability insurance costs and director compensation.

Obligations associated with being a public company require
significant company resources and management attention.

In April 2010, we became subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended, or the Exchange
Act, and the other rules and regulations of the SEC, including the
Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley
Act requires that we evaluate and determine the effectiveness of
our internal controls over financial reporting. If we have a material
weakness in our internal control over financial reporting, we may
not detect errors on a timely basis and our financial statements
may be materially misstated. We will need to dedicate a significant
amount of time and resources to ensure compliance with these
regulatory requirements.

We will continue to evaluate areas such as corporate governance,
corporate control, internal audit, disclosure controls and proce-
dures and financial reporting and accounting systems. We will
make changes in any of these and other areas, including our inter-
nal control over financial reporting, which we believe are neces-
sary. However, these and other measures we may take may not be
sufficient to allow us to satisfy our obligations as a public com-
pany on a timely and reliable basis. In addition, compliance with
reporting and other requirements applicable to public companies
will create additional costs for us and will require the time and
attention of management. Our limited management resources
may exacerbate the difficulties in complying with these reporting
and other requirements while focusing on executing our business
strategy. Our incremental general and administrative expenses as
a publicly traded corporation will include costs associated with
annual reports to shareholders, tax returns, investor relations, reg-
istrar and transfer agent’s fees, incremental director and officer
liability insurance costs and director compensation. We cannot
predict or estimate the amount of the additional costs we may
incur, the timing of such costs or the degree of impact that our
management’s attention to these matters will have on our
business.

If we do not identify suitable tankers for acquisition or suc-
cessfully integrate any acquired tankers, we may not be able
to grow or to effectively manage our growth.

One of our principal strategies is to continue to grow by expand-
ing our operations and adding to our fleet. Our future growth will
depend upon a number of factors, some of which may not be
within our control. These factors include our ability to:

•

identify suitable tankers and/or shipping companies for acqui-
sitions at attractive prices;

• obtain required financing for our existing and new operations;

•

identify businesses engaged in managing, operating or own-
ing tankers for acquisitions or joint ventures;

integrate any acquired tankers or businesses successfully with
our existing operations, including obtaining any approvals and
qualifications necessary to operate vessels that we acquire;

Part I

Item 3. Key Information

• hire, train and retain qualified personnel and crew to manage

and operate our growing business and fleet;

•

identify additional new markets; and

improve our operating, financial and accounting systems and
controls.

Our failure to effectively identify, purchase, develop and integrate
any tankers or businesses could adversely affect our business,
financial condition and results of operations. The number of
employees that perform services for us and our current operating
and financial systems may not be adequate as we implement our
plan to expand the size of our fleet, and we may not be able to
effectively hire more employees or adequately improve those sys-
tems. Finally, acquisitions may require additional equity issuances
or debt issuances (with amortization payments), both of which
could lower available cash. If we are unable to execute the points
noted above, our financial condition may be adversely affected.

Growing any business by acquisition presents numerous risks
such as undisclosed liabilities and obligations, difficulty in obtain-
ing additional qualified personnel and managing relationships
with customers and suppliers and integrating newly acquired
operations into existing infrastructures. The expansion of our fleet
may impose significant additional responsibilities on our manage-
ment and staff, and the management and staff of our commercial
and technical managers, and may necessitate that we, and they,
increase the number of personnel. We cannot give any assurance
that we will be successful in executing our growth plans or that
we will not incur significant expenses and losses in connection
with such growth plans.

Delays in deliveries of additional vessels, our decision to
cancel an order for purchase of a vessel or our inability to
otherwise complete the acquisitions of additional vessels for
our fleet, could harm our operating results.

We expect to purchase additional vessels from time to time. The
delivery of such additional vessels could be delayed, not com-
pleted or cancelled, which would delay or eliminate our expected
receipt of revenues from the employment of such vessels. The
seller could fail to deliver vessels to us as agreed, or we could can-
cel a purchase contract because the seller has not met its
obligations.

If the delivery of any vessel is materially delayed or cancelled,
especially if we have committed the vessel to a charter for which
we become responsible for substantial liquidated damages to the
customer as a result of the delay or cancellation, our business,
financial condition and results of operations could be adversely
affected.

We will not be able to take advantage of favorable opportu-
nities in the current spot market with respect to vessels
employed on medium- to long-term time charters.

As of the date of this annual report, we employed one tanker
under fixed rate long-term time charter agreement with a remain-
ing duration of approximately 8.5 months. Vessels committed to
medium- and long-term charters may not be available for spot
charters during periods of increasing charterhire rates, when spot
charters might be more profitable. Where we plan to employ a
vessel in the spot charter market, we intend to generally place
such vessel in a tanker pool managed by our commercial man-
ager that pertains to that vessel’s size class.

If we purchase and operate secondhand vessels, we will be
exposed to increased operating costs which could adversely
affect our earnings and, as our fleet ages, the risks associ-
ated with older vessels could adversely affect our ability to
obtain profitable charters.

Our current business strategy includes additional growth through
the acquisition of new and secondhand vessels. While we typi-
cally inspect secondhand vessels prior to purchase, this does not
provide us with the same knowledge about their condition that
we would have had if these vessels had been built for and oper-
ated exclusively by us. Generally, we do not receive the benefit of
warranties from the builders for the secondhand vessels that we
acquire.

In general, the costs to maintain a vessel in good operating condi-
tion increase with the age of the vessel. Older vessels are typically
less fuel-efficient than more recently constructed vessels due to
improvements in engine technology. Cargo insurance rates
increase with the age of a vessel, making older vessels less desir-
able to charterers.

Governmental regulations, safety or other equipment standards
related to the age of vessels may require expenditures for altera-
tions, or the addition of new equipment, to our vessels and may
restrict the type of activities in which the vessels may engage. As
our vessels age, market conditions may not justify those expendi-
tures or enable us to operate our vessels profitably during the
remainder of their useful lives.

An increase in operating costs would decrease earnings and
available cash.

Under the charter agreements for one of our vessels, the charterer
is responsible for voyage costs and we are responsible for the ves-
sel operating costs. Under the tanker pool agreements for our
remaining nine vessels, the pool is responsible for the voyage
expenses and we are responsible for vessel costs. Our vessel oper-
ating costs include the costs of crew, fuel (for spot chartered ves-
sels), provisions, deck and engine stores, insurance and
maintenance and repairs, which depend on a variety of factors,
many of which are beyond our control. Some of these costs, pri-
marily relating to insurance and enhanced security measures
implemented after September 11, 2001, have been increasing. If
our vessels suffer damage, they may need to be repaired at a

Part I

Item 3. Key Information

drydocking facility. The costs of drydocking repairs are unpredictable
and can be substantial. Increases in any of these expenses would
decrease earnings and available cash.

Declines in charter rates and other market deterioration
could cause us to incur impairment charges.

We evaluate the carrying amounts of our vessels to determine if
events have occurred that would require an impairment of their
carrying amounts. The recoverable amount of vessels is reviewed
based on events and changes in circumstances that would indi-
cate that the carrying amount of the assets might not be recov-
ered. The review for potential impairment indicators and
projection of future cash flows related to the vessels is complex
and requires us to make various estimates including future freight
rates, earnings from the vessels and discount rates. All of these
items have been historically volatile.

We evaluate the recoverable amount as the higher of fair value
less costs to sell and value in use. If the recoverable amount is less
than the carrying amount of the vessel, the vessel is deemed
impaired. The carrying values of our vessels may not represent
their fair market value at any point in time because the new mar-
ket prices of second-hand vessels tend to fluctuate with changes
in charter rates and the cost of newbuildings. For the year ended
December 31, 2009, charter rates in the oil and petroleum prod-
ucts charter market declined significantly and Panamax vessel val-
ues also declined, both as a result of a slowdown in the availability
of global credit and the significant deterioration in charter rates.
Due to these indicators of potential impairment, in the year ended
December 31, 2009, we evaluated the recoverable amount of our
vessels, and we recognized a total impairment loss of $4.5 million
for two of our vessels. Although, we did not record an impairment
in 2010, we cannot assure you that there will be no impairments in
the future years. Any additional impairment charges incurred as a
result of further declines in charter rates could negatively affect
our business, financial condition, operating results or the trading
price of our common shares.

If we are unable to operate our vessels profitably, we may be
unsuccessful in competing in the highly competitive interna-
tional tanker market, which would negatively affect our
financial condition and our ability to expand our business.

The operation of tanker vessels and transportation of crude and
petroleum products is extremely competitive, in an industry that
is capital intensive and highly fragmented. The recent global
financial crisis may reduce the demand for transportation of oil
and oil products which could lead to increased competition.
Competition arises primarily from other tanker owners, including
major oil companies as well as independent tanker companies,
some of whom have substantially greater resources than we do.
Competition for the transportation of oil and oil products can be
intense and depends on price, location, size, age, condition and

the acceptability of the tanker and its operators to the charter-
ers. We will have to compete with other tanker owners, includ-
ing major oil companies as well as independent tanker
companies.

Our market share may decrease in the future. We may not be able
to compete profitably as we expand our business into new geo-
graphic regions or provide new services. New markets may
require different skills, knowledge or strategies than we use in our
current markets, and the competitors in those new markets may
have greater financial strength and capital resources than
we do.

If we do not set aside funds and are unable to borrow or
raise funds for vessel replacement, at the end of a vessel’s
useful life our revenue will decline, which would adversely
affect our business, results of operations, financial condi-
tion, and available cash.

If we do not set aside funds and are unable to borrow or raise
funds for vessel replacement, we will be unable to replace the ves-
sels in our fleet upon the expiration of their remaining useful lives,
which we expect to occur from 2026 to 2033, depending on the
vessel. Our cash flows and income are dependent on the reve-
nues earned by the chartering of our vessels. If we are unable to
replace the vessels in our fleet upon the expiration of their useful
lives, our business, results of operations, financial condition, and
available cash per share would be adversely affected. Any funds
set aside for vessel replacement will reduce available cash.

Our ability to obtain additional debt financing may be
dependent on the performance of our then existing charters
and the creditworthiness of our charterers.

The actual or perceived credit quality of our charterers, and any
defaults by them, may materially affect our ability to obtain the
additional capital resources that we will require to purchase addi-
tional vessels or may significantly increase our costs of obtaining
such capital. Our inability to obtain additional financing at all or at
a higher than anticipated cost may materially affect our results of
operation and our ability to implement our business strategy.

United States tax authorities could treat us as a “passive for-
eign investment company,” which could have adverse
United States federal income tax consequences to United
States shareholders.

A foreign corporation will be treated as a “passive foreign invest-
ment company,” or PFIC, for United States federal income tax pur-
poses if either (1) at least 75% of its gross income for any taxable
year consists of certain types of “passive income” or (2) at least
50% of the average value of the corporation’s assets produce or
are held for the production of those types of “passive income.” For
purposes of these tests, “passive income” includes dividends,

Part I

Item 3. Key Information

interest, and gains from the sale or exchange of investment prop-
erty and rents and royalties other than rents and royalties which
are received from unrelated parties in connection with the active
conduct of a trade or business. For purposes of these tests,
income derived from the performance of services does not con-
stitute “passive income.” United States shareholders of a PFIC are
subject to a disadvantageous United States federal income tax
regime with respect to the income derived by the PFIC, the distri-
butions they receive from the PFIC and the gain, if any, they derive
from the sale or other disposition of their shares in the PFIC.

Based on our current and proposed method of operation, we do
not believe that we will be a PFIC with respect to any taxable year.
In this regard, we intend to treat the gross income we derive or are
deemed to derive from our time chartering activities as services
income, rather than rental income. Accordingly, our income from
our time and voyage chartering activities should not constitute
“passive income,” and the assets that we own and operate in con-
nection with the production of that income should not constitute
assets that produce or are held for the production of “passive
income.”

There is substantial legal authority supporting this position, con-
sisting of case law and United States Internal Revenue Service, or
IRS, pronouncements concerning the characterization of income
derived from time charters and voyage charters as services
income for other tax purposes. However, it should be noted that
there is also authority that characterizes time charter income as
rental income rather than services income for other tax purposes.
Accordingly, no assurance can be given that the IRS or a court of
law will accept this position, and there is a risk that the IRS or a
court of law could determine that we are a PFIC. Moreover, no
assurance can be given that we would not constitute a PFIC for
any future taxable year if the nature and extent of our operations
change.

If the IRS were to find that we are or have been a PFIC for any tax-
able year, our United States shareholders would face adverse
United States federal income tax consequences and incur certain
information reporting obligations. Under the PFIC rules, unless
those shareholders make an election available under the United
States Internal Revenue Code of 1986, as amended, or the Code
(which election could itself have adverse consequences for such
shareholders), such shareholders would be subject to United
States federal income tax at the then prevailing rates on ordinary
income plus interest, in respect of excess distributions and upon
any gain from the disposition of their common shares, as if the
excess distribution or gain had been recognized ratably over the
shareholder’s holding period of the common shares. See
“Taxation—Passive Foreign Investment Company Status and
Significant Tax Consequences” for a more comprehensive discus-
sion of the United States federal income tax consequences to
United States shareholders if we are treated as a PFIC.

We may have to pay tax on United States source shipping
income, which would reduce our earnings.

Under the Code, 50% of the gross shipping income of a corpora-
tion that owns or charters vessels, as we and our subsidiaries do,
that is attributable to transportation that begins or ends, but that
does not both begin and end, in the United States may be subject
to a 4% United States federal income tax without allowance for
deductions, unless that corporation qualifies for exemption from
tax under Section 883 of the Code and the regulations promul-
gated thereunder by the United States Department of the
Treasury.

We and our subsidiaries intend to take the position that we qualify
for this statutory tax exemption for United States federal income
tax return reporting purposes. However, there are factual circum-
stances beyond our control that could cause us to lose the benefit
of this tax exemption and thereby become subject to United
States federal income tax on our United States source shipping
income. For example, we may no longer qualify for exemption
under Section 883 of the Code for a particular taxable year if
shareholders with a five percent or greater interest in our com-
mon shares, or “5% Shareholders,” owned, in the aggregate, 50%
or more of our outstanding common shares for more than half
the days during the taxable year, and there does not exist suffi-
cient 5% Shareholders that are qualified shareholders for purposes
of Section 883 of the Code to preclude nonqualified 5%
Shareholders from owning 50% or more of our common shares
for more than half the number of days during such taxable year or
we are unable to satisfy certain substantiation requirements with
regard to our 5% Shareholders. Due to the factual nature of the
issues involved, there can be no assurances on the tax-exempt
status of us or any of our subsidiaries.

If we or our subsidiaries were not entitled to exemption under
Section 883 of the Code for any taxable year, we or our subsidiar-
ies could be subject for such year to an effective 2% United States
federal income tax on the shipping income we or they derive dur-
ing such year which is attributable to the transport of cargoes to
or from the United States. The imposition of this taxation would
have a negative effect on our business and would decrease our
earnings available for distribution to our shareholders.

Any dividends paid by us may not qualify for preferential
rates of United States federal income taxation in the hands
of United States non-corporate shareholders.

We expect that any dividends paid on our common shares to a
United States shareholder who is an individual, trust or estate will
generally be treated as “qualified dividend income” that is taxable
at preferential United States federal income tax rates (through
2012). Our dividends will be so treated provided that (1) our com-
mon shares are readily tradable on an established securities mar-
ket in the United States (such as the New York Stock Exchange, on

Part I

Item 3. Key Information

which our common shares are traded); (2) we are not a PFIC for
the taxable year during which the dividend is paid or the immedi-
ately preceding taxable year (which we believe we have not been,
are not and do not anticipate being in the future); (3) the recipient
of the dividend has owned the common shares for more than 60
days in the 121-day period beginning 60 days before the date on
which the common shares become ex-dividend; and (4) the recip-
ient of the dividend is not under an obligation to make related
payments with respect to positions in substantially similar or
related property.

There is no assurance that any dividends paid on our common
shares will be eligible for these preferential rates in the hands of a
United States non-corporate shareholder. For example, under cur-
rent law, the preferential rate for qualified dividend income is
scheduled to expire on December 31, 2012. If the preferential rate
for such dividends is not extended, then any dividends paid by us
after December 31, 2012 will be treated as ordinary income. In
addition, legislation has been previously introduced in the United
States Congress which, if enacted in its present form, would pre-
clude our dividends from qualifying for such preferential rates
prospectively from the date of enactment. Finally, our dividends
would not be “qualified dividend income” if we are treated as a
PFIC for the taxable year in which we pay the dividend or the
immediately preceding taxable year.

We will be required to make additional capital expenditures
to expand the number of vessels in our fleet and to maintain
all our vessels, which will be dependent on additional
financing.

Our business strategy is based in part upon the expansion of our
fleet through the purchase of additional vessels. If we are unable
to fulfill our obligations under any memorandum of agreement
for future vessel acquisitions, the sellers of such vessels may be
permitted to terminate such contracts and we may forfeit all or a
portion of the down payments we already made under such con-
tracts, and we may be sued for any outstanding balance.

In addition, we will incur significant maintenance costs for our
existing and any newly-acquired vessels. A newbuilding vessel
must be drydocked within five years of its delivery from a ship-
yard, and vessels are typically drydocked every 30 months there-
after, not including any unexpected repairs. We estimate the cost
to drydock a vessel to be between $400,000 and $900,000,
depending on the size and condition of the vessel and the loca-
tion of drydocking.

RISKS RELATED TO OUR RELATIONSHIP WITH SCORPIO
GROUP AND ITS AFFILIATES

Our success depends to a significant extent upon the abilities and
efforts of our technical manager, SSM, our commercial manager,
SCM, and our management team. Our success will depend upon
our and our managers’ ability to hire and retain key members of
our management team. The loss of any of these individuals could
adversely affect our business prospects and financial condition.

Difficulty in hiring and retaining personnel could adversely affect
our results of operations. We do not maintain “key man” life insur-
ance on any of our officers.

Our technical and commercial managers are affiliates of Scorpio
Group, which is owned and controlled by the Lolli-Ghetti family,
of which our founder, Chairman and Chief Executive Officer,
Mr. Emanuele Lauro, is a member. Conflicts of interest may arise
between us, on the one hand, and our commercial and techni-
cal managers, on the other hand. As a result of these conflicts,
our commercial and technical managers, who have limited con-
tractual duties, may favor their own or their owner’s interests
over our interests. These conflicts may have unfavorable results
for us.

Our founder, Chairman and Chief Executive Officer has affili-
ations with our commercial and technical managers which
may create conflicts of interest.

Emanuele Lauro, our founder, Chairman and Chief Executive
Officer, is a member of the Lolli-Ghetti family which owns and
controls our commercial and technical managers. These responsi-
bilities and relationships could create conflicts of interest between
us, on the one hand, and our commercial and technical managers,
on the other hand. These conflicts may arise in connection with
the chartering, purchase, sale and operations of the vessels in our
fleet versus vessels managed by other companies affiliated with
our commercial or technical managers. Our commercial and tech-
nical managers may give preferential treatment to vessels that are
time chartered-in by related parties because our founder,
Chairman and Chief Executive Officer and members of his family
may receive greater economic benefits. In particular, as of April 1,
2011, our commercial and technical managers provide commercial
and technical management services to approximately 75 and 18
vessels respectively, other than the vessels in our fleet, that are
owned or operated by entities affiliated with Mr. Lauro, and such
entities may acquire additional vessels that will compete with our
vessels in the future. Such conflicts may have an adverse effect on
our results of operations.

Our Chief Executive Officer and President do not devote all
of their time to our business, which may hinder our ability to
operate successfully.

We are dependent on our managers and there may be con-
flicts of interest between us and our managers that may not
be resolved in our favor.

Messrs. Lauro and Bugbee, our Chief Executive Officer and
President, respectively, are involved in other business activities
with members of the Scorpio Group, which may result in their

Part I

Item 3. Key Information

spending less time than is appropriate or necessary to manage
our business successfully. Based solely on the anticipated relative
sizes of our fleet and the fleet owned by members of the Scorpio
Group over the next twelve months, we estimate that Messrs.
Lauro and Bugbee will spend approximately 70-85% of their
monthly business time on our business activities and their remain-
ing time on the business of members of the Scorpio Group.
However, the actual allocation of time could vary significantly
from time to time depending on various circumstances and needs
of the businesses, such as the relative levels of strategic activities
of the businesses. This could have a material adverse effect on our
business, financial condition, results of operations and cash flows.

Our commercial and technical managers are each privately
held companies and there is little or no publicly available
information about them.

SCM is our commercial manager and SSM is our technical man-
ager. SCM’s and SSM’s ability to render management services will
depend in part on their own financial strength. Circumstances
beyond our control could impair our commercial manager’s or
technical manager’s financial strength, and because each is a pri-
vately held company, information about the financial strength of
our commercial manager and technical manager is not available.
As a result, we and our shareholders might have little advance
warning of financial or other problems affecting our commercial
manager or technical manager even though their financial or
other problems could have a material adverse effect on us.

We are subject to certain risks with respect to our counter-
parties on contracts, and failure of such counterparties to
meet their obligations could cause us to suffer losses or neg-
atively impact our results of operations and cash flows.

We have entered into various contracts, including charter agree-
ments with our customers, consisting of a long-term fixed-rate
charter agreement and tanker pool agreements for each of our
vessels operating in the Scorpio Group pools, and our credit facili-
ties entered into in June 2010 and March 2011. Such agreements
subject us to counterparty risks. The ability of each of our coun-
terparties to perform its obligations under a contract with us will
depend on a number of factors that are beyond our control and
may include, among other things, general economic conditions,
the condition of the maritime and offshore industries, the overall
financial condition of the counterparty, charter rates received for
specific types of vessels, and various expenses. For example, the
combination of a reduction of cash flow resulting from declines in
world trade, a reduction in borrowing bases under reserve-based
credit facilities and the lack of availability of debt or equity financ-
ing may result in a significant reduction in the ability of our char-
terers to make charter payments to us. In addition, in depressed
market conditions, our charterers and customers may no longer
need a vessel that is currently under charter or contract or may be

able to obtain a comparable vessel at lower rates. As a result,
charterers and customers may seek to renegotiate the terms of
their existing charter agreements or avoid their obligations under
those contracts. Should a counterparty fail to honor its obliga-
tions under agreements with us, we could sustain significant
losses which could have a material adverse effect on our business,
financial condition, results of operations and cash flows.

The failure of our charterers to meet their obligations under
our time charter agreements, on which we depend for a
majority of our revenues, could cause us to suffer losses or
otherwise adversely affect our business.

As of the date of this annual report, we employed one tanker
under a fixed rate long-term time charter agreement with a
remaining duration of approximately 8.5 months. The ability and
willingness of each of our counterparties to perform its obliga-
tions under a time charter or other agreement with us will depend
on a number of factors that are beyond our control and may
include, among other things, general economic conditions, the
condition of the tanker shipping industry and the overall financial
condition of the counterparties. Charterers are sensitive to the
commodity markets and may be impacted by market forces
affecting commodities such oil. In addition, in depressed market
conditions, there have been reports of charterers renegotiating
their charters or defaulting on their obligations under charters.
Our customers may fail to pay charterhire or attempt to renegoti-
ate charter rates. Should a counterparty fail to honor its obliga-
tions under agreements with us, it may be difficult to secure
substitute employment for such vessel, and any new charter
arrangements we secure in the spot market or on time charters
may be at lower rates given currently decreased tanker charter
rate levels. Where we plan to employ a vessel in the spot charter
market, we intend to generally place such vessel in a tanker pool
managed by our commercial manager that pertains to that ves-
sel’s size class. If our charterers fail to meet their obligations to us
or attempt to renegotiate our charter agreements, we could sus-
tain significant losses which could have a material adverse effect
on our business, financial condition, results of operations and cash
flows, as well as our ability to pay dividends, if any, in the future,
and compliance with covenants in our credit facilities.

Our insurance may not be adequate to cover our losses that
may result from our operations due to the inherent opera-
tional risks of the tanker industry.

We carry insurance to protect us against most of the accident-
related risks involved in the conduct of our business, including
marine hull and machinery insurance, protection and indemnity
insurance, which include pollution risks, crew insurance and war
risk insurance. However, we may not be adequately insured to
cover losses from our operational risks, which could have a mate-
rial adverse effect on us. Additionally, our insurers may refuse to

Part I

Item 3. Key Information

pay particular claims and our insurance may be voidable by the
insurers if we take, or fail to take, certain action, such as failing to
maintain certification of our vessels with applicable maritime reg-
ulatory organizations. Any significant uninsured or under-insured
loss or liability could have a material adverse effect on our busi-
ness, results of operations, cash flows and financial condition and
our available cash. In addition, we may not be able to obtain ade-
quate insurance coverage at reasonable rates in the future during
adverse insurance market conditions.

As a result of the September 11, 2001 attacks, the U.S. response to
the attacks and related concern regarding terrorism, insurers have
increased premiums and reduced or restricted coverage for losses
caused by terrorist acts generally. Accordingly, premiums payable
for terrorist coverage have increased substantially and the level of
terrorist coverage has been significantly reduced.

Because we obtain some of our insurance through protec-
tion and indemnity associations, which result in significant
expenses to us, we may be required to make additional pre-
mium payments.

We may be subject to increased premium payments, or calls, in
amounts based on our claim records, the claim records of our
managers, as well as the claim records of other members of the
protection and indemnity associations through which we receive
insurance coverage for tort liability, including pollution-related
liability. In addition, our protection and indemnity associations
may not have enough resources to cover claims made against
them. Our payment of these calls could result in significant
expense to us, which could have a material adverse effect on our
business, results of operations, cash flows, financial condition and
available cash.

RISKS RELATED TO OUR INDEBTEDNESS

Servicing our current or future indebtedness limits funds
available for other purposes and if we cannot service our
debt, we may lose our vessels.

Borrowing under the credit facilities we entered into in June 2010
and March 2011 requires us to dedicate a part of our cash flow
from operations to paying interest on our indebtedness. These
payments limit funds available for working capital, capital expendi-
tures and other purposes, including further equity or debt financ-
ing in the future. Amounts borrowed under our credit facility bear
interest at variable rates. Increases in prevailing rates could increase
the amounts that we would have to pay to our lenders, even
though the outstanding principal amount remains the same, and
our net income and cash flows would decrease. We expect our
earnings and cash flow to vary from year to year due to the cyclical
nature of the tanker industry. If we do not generate or reserve
enough cash flow from operations to satisfy our debt obligations,
we may have to undertake alternative financing plans, such as:

•

seeking to raise additional capital;

refinancing or restructuring our debt;

selling tankers; or

reducing or delaying capital investments.

However, these alternative financing plans, if necessary, may not
be sufficient to allow us to meet our debt obligations. If we are
unable to meet our debt obligations or if some other default
occurs under our credit facility, the lender could elect to declare
that debt, together with accrued interest and fees, to be immedi-
ately due and payable and proceed against the collateral vessels
securing that debt even though the majority of the proceeds
used to purchase the collateral vessels did not come from our
credit facility.

Our credit facilities contain restrictive covenants which limit
the amount of cash that we may use for other corporate
activities, which could negatively affect our growth and
cause our financial performance to suffer.

Our credit facilities impose operating and financial restrictions on
us. These restrictions limit our ability, or the ability of our subsid-
iaries party thereto to:

• pay dividends and make capital expenditures if we do not
repay amounts drawn under our credit facility or if there is
another default under our credit facility;

•

incur additional indebtedness, including the issuance of
guarantees;

• create liens on our assets;

• change the flag, class or management of our vessels or termi-
nate or materially amend the management agreement relating
to each vessel;

•

sell our vessels;

• merge or consolidate with, or transfer all or substantially all our

assets to, another person; or

• enter into a new line of business.

Therefore, we will need to seek permission from our lenders in
order to engage in some corporate actions. Our lenders’ interests
may be different from ours and we may not be able to obtain our
lenders’ permission when needed. This may limit our ability to pay
dividends to you if we determine to do so in the future, finance
our future operations or capital requirements, make acquisitions
or pursue business opportunities.

If the recent volatility in LIBOR rates continues, it will affect
the interest rate under our existing credit facility or future
credit facilities which could affect our profitability, earnings
and cash flow.

Part I

Item 4. Information on the Company

Amounts borrowed under our credit facility entered into in June
2010 bears interest at an annual rate ranging from 3.0% to 3.5%
above LIBOR, and amounts borrowed under the credit facility
entered into in March 2011 bears interest at an annual rate of
2.75% above LIBOR. LIBOR rates have recently been volatile, with
the spread between those rates and prime lending rates widen-
ing significantly at times. These conditions are the result of the
recent disruptions in the international credit markets. Because the
interest rates borne by amounts that we may drawdown under
our existing credit facility or future credit facilities fluctuate with
changes in the LIBOR rates, if this volatility were to continue, it
would affect the amount of interest payable on amounts that we
were to draw down from our existing credit facility or future credit
facilities, which in turn, would have an adverse effect on our prof-
itability, earnings and cash flow.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

Scorpio Tankers Inc. was incorporated in the Republic of the
Marshall Islands pursuant to the Marshall Islands Business
Corporations Act on July 1, 2009 by Simon Financial Limited, or
Simon, the 100% owner of Liberty Holding Company Ltd., or
Liberty. On October 1, 2009, Simon transferred to Scorpio Tankers
Inc. three vessel owning and operating subsidiary companies.
Prior to becoming a public company, the operating subsidiaries
were owned by Simon. On April 6, 2010, we closed the issuance of
12,500,000 shares of common stock at $13.00 per share in our ini-
tial public offering and received net proceeds of $149.6 million,
after deducting underwriters’ discounts and offering expenses. A
subsidiary of Liberty retained ownership of the 5,589,147 shares it
owned before the offering. Our principal executive offices are
located at 9, Boulevard Charles III, Monaco 98000. Our telephone
number is +377-9798-5716. Our stock trades on the New York
Stock Exchange (NYSE) under the symbol STNG.

On April 9, 2010, using the proceeds of our initial public offering,
we repaid in full the outstanding balance of $38.9 million due
under the credit facility entered into by our subsidiaries Senatore
Shipping Company Limited and Noemi Shipping Company
Limited with The Royal Bank of Scotland plc, as lender, in 2005, or
the 2005 Credit Facility.

On April 19 and 22, 2010, we entered into agreements to purchase
four double-hulled Handymax tankers for an aggregate purchase
price of $99.0 million. Three of the ships, STI Conqueror, STI Gladiator
and STI Matador, were built at the Shina Shipbuilding Co. Ltd. in
South Korea: two ships in 2003 and one ship in 2005. The fourth
ship, STI Highlander, was built at the Hyundai Mipo Dockyard in
South Korea in 2007.

On May 4, 2010, pursuant to the underwriters’ exercise of their
over-allotment option that we granted in connection with our ini-
tial public offering, we closed the issuance of 450,000 shares of
common stock at $13.00 and received $5.2 million, after deduct-
ing underwriters’ discounts.

On May 13, 2010, we entered into agreements to purchase two
LR1 ice class 1A product tankers (STI Heritage and STI Harmony)
each with an existing short-term time charter contract. The two
ships were built in 2008 and 2007, respectively, at the Onomichi
Dockyard in Japan. The aggregate purchase price of $92.0 million
included an estimated $2.3 million related to the value of their
existing time charter contracts. Both time charter contracts car-
ried rates of $25,500 per day per ship plus 50% profit sharing over
the base rate and expired in September 2010 for the vessel built in
2007 and November 2010 for the vessel built in 2008. The time
charters, which were signed in 2007, were with an affiliate of
Scorpio Tankers Inc.

On June 9, 2010, we announced that we took delivery of three
products tanker vessels that we previously agreed to acquire, STI
Harmony, STI Heritage and STI Conqueror.

On July 9, 2010, we announced that we took delivery of STI
Matador, and on August 3, 2010, we announced that we took
delivery of STI Gladiator and STI Highlander.

On September 21, 2010, we entered into an agreement to pur-
chase an LR2 Aframax product tanker, STI Spirit, for a purchase
price of $52.2 million. The ship was built in 2008and is charter
free. The agreement also includes two purchase options with the
seller. Each option grants the Company the right, but not the
obligation, to purchase a 2008 built LR1 ice class-1A product
tanker (approximately 63,600 dead weight tons) for a price of
$45.0 million. Each option can be exercised at any time until
September 2011. These options have not been exercised as of
the date of this report.

On November 10, 2010, we announced that we took delivery of
STI Spirit, the LR2 Aframax product tanker (approximately 113,100
dead weight tons) that we previously agreed to acquire.

On November 22, 2010, we closed on a follow-on public offering
of 4,575,000 shares of common stock at $9.80 per share. After
deducting underwriters’ discounts and paying offering expenses,
the net proceeds were approximately $41.8 million, and 510,204
shares were issued in a concurrent private placement to a mem-
ber of the Lolli-Ghetti family for total proceeds of $5.0 million. On
December 2, 2010, we closed the issuance of 686,250shares of
common stock at $9.80 and received $6.4 million, after deducting
underwriters’ discounts, when the underwriters in our follow-on
public offering fully exercised their over-allotment option.

Part I

Item 4. Information on the Company

On December 12, 2010 the 2010 built LR1 product tanker, BW
Zambesi (76,577 dwt), was delivered to us on a time charter in
agreement. The term of the agreement was for one year from the
date of delivery at a charterhire rate of $13,850 per day with an
option to extend for an additional year at a charterhire rate of
$14,850 per day. The vessel is currently operating in the Scorpio
Panamax Tanker Pool.

On December 24, 2010, we agreed to charter in the Krisjanis
Valdemars, a 2007 built Handymax ice-class 1B product tanker
(37,266 dwt) for 10 months at $12,000 per day. The agreement
also includes a profit and loss sharing provision whereby 50%
of all profits and losses (the difference between the vessel’s
pool earnings and the charter hire expense) will be shared with
the owner of the vessel. The vessel was delivered in February
2011.

On December 24, 2010, we agreed to charter in the Kraslava, a
2007 built Handymax ice-class 1B product tanker (37,258 dwt), for
one year at $12,070 per day. The vessel was delivered on January
26, 2011.

On December 30, 2010, we agreed to charter in the Histria Azure, a
2007 built Handymax product tanker (40,394 dwt), for one year at
$12,250 per day. The vessel was delivered on February 6, 2011. The
agreement includes an option for Scorpio Tankers to extend for an
additional year at $13,750 per day or $12,250 per day with a 50%
profit sharing agreement.

On March 9, 2011, we executed a credit facility with DVB Bank SE
for a senior secured term loan facility for $27.3 million, which par-
tially finances the STI Spirit which we acquired on November 10,
2010.

In March 2011, we entered into an agreement pursuant to which an
unaffiliated third party has the option to purchase one of our
Handymaxes. If the option is exercised, we would realize a gain on
the sale of approximately $5 million. The buyer is required to notify
us if it intends to exercise such option by the end of May 2011.

On April 5, 2011, we entered into a time charter agreement for a
2007 built Handymax ice class 1B product tanker, the Kazdanga.
This vessel will be chartered-in for one year at $12,345 per day and
is expected to be delivered in June 2011. The agreement includes
an option to extend the charter for an additional year at $13,335
per day.

B. Business Overview

We are engaged in seaborne transportation of crude oil and
refined petroleum products in the international shipping mar-
kets. Our fleet as of December 31, 2010 consisted of ten wholly
owned tankers (four LR1 tankers, four Handymax tankers, one
LR2 tanker and one post-Panamax tanker) and one time char-
tered-in LR1 tanker. Below is our fleet list as of the date of this
annual report:

Vessel Name

Year Built

DWT

Ice Class

Employment

Owned vessels

Noemi

Senatore

Venice

STI Conqueror
STI Harmony

STI Heritage

STI Matador

STI Gladiator

STI Highlander

4
5

STI Spirit

Owned DWT

2004

2001

2005
2007

2008

2003

2007

2008

72,515

72,514

81,408

40,158
73,919

73,919

40,096

40,083

37,145

113,100

644,857

—

1B
1A

—

Time Charter(1)
SPTP (2)
SPTP (2)
SHTP (3)
SPTP (2)
SPTP (2)
SHTP (3)
SHTP (3)
SHTP (3)
SLR2P(4)

Part I

Item 4. Information on the Company

Time Chartered-In
(TC-IN) Vessels

11
12
13
14

BW Zambesi
Histria Azure
Kraslava
Krisjanis Valdemars

2010
2007
2007
2007

TC-IN DWT

Total DWT

76,577
40,394
37,258
37,266

191,495

836,352

Daily Base
Expense

—
—
1B
1B

SPTP (2)
SHTP (3)
SHTP (3)
SHTP (3)

$
$
$
$

13,850
12,250
12,070
12,000

Expiry (5)

11-Dec-11(6)
06-Feb-12(7)
26-Jan-11
14-Dec-11(8)

(1) Noemi is time chartered by King Dustin, which is a related party.

(2)

(3)

(4)

(5)

(6)

(7)

(8)

The vessel operates in Scorpio Panamax Tanker Pool (SPTP). SPTP is operated by Scorpio Commercial Management (SCM). SPTP
and SCM are related parties to the Company.

These vessels operate in the Scorpio Handymax Tanker Pool (SHTP). SHTP is operated by Scorpio Commercial Management
(SCM). SHTP and SCM are related parties of the Company.

This vessel operates in the Scorpio LR2 Pool (SLR2P). SLR2P is operated by Scorpio Commercial Management (SCM). SLR2P and
SCM are related parties to the Company.

Redelivery from the charterer is plus or minus 30 days from the expiry date.

The agreement contains an optional second year for a rate of $14,850/ day.

The agreement contains an option for a second year at a rate of $13,750/ day, or $12,250/day with a 50% profit sharing
agreement whereby 50% of the profits over $12,250/day will be distributed to the vessel owner.

The agreement contains a 50% profit and loss sharing agreement with the vessel owner whereby we would split all of the
vessel’s profits and losses above or below $12,000/day with the vessel owner.

Operations

Generally, we operate our vessels on time charters or in commer-
cial pools (such as the Scorpio Aframax Tanker Pool, Scorpio LR2
Pool, Scorpio Panamax Tanker Pool, and Scorpio Handymax Tanker
Pool).In certain circumstances (e.g. when a vessel is acquired), our
vessels can operate in the spot market. As of the date of this
annual report:

• Noemi was on time charter.

• STI Spirit was operating in the Scorpio LR2 Pool.

• Senatore, Venice, STI Harmony, STI Heritage and BW Zambesi were

operating in the Scorpio Panamax Tanker Pool.

• STI Conqueror, STI Matador, STI Gladiator, STI Highlander, Krisjanis
Valdemars, Kraslava and Histria Azure were operating in the
Scorpio Handymax Tanker Pool.

Time Charters

Time charters give us a fixed and stable cash flow for a known
period of time. Time charters also mitigate in part the seasonality
of the spot market business, which is generally weaker in the

second and third quarters of the year. In the future, we may
opportunistically look to enter our vessels into time charter con-
tracts. We may also enter into time charter contracts with profit
sharing agreements, which enable us to benefit if the spot market
increases.

Commercial Pools

To increase vessel utilization and thereby revenues, we participate
in commercial pools with other shipowners of similar modern,
well-maintained vessels. By operating a large number of vessels as
an integrated transportation system, commercial pools offer cus-
tomers greater flexibility and a higher level of service while
achieving scheduling efficiencies. Pools employ experienced
commercial managers and operators who have close working
relationships with customers and brokers, while technical man-
agement is performed by each shipowner. Pools negotiate char-
ters with customers primarily in the spot market. The size and
scope of these pools enable them to enhance utilization rates for
pool vessels by securing backhaul voyages and contracts of
affreightment, or COAs, thus generating higher effective TCE
revenues than otherwise might be obtainable in the spot market.

Part I

Item 4. Information on the Company

Commercial Management Agreement

Our vessels are commercially managed by Scorpio Commercial
Management S.A.M., or SCM. SCM is a related party and SCM’s ser-
vices include securing employment, in the spot market and on
time charters, for the Company’s vessels. SCM also manages the
Scorpio LR2 Tanker Pool, Scorpio Panamax Tanker Pool and the
Scorpio Handymax Tanker Pool. When our vessels operate in one
of the commercial pools managed by SCM, we pay SCM an agent
fee of $250 per vessel per day plus 1.25% commission per charter
fixture for Panamax, LR1 and LR2 vessels and $300 per vessel per
day for Handymax vessels. When our vessels are operating outside
of such commercial pools, we pay SCM a fee of $250 per vessel
per day plus a 1.25% commission of gross revenues per charter
fixture for Panamax, LR1 and LR2 vessels and $300 per vessel per
day for Handymax vessels, which are the same fees SCM charges
third parties.

We signed commercial management agreements in December
2009 for Noemi, Senatore and Venice for a period of three years,
which may be terminated upon a two year notice. We have also
signed similar agreements for the vessels that we acquired in
2010, and we expect to sign similar agreements for additional ves-
sels that we may acquire in the future.

Technical Management Agreement

Our vessels are technically managed by Scorpio Ship Management
S.A.M., or SSM, a related party, with the exception of two vessels
we have recently acquired which are being technically managed
by an unaffiliated technical manager. SSM is owned by members
of the Lolli-Ghetti family. SSM facilitates vessel support such as
crew, provisions, deck and engine stores, insurance, maintenance
and repairs, and other services as necessary to operate the
Company’s vessels such as drydocks and vetting/inspection
under a technical management agreement. We currently pay SSM
$548 per vessel per day to provide technical management ser-
vices for each of our vessels. This fee is the same charged to third
parties by SSM, and therefore the Company believes it represents
a market rate for such services.

We signed the technical management agreements with SSM in
December 2009 for a period of three years, which may be termi-
nated upon a two year notice. We have also signed similar agree-
ments for the vessels that we acquired and agreed to acquire so
far in 2010, and we expect to sign similar agreements for addi-
tional vessels that may acquire in the future.

Administrative Services Agreement

We have an administrative services agreement with Liberty, or our
Administrator. Liberty provides accounting, legal compliance,
financial, information technology services, and the provision of
administrative staff and office space. We reimburse our
Administrator for the reasonable direct or indirect expenses it
incurs in providing us with the administrative services described
above. Liberty also arranges vessel sales and purchases for us.

Liberty sub-contracts its responsibilities to other entities within
the Scorpio Group.

We pay our Administrator a fee for arranging vessel purchases
and sales for us, equal to 1% of the gross purchase or sale price,
payable upon the consummation of any such purchase or sale.
For the seven vessels (STI Conqueror, STI Harmony, STI Heritage,
STI Matador, STI Gladiator, STI Highlander and STI Spirit) purchased
in 2010, the Administrator earned $2.4 million. We believe this
1% fee on purchases and sales is customary in the tanker
industry.

Further, pursuant to our administrative services agreement,
Liberty, on behalf of itself and other members of the Scorpio
Group, has agreed that it will not directly own product or crude
tankers ranging in size from 35,000 dwt to 200,000 dwt.

Our administrative services agreement, whose effective com-
mencement began in December 2009, has a duration of three
years.

The International Tanker Market

General

International seaborne oil and petroleum products transportation
services are mainly provided by two types of operators: major oil
company captive fleets (both private and state-owned) and inde-
pendent shipowner fleets. Both types of operators transport oil
under short-term contracts (including single-voyage “spot char-
ters”) and long-term time charters with oil companies, oil traders,
large oil consumers, petroleum product producers and govern-
ment agencies. The oil companies own, or control through long-
term time charters, approximately one third of the current world
tanker capacity, while independent companies own or control the
balance of the fleet. The oil companies use their fleets not only to
transport their own oil, but also to transport oil for third-party
charterers in direct competition with independent owners and
operators in the tanker charter market.

The current international financial crisis is affecting the interna-
tional tanker market. It is expected that the global fleet will
increase during 2011 because of the present order book. However,
some shipping companies are now facing challenges in financing
their large newbuilding programs, as shipping banks are more
restrictive than before in granting credit. The current financial
upheaval may delay deliveries of newbuildings and may also lead
to the cancellation of newbuilding orders, and there have been
reports of cancellations of tanker newbuildings from certain yards.
Shipping companies with high debt or other financial commit-
ments may be unable to continue servicing their debt, which
could lead to foreclosure on vessels.

The oil transportation industry has historically been subject to
regulation by national authorities and through international
conventions. Over recent years, however, an environmental
protection regime has evolved which has a significant impact

Part I

Item 4. Information on the Company

on the operations of participants in the industry in the form of
increasingly more stringent inspection requirements, closer
monitoring of pollution-related events, and generally higher
costs and potential liabilities for the owners and operators of
tankers.

In order to benefit from economies of scale, tanker charterers will
typically charter the largest possible vessel to transport oil or
products, consistent with port and canal dimensional restrictions
and optimal cargo lot sizes. A tanker’s carrying capacity is mea-
sured in deadweight tons, or dwt, which is the amount of crude
oil measured in metric tons that the vessel is capable of loading.
The oil tanker fleet is generally divided into the following five
major types of vessels, based on vessel carrying capacity: (i) Ultra
Large Crude Carrier, or ULCC, with a size range of approximately
320,000 to 450,000 dwt; (ii) Very Large Crude Carrier, or VLCC,
with a size range of approximately 200,000 to 320,000 dwt; (iii)
Suezmax-size range of approximately 120,000 to 200,000 dwt; (iv)
Aframax-size range of approximately 80,000 to 120,000 dwt; (v)
Panamax-size range of approximately 60,000 to 70,000 dwt; and
(vi) small tankers of less than approximately 60,000 dwt. ULCCs
and VLCCs typically transport crude oil in long-haul trades, such
as from the Arabian Gulf to Rotterdam via the Cape of Good
Hope. Suezmax tankers also engage in long-haul crude oil trades
as well as in medium-haul crude oil trades, such as from West
Africa to the East Coast of the United States. Aframax-size vessels
generally engage in both medium-and short-haul trades of less
than 1,500 miles and carry crude oil or petroleum products.
Smaller tankers mostly transport petroleum products in short-
haul to medium-haul trades.

THE INTERNATIONAL OIL TANKER SHIPPING INDUSTRY
(Source: Drewry’s)

All the information and data presented in this section, including the
analysis of the various sectors of the oil tanker shipping industry has
been provided by Drewry. Drewry has advised that the statistical and
graphical information contained herein is drawn from its database
and other sources. In connection therewith, Drewry has advised that:
(a) certain information in Drewry’s database is derived from estimates
or subjective judgments; (b) the information in the databases of other
maritime data collection agencies may differ from the information in
Drewry’s database; (c) while Drewry has taken reasonable care in the
compilation of the statistical and graphical information and believes it
to be accurate and correct, data compilation is subject to limited audit
and validation procedures.

Oil Tanker Demand

Demand for crude oil and refined petroleum products is affected
by a number of factors including general economic conditions
(including increases and decreases in industrial production), oil
prices, environmental concerns, weather conditions, and competi-
tion from alternative energy sources.

As the following figures indicate the world economy grew at a
fairly consistent rate in the period 2000 to 2008, but growth
came to an abrupt halt in 2009 as the world went into a global
depression. The downturn was short-lived and the most recent
data suggest that the world economy returned to positive
growth in 2010, with China and India being the main engines of
growth.

World Oil Consumption: 1990–2010
(Million Barrels Per Day)

100

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

(1) Provisional

Source: Drewry Maritime Research

2010(1)

Part I

Item 4. Information on the Company

World oil consumption has generally experienced sustained
growth since 2000, albeit it declined in 2009 due to the downturn
in the global economy. The provisional data for 2010 however
suggests that world oil demand rebounded strongly.

World oil consumption in 2010 is provisionally estimated at 86.9
million barrels per day. Since 2000 it has grown at a compound
annual growth rate, or CAGR, of approximately 1.2%.

Regionally, oil consumption is either static or declining in most of
the developed world, but is increasing in most of the developing
world as the following chart indicates. In recent years, Asia, in par-
ticular China has been the main generator of additional demand
for oil, with this demand largely supplied from traditional sources
such as the Middle East. In the period 2000 to 2010 Chinese oil
consumption grew by a CAGR of 6.7% to reach 9.2 million barrels
per day in 2010.

Oil consumption on a per capita basis is still low in countries such
as China and India when compared with the United States and
Western Europe.

Seasonal trends also affect world oil consumption and conse-
quently oil tanker demand. While trends in consumption do vary
with season, peaks in tanker demand quite often precede sea-
sonal consumption peaks, as refiners and suppliers anticipate con-
sumer demand. Seasonal peaks in oil demand can broadly be
classified into two main categories: increased demand prior to
Northern Hemisphere winters as heating oil consumption
increases and increased demand for gasoline prior to the summer
driving season in the United States.

Production trends have naturally followed the underlying pattern
in oil consumption, allowing for the fact that changes in the level
of oil inventories also play a part in determining production
levels.

Production and exports from the Middle East (largely OPEC) have
historically had a significant impact on the demand for tanker
capacity, and, consequently, on tanker charter hire rates, due to
the relatively long distances between this supply source and typi-
cal destination ports. Oil exports from short-haul regions, such as
Latin America and the North Sea, are significantly closer to ports
used by the primary consumers of such exports, which results in
shorter average voyage length as compared to oil exports from
the Middle East. Therefore, production in short-haul regions his-
torically has had less of an impact on the demand for larger ves-
sels while increasing the demand for vessels in the Handy,
Panamax and Aframax market segments.

Oil Refinery Capacity

Oil refineries also vary greatly in the quantity, variety and specifi-
cation of products that they produce, and it is common for tank-
ers to take products into and out of the same refinery. This global
multi-directional trade pattern enables owners and operators of

product tankers to engage in charters of triangulation, and
thereby maximize revenue.

Changes in refinery throughput are to a certain extent driven by
changes in the location of capacity, and capacity increases are tak-
ing place mostly in the developing world, especially in Asia. In
turn, this is leading to changes in voyage patterns and longer
voyages.

In response to growing domestic demand, Chinese refinery
throughput has grown at the fastest rate of any global region in
the last decade, with the Middle East and other emerging econo-
mies following behind. By contrast, refinery throughput in North
America has actually declined in the last decade.

The shift in global refinery capacity from the developed to the
developing world is likely to continue as refinery development
plans are heavily focused on areas such as Asia and the Middle
East, with relatively little capacity additions planned for North
America and Europe.

Chinese refinery throughput has grown at the fastest rate of any
global region in the last decade, with the Middle East and other
developing regions following behind. By contrast, refinery
throughput in North America has actually declined in the last
decade. The shift in global refinery capacity from the developed
to the developing world is likely to continue as refinery develop-
ment plans are heavily focused on areas such as Asia and the
Middle East, with relatively little capacity additions planned for
regions such as North America and Europe.

World Oil Trades

World oil trades are naturally the result of geographical imbalances
between areas of oil consumption and production, although it is
important to recognize that in sectors such as refined petroleum
products, arbitrage can have an impact on trade flows.

The volume of crude oil moved by sea each year also reflects the
underlying changes in world oil consumption and production.
Seaborne trade in crude oil in 2010 is provisionally estimated at
2.3 billion tons, while refined petroleum product movements are
provisionally estimated at 875 million tons.

Demand for oil tankers is primarily determined by the volume of
crude oil and refined petroleum products transported and the
distances over which they are transported. Tanker demand is gen-
erally expressed in ton miles and is measured as the product of
the volume of oil carried (measured in metric tons) multiplied by
the distance over which it is carried (measured in miles).

The transportation of crude oil is typically unidirectional, in that
most oil is transported from a few areas of production to many
regions of consumption, where it is refined into petroleum prod-
ucts. Conversely, the transportation of refined petroleum prod-
ucts and associated cargoes is multi-directional, in that there are
several areas of both production and consumption.

Part I

Item 4. Information on the Company

The growth in the volume of oil moved by sea since 2000 had
been quite modest, but the absolute volume of trade hides the
fact that changes in the pattern or trade have had quite a positive
impact on tanker demand when expressed in terms of ton miles.
In the period 2000 to 2010 ton mile demand in the tanker sector
grew at a CAGR of 3.2%, whereas the overall increase in trade over
the same period was 1.6%. As a result of changes in the pattern of
trade the average haul length of refined product trades has risen
from a recent market low of 2,544 miles (loaded voyage only) in
2002 to 3,320 miles in 2010, equivalent to an increase of 30%.

One of the reasons for the increase in average voyage lengths is
the growth in Chinese crude oil imports and in particular the fact
that it is sourcing crude oil from long haul destinations such as
West Africa and Brazil. Chinese crude oil imports almost tripled in
the period 2000 to 2009 and in so doing had a very positive
impact on demand for crude oil tankers, especially VLCCs.

Oil Tanker Supply

The world oil tanker fleet is generally divided into five major types
of vessel classifications, based on vessel carrying capacity.
Additionally, the tanker fleet is divided between crude tankers that
carry crude oil or residual fuel oil (“dirty” products), and product
tankers that carry refined petroleum products (“clean” products)
such as gasoline, jet fuel, kerosene, naphtha and gas oil.

The main fleet categories are Very Large Crude Carrier (VLCC),
Suezmax, Aframax, Panamax and Handy oil tankers.

Category

Handy
Panamax
Aframax
Suezmax
VLCC

Size Range - Dwt

10-49,999
50-79,999
80-119,999
120-199,999
200,000 +

In order to benefit from economies of scale, tanker charterers
transporting crude oil will typically charter the largest possi-
ble vessel, taking into consideration port and canal size
restrictions and optimal cargo lot sizes. The main tanker ves-
sel types are:

While product tankers can carry dirty products, they generally do
not switch between clean and dirty cargoes, as a vessel’s tank
must be cleaned prior to loading a different cargo type. Product
tankers do not form a distinct vessel classification, but are identi-
fied on the basis of various factors, including technical and trad-
ing histories.

The following analysis focuses on “straight” product tankers and
does not include ships with chemical carrying capability.

Size Category

VLCC
Suezmax
Aframax
Panamax
Handymax/size

Total

Oil Tanker Fleet – March 31, 2011

Number of
Vessels

% of Fleet
(Number)

548
418
874
443
758

18.0
13.7
28.7
14.6
24.9

Deadweight
Tons

>200,000
120,000-199,000
80,000-119,000
50,000-79,999
10,000-49,999

Total
Capacity
(Million Dwt )

166.1
64.2
92.6
30.8
27.3

% of Fleet
(Dwt)

43.6
16.9
24.3
8.1
7.2

3,041

100.0%

381.0

100.0%

Source: Drewry Maritime Research

Between the end of 2000 and March 2011 the overall size of the
tanker fleet grew by close to 50% with increases in fleet size tak-
ing place across all sectors, with the exception of the small ship
category.

The Product Tanker Fleet

The supply of tankers is measured in deadweight tons, or dwt. The
supply of tanker capacity is determined by the age and size of the
existing global fleet, the number of vessels on order and

the number of ships removed from the fleet by scrapping and
international regulations. Other factors which can affect the short-
term supply of tankers include the number of combined carriers
(vessels capable of trading wet and dry cargoes) trading in the oil
market and the number of tankers in storage, dry-docked, await-
ing repairs or otherwise not available or out of commission (col-
lectively, “lay-up” or total inactivity).

The product tanker fleet as of March 31, 2011 by the above defini-
tion comprises 1,218 ships of 66.6 million dwt.

Part I

Item 4. Information on the Company

Size Category

LR2
LR1
MR2
MR1

Total

World Product(1) Tanker Fleet March 31, 2011

SizeRange
(Deadweight Tons)

Number of
Vessels

% of Fleet

Total Capacity
(Million Dwt )

% of Fleet
(Dwt)

>80,000
50,000-79,999
25,000-49,999
10,000-24,999

170
308
570
170

14.0%
25.3%
46.8%
14.0%

1,218

100.0%

18.4
21.5
24.1
2.6

66.6

27.6%
32.3%
36.2%
4.3%

100.0%

(1) Excludes chemical tankers

Source: Drewry Maritime Research

Over the years, the supply of the smallest product tanker category (10,000-29,999 dwt) fleet has declined in favor of the larger ships that
are more suited to long-haul routes.

World Product Tanker Fleet: Age Profile, March 31, 2011

160

140

120

100

8
6
9
1

1
7
9
1

3
7
9
1

5
7
9
1

7
7
9
1

9
7
9
1

1
8
9
1

3
8
9
1

5
8
9
1

7
8
9
1

9
8
9
1

1
9
9
1

3
9
9
1

5
9
9
1

7
9
9
1

9
9
9
1

1
0
0
2

3
0
0
2

5
0
0
2

7
0
0
2

9
0
0
2

10-30 k

30-50 k

50-80 k

80 k+

Total

Left Hand Scale = Million Dwt; Right Hand Scale = No of Ships; Bottom Scale = Dwt Size Category

Source: Drewry Maritime Research

Oil Tanker Orderbook

As of March 31, 2011 the tanker orderbook amounted to 656 tankers of 104.4 million dwt, equivalent to 27.4% of the current fleet.

Size Category

VLCC
Suezmax
Aframax
Panamax
Handy

Total

World Oil Tanker Orderbook, March 31, 2011

Deadweight
Tons

>200,000
120,000-199,999
80,000-119,999
50,000-79,999
10,000-49,9999

Number of
Vessels

% of Fleet
(Number)

Total
Capacity
(Million Dwt )

% of Fleet
(Dwt)

179
150
135
104
88

656

32.7
35.9
15.4
23.5
11.6

56.3
23.2
14.8
6.8
3.3

33.9
36.2
16.0
22.1
12.0

21.6%

104.4

27.4%

Source: Drewry Maritime Research

Part I

Item 4. Information on the Company

Product Tanker Orderbook

As of March 31, 2011 the product tanker orderbook amounted to
212 ships of 13.4 million dwt, equivalent to 20.1% of the current

fleet. Other tankers within these size ranges that do not have pro-
tective coatings and are thus suitable for carrying only crude car-
goes have been excluded from the table below.

Size Category

LR2
LR1
MR2
MR1

Total

World Product Tanker Orderbook, March 31, 2011

Deadweight
Tons

Number of
Vessels

% of Existing
Fleet - No

>80,000
50,000-79,999
25,000-49,999
10,000-24,999

40
90
66
16

23.5%
29.2%
11.6%
9.4%

Total
Capacity
(Million Dwt)

% of Existing
Fleet - Dwt

4.5
5.8
2.9
0.2

24.5%
27.0%
12.0%
7.7%

212

17.4%

13.4

20.1%

Source: Drewry Maritime Research

World Product Tanker Orderbook Delivery Schedule, November 30, 2010

2011

2012

2013

2014+

Total

Size

No.

M Dwt

No.

M Dwt

No.

M Dwt

No.

M Dwt

No.

M Dwt

10,000-24,999
25,000-49,999
50,000-79,999
80,000+

Total

14
41
49
19

123

0.2
1.8
3.4
2.1

7.5

2
22
25
16

0.0
1.0
1.4
1.8

4.2

0
3
16
2

0.0
0.1
1.0
0.2

1.3

0
0
0
3

0.0
0.0
0.0
0.4

0.4

16
66
90
40

0.2
2.9
5.8
4.5

212

13.4

“No.” = Number of Vessels. “M Dwt” = Millions of Dwt.

Source: Drewry Maritime Research

The Product Tanker Freight Market

Freight Rates

Tanker charter hire rates and vessel values for all tankers are influ-
enced by the supply and demand for tanker capacity. However,
the product segment generally appears less volatile than other
crude market segments because these vessels mainly transport
refined petroleum products that are not subject to the same
degree of volatility as the crude oil market. Also, time charter rates
are generally less volatile than spot rates, because they reflect the
fact that the vessel is fixed for a longer period of time. In the spot
market, rates will reflect the immediate underlying conditions in
vessel supply and demand and are thus prone to more volatility.
The recent trends in rates in the time charter equivalent of spot
rates and time charter rates are shown in the tables below.

Tanker charter hire rates and vessel values for all tankers are
strongly influenced by the supply and demand for tanker

capacity. Small changes in tanker utilization have historically led to
relatively large fluctuations in tanker charter rates for VLCCs, more
moderate price volatility in the Suezmax, Aframax and Panamax
markets and less volatility in the Handy market compared to the
tanker market as a whole.

From 2005 to 2007, time charter rates for all sizes of oil tankers rose
quite steeply, reflecting the fact that buoyant demand for oil and
increased sea-borne movements of oil generated additional
demand for tanker capacity. This led to a much tighter balance
between vessel demand and supply. However, as the world econ-
omy weakened in the second half of 2008, demand for oil also fell
and had a negative impact on tanker demand and freight rates.
Rates therefore declined in 2009, only to recover in the early part
of 2010, before falling once again in the summer months and then
remaining weak into 2011.

Part I

Item 4. Information on the Company

Oil Tanker One Year Time Charter Rates: 2000-2011
(US$/Day Period Averages)

Size Category

Handysize

Handymax

DWT

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

March 2011

30,000

12,454
15,583
11,417
13,267
15,629
18,854
21,417
22,000
21,438
13,675
11,000

12,000

45,000

13,958
17,563
13,288
14,846
19,029
25,271
26,792
24,500
23,092
14,850
12,388

13,000

Aframax

90-95,000

Suezmax

150,000

18,854
23,125
16,896
19,146
29,500
35,021
35,233
33,143
34,708
19,663
18,571

16,000

27,042
30,500
17,750
26,104
37,875
42,292
42,667
43,042
46,917
27,825
25,967

21,000

VLCC

280,000

35,250
37,958
23,458
33,604
53,900
60,125
55,992
53,333
74,662
38,533
36,083

29,000

Source: Drewry Maritime Research

In general terms, time charter rates are less volatile than spot rates,
because they reflect the fact that the vessel is fixed for a longer
period of time. In the spot market, rates will reflect the immediate
underlying conditions in vessel supply and demand and are thus
prone to more volatility.

Environmental and Other Regulations

Government laws and regulations significantly affect the owner-
ship and operation of our tankers. We are subject to international
conventions, national, state and local laws and regulations in force
in the countries in which our vessels may operate or are regis-
tered. Compliance with such laws, regulations and other require-
ments entails significant expense, including vessel modifications
and implementation of certain operating procedures.

A variety of government, quasi-governmental and private organi-
zations subject our tankers to both scheduled and unscheduled
inspections. These organizations include the local port authori-
ties, national authorities, harbor masters or equivalent, classifica-
tion societies, flag state administrations (countries of registry),
labor organizations (including but not limited to the International
Transport Workers’ Federation), charterers, terminal operators and
oil companies. Some of these entities require us to obtain permits,
licenses, certificates and approvals for the operation of our tank-
ers. Our failure to maintain necessary permits, licenses, certificates
or approvals could require us to incur substantial costs or tempo-
rarily suspend operation of one or more of the vessels in our fleet,
or lead to the invalidation or reduction of our insurance
coverage.

We believe that the heightened levels of environmental and qual-
ity concerns among insurance underwriters, regulators and

charterers have led to greater inspection and safety requirements
on all vessels and may accelerate the scrapping of older vessels
throughout the tanker industry. Increasing environmental con-
cerns have created a demand for tankers that conform to stricter
environmental standards. We are required to maintain operating
standards for all of our vessels that emphasize operational safety,
quality maintenance, continuous training of our officers and crews
and compliance with applicable local, national and international
environmental laws and regulations. Such laws and regulations
frequently change and may impose increasingly strict require-
ments. We cannot predict the ultimate cost of complying with
these requirements, or the impact of these requirements on the
resale value or useful lives of our tankers. In addition, any serious
marine incident that results in significant oil pollution or other-
wise causes significant adverse environmental impact, including
the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, could
result in additional legislation or regulation that could negatively
affect our profitability.

International Maritime Organization

The IMO, the United Nations agency for maritime safety and the
prevention of pollution, has adopted the International Convention
for the Prevention of Pollution from Ships, or MARPOL, which has
been updated through various amendments. MARPOL establishes
environmental standards relating to oil leakage or spilling, gar-
bage management, sewage, air emissions, handling and disposal
of noxious liquids and the handling of harmful substances in
packaged forms.

Air Emissions

In September 1997, the IMO adopted Annex VI to MARPOL to
address air pollution from ships. Effective May 2005, Annex VI sets

Part I

Item 4. Information on the Company

limits on sulfur oxide and nitrogen oxide emissions from all com-
mercial vessel exhausts and prohibits deliberate emissions of
ozone depleting substances (such as halons and chlorofluorocar-
bons), emissions of volatile organic compounds from cargo tanks,
and the shipboard incineration of specific substances. Annex VI
also includes a global cap on the sulfur content of fuel oil and
allows for special areas to be established with more stringent
controls on sulfur emissions. Additional or new conventions, laws
and regulations may be adopted that could require the installa-
tion of expensive emission control systems and adversely affect
our business, cash flows, results of operations and financial con-
dition. In October 2008, the IMO adopted amendments to Annex
VI regarding emissions of sulfur oxide, nitrogen oxide, particulate
matter and ozone-depleting substances, which amendments
entered into force on July 1, 2010. The amended Annex VI is
expected to reduce air pollution from vessels by, among other
things, (i) implementing a progressive reduction of sulfur oxide
emissions from ships by reducing the global sulfur fuel cap ini-
tially to 3.50% (from the current cap of 4.50%), effective from
January 1, 2012, then progressively to 0.50%, effective from
January 1, 2020, subject to a feasibility review to be completed no
later than 2018; and (ii) establishing new tiers of stringent nitro-
gen oxide emissions standards for new marine engines, depend-
ing on their date of installation. The United States ratified the
Annex VI amendments
in October 2008, and the U.S.
Environmental Protection Agency, or EPA, has since implemented
equivalent emissions standards.

On March 26, 2010, the IMO amended MARPOL to designate areas
extending up to 200 nautical miles from the Atlantic/Gulf and
Pacific coasts of the United States and Canada and the Hawaiian
Islands and certain portions of French waters as Emission Control
Areas under the MARPOL Annex VI amendments. Once the desig-
nations take effect in August 2012, ocean-going vessels in these
areas will be subject to stringent emission controls. As a result of
these designations or similar future designations, we may be
required to incur additional operating or other costs.

Safety Management System Requirements

The IMO also adopted the International Convention for the Safety
of Life at Sea, or SOLAS, and the International Convention on Load
Lines, or LL, which impose a variety of standards that regulate the
design and operational features of ships. The IMO periodically
revises the SOLAS and LL standards.

Our operations are also subject to environmental standards and
requirements contained in the International Safety Management
Code for the Safe Operation of Ships and for Pollution Prevention,
or ISM Code, promulgated by the IMO under SOLAS. The ISM
Code requires the party with operational control of a vessel to
develop an extensive safety management system that includes,
among other things, the adoption of a safety and environmental
protection policy setting forth instructions and procedures for
operating its vessels safely and describing procedures for

responding to emergencies. We rely upon the safety manage-
ment system that has been developed for our vessels for compli-
ance with the ISM Code.

The ISM Code requires that vessel operators also obtain a safety
management certificate for each vessel they operate. This certifi-
cate evidences compliance by a vessel’s management with code
requirements for a safety management system. No vessel can
obtain a certificate unless its manager has been awarded a docu-
ment of compliance, issued by each flag state, under the ISM
Code. SSM has obtained documents of compliance for its offices
and safety management certificates for all of our vessels for which
the certificates are required by the ISM Code. These documents of
compliance and safety management certificates are renewed as
required.

Noncompliance with the ISM Code and other IMO regulations
may subject the shipowner or bareboat charterer to increased lia-
bility, may lead to decreases in, or invalidation of, available insur-
ance coverage for affected vessels and may result in the denial of
access to, or detention in, some ports. The U.S. Coast Guard and
European Union authorities have indicated that vessels not in
compliance with the ISM Code by the applicable deadlines will be
prohibited from trading in U.S. and European Union ports, as the
case may be.

Pollution Control and Liability Requirements

IMO has negotiated international conventions that impose liability
for pollution in international waters and the territorial waters of
the signatory nations to such conventions. For example, many
countries have ratified and follow the liability plan adopted by the
IMO and set out in the International Convention on Civil Liability
for Oil Pollution Damage, or the CLC, although the United States is
not a party. Under this convention and depending on whether
the country in which the damage results is a party to the 1992
Protocol to the CLC, a vessel’s registered owner is strictly liable,
subject to certain affirmative defenses, for pollution damage
caused in the territorial waters of a contracting state by discharge
of persistent oil. The limits on liability outlined in the 1992 Protocol
use the International Monetary Fund currency unit of Special
Drawing Rights, or SDR. The right to limit liability is forfeited under
the CLC where the spill is caused by the shipowner’s actual fault
and under the 1992 Protocol where the spill is caused by the ship-
owner’s intentional or reckless conduct. Vessels trading with states
that are parties to these conventions must provide evidence of
insurance covering the liability of the owner. In jurisdictions where
the CLC has not been adopted, various legislative schemes or
common law govern, and liability is imposed either on the basis
of fault or in a manner similar to that of the CLC. The IMO adopted
the International Convention on Civil Liability for Bunker Oil
Pollution Damage, or the Bunker Convention, to impose strict lia-
bility on ship owners for pollution damage in jurisdictional waters
of ratifying states caused by discharges of bunker fuel. The Bunker
Convention, which became effective on November 21, 2008,

Part I

Item 4. Information on the Company

requires registered owners of ships over 1,000 gross tons to main-
tain insurance or other financial security for pollution damage in
an amount equal to the limits of liability under the applicable
national or international limitation regime (but not exceeding the
amount calculated in accordance with the Convention on
Limitation of Liability for Maritime Claims of 1976, as amended).
With respect to non-ratifying states, liability for spills or releases of
oil carried as fuel in ship’s bunkers typically is determined by the
national or other domestic laws in the jurisdiction where the
events or damages occur.

In addition, IMO adopted an International Convention for the
Control and Management of Ships’ Ballast Water and Sediments,
or BWM, in February 2004. BWM’s implementing regulations call
for a phased introduction of mandatory ballast water exchange
requirements, to be replaced in time with mandatory concentra-
tion limits. BWM will not become effective until 12 months after it
has been adopted by 30 states, the consolidated merchant fleets
of which represent not less than 35% of the gross tonnage of the
world’s merchant shipping. To date, there has not been sufficient
adoption of this standard for it to take force. However, the IMO’s
Marine Environment Protection Committee passed a resolution in
March 2010 encouraging the ratification of the Convention and
calling upon those countries that have already ratified to encour-
age the installation of ballast water management systems. If bal-
last water treatment becomes mandatory, the cost of compliance
could be significant.

The IMO continues to review and introduce new regulations. It is
impossible to predict what additional regulations, if any, may be
passed by the IMO and what effect, if any, such regulations might
have on our operations.

U.S. Regulations

The U.S. Oil Pollution Act of 1990, or OPA, established an extensive
regulatory and liability regime for the protection and cleanup of
the environment from oil spills. OPA affects all owners and opera-
tors whose vessels trade in the United States, its territories and
possessions or whose vessels operate in U.S. waters, which
includes the U.S. territorial sea and its 200 nautical mile exclusive
economic zone. The United States has also enacted the
Comprehensive Environmental Response, Compensation and
Liability Act, or CERCLA, which applies to the discharge of hazard-
ous substances other than oil, whether on land or at sea. Both
OPA and CERCLA impact our operations.

Under OPA, vessel owners, operators and bareboat charterers are
“responsible parties” and are jointly, severally and strictly liable
(unless the spill results solely from the act or omission of a third
party, an act of God or an act of war) for all containment and
clean-up costs and other damages arising from discharges or
threatened discharges of oil from their vessels. OPA defines these
other damages broadly to include:

• natural resources damage and related assessment costs;

•

real and personal property damage;

• net loss of taxes, royalties, rents, fees and other lost revenues;

•

lost profits or impairment of earning capacity due to property
or natural resources damage; and

• net cost of public services necessitated by a spill response,
such as protection from fire, safety or health hazards, and loss
of subsistence use of natural resources.

Effective July 31, 2009, the U.S. Coast Guard adjusted the limits of
OPA liability to the greater of $2,000 per gross ton or $17.088 mil-
lion for any double-hull tanker that is over 3,000 gross tons (sub-
ject to possible adjustment for inflation), and our fleet is entirely
composed of vessels of this size class. CERCLA, which applies to
owners and operators of vessels, contains a similar liability regime
and provides for cleanup, removal and natural resource damages.
Liability under CERCLA is limited to the greater of $300 per gross
ton or $5 million for vessels carrying a hazardous substance as
cargo and the greater of $300 per gross ton or $0.5 million for any
other vessel. These OPA and CERCLA limits of liability do not apply
if an incident was directly caused by violation of applicable U.S.
federal safety, construction or operating regulations or by a
responsible party’s gross negligence or willful misconduct, or if
the responsible party fails or refuses to report the incident or to
cooperate and assist in connection with oil removal activities.

OPA and the U.S. Coast Guard also require owners and operators
of vessels to establish and maintain with the U.S. Coast Guard evi-
dence of financial responsibility sufficient to meet the limit of
their potential liability under OPA and CERCLA. Vessel owners and
operators may satisfy their financial responsibility obligations by
providing a proof of insurance, a surety bond, self-insurance or a
guaranty.

Through our P&I Club membership, we expect to maintain pollu-
tion liability coverage insurance in the amount of $1 billion per
incident for each of our vessels. If the damages from a catastrophic
spill were to exceed our insurance coverage, it could have a mate-
rial adverse effect on our business, financial condition, results of
operations and cash flows.

The U.S. Clean Water Act, or CWA, prohibits the discharge of oil or
hazardous substances in U.S. navigable waters unless authorized
by a duly-issued permit or exemption, and imposes strict liability
in the form of penalties for any unauthorized discharges. The CWA
also imposes substantial liability for the costs of removal and
remediation and damages and complements the remedies avail-
able under OPA and CERCLA.

The EPA regulates the discharge of ballast water and other sub-
stances in U.S. waters under the CWA. Effective February 6, 2009,
EPA regulations require vessels 79 feet in length or longer (other

Part I

Item 4. Information on the Company

than commercial fishing and recreational vessels) to comply with
a Vessel General Permit authorizing ballast water discharges and
other discharges incidental to the operation of vessels. The Vessel
General Permit imposes technology and water-quality based
effluent limits for certain types of discharges and establishes spe-
cific inspection, monitoring, recordkeeping and reporting
requirements to ensure the effluent limits are met. U.S. Coast
Guard regulations adopted under the U.S. National Invasive
Species Act, or NISA, also impose mandatory ballast water man-
agement practices for all vessels equipped with ballast water
tanks entering or operating in U.S. waters, and in 2009 the Coast
Guard proposed new ballast water management standards and
practices, including limits regarding ballast water releases.
Compliance with the EPA and the U.S. Coast Guard regulations
could require the installation of equipment on our vessels to treat
ballast water before it is discharged or the implementation of
other port facility disposal arrangements or procedures at poten-
tially substantial cost, and/or otherwise restrict our vessels from
entering U.S. waters.

European Union Regulations

In October 2009, the European Union amended a directive to
impose criminal sanctions for illicit ship-source discharges of pol-
luting substances, including minor discharges, if committed with
intent, recklessly or with serious negligence and the discharges
individually or in the aggregate result in deterioration of the qual-
ity of water. Criminal liability for pollution may result in substantial
penalties or fines and increased civil liability claims.

Greenhouse Gas Regulation

The IMO is evaluating mandatory measures to reduce greenhouse
gas emissions from international shipping, which may include
market-based instruments or a carbon tax. The European Union
has indicated that it intends to propose an expansion of the exist-
ing European Union emissions trading scheme to include emis-
sions of greenhouse gases from marine vessels. In the United
States, the EPA has issued a proposed finding that greenhouse
gases threaten the public health and safety. In addition, climate
change initiatives are being considered in the U.S. Congress. Any
passage of climate control legislation or other regulatory initia-
tives by the IMO, EU, the U.S. or other countries where we operate,
or any treaty adopted at the international level to succeed the
Kyoto Protocol, that restrict emissions of greenhouse gases could
require us to make significant financial expenditures that we can-
not predict with certainty at this time.

Vessel Security Regulations

Since the terrorist attacks of September 11, 2001, there have been a
variety of initiatives intended to enhance vessel security. On
November 25, 2002, the U.S. Maritime Transportation Security Act
of 2002, or the MTSA, came into effect. To implement certain

portions of the MTSA, in July 2003, the U.S. Coast Guard issued
regulations requiring the implementation of certain security
requirements aboard vessels operating in waters subject to the
jurisdiction of the United States. Similarly, in December 2002,
amendments to SOLAS created a new chapter of the convention
dealing specifically with maritime security. The new chapter
became effective in July 2004 and imposes various detailed secu-
rity obligations on vessels and port authorities, most of which are
contained in the International Ship and Port Facilities Security
Code, or the ISPS Code. The ISPS Code is designed to protect ports
and international shipping against terrorism. After July 1, 2004, to
trade internationally, a vessel must attain an International Ship
Security Certificate from a recognized security organization
approved by the vessel’s flag state. Among the various require-
ments are:

• on-board installation of automatic identification systems to
provide a means for the automatic transmission of safety-
related information from among similarly equipped ships and
shore stations, including information on a ship’s identity, posi-
tion, course, speed and navigational status;

• on-board installation of ship security alert systems, which do
not sound on the vessel but only alert the authorities on shore;

•

the development of vessel security plans;

ship identification number to be permanently marked on a
vessel’s hull;

• a continuous synopsis record kept onboard showing a vessel’s
history including, the name of the ship and of the state whose
flag the ship is entitled to fly, the date on which the ship was
registered with that state, the ship’s identification number, the
port at which the ship is registered and the name of the regis-
tered owner(s) and their registered address; and

• compliance with flag state security certification requirements.

The U.S. Coast Guard regulations, intended to align with interna-
tional maritime security standards, exempt from MTSA vessel
security measures non-U.S. vessels that have on board, as of July 1,
2004, a valid International Ship Security Certificate attesting to the
vessel’s compliance with SOLAS security requirements and the
ISPS Code. We have implemented the various security measures
addressed by the MTSA, SOLAS and the ISPS Code, and our fleet is
in compliance with applicable security requirements.

Inspection by classification societies

Every oceangoing vessel must be “classed” by a classification soci-
ety. The classification society certifies that the vessel is “in-class,”
signifying that the vessel has been built and maintained in accor-
dance with the rules of the classification society and complies
with applicable rules and regulations of the vessel’s country of

Part I

Item 4. Information on the Company

registry and the international conventions of which that country is
a member. In addition, where surveys are required by international
conventions and corresponding laws and ordinances of a flag
state, the classification society will undertake them on application
or by official order, acting on behalf of the authorities concerned.

The classification society also undertakes on request other sur-
veys and checks that are required by regulations and require-
ments of the flag state. These surveys are subject to agreements
made in each individual case and/or to the regulations of the
country concerned.

For maintenance of the class, regular and extraordinary surveys of
hull, machinery, including the electrical plant, and any special
equipment classed are required to be performed as follows:

• Annual Surveys. For seagoing ships, annual surveys are con-
ducted for the hull and the machinery, including the electrical
plant and where applicable for special equipment classed, at
intervals of 12 months from the date of commencement of the
class period indicated in the certificate.

•

Intermediate Surveys. Extended annual surveys are referred to
as intermediate surveys and typically are conducted two and
one-half years after commissioning and each class renewal.
Intermediate surveys may be carried out on the occasion of
the second or third annual survey.

• Class Renewal Surveys. Class renewal surveys, also known as spe-
cial surveys, are carried out for the ship’s hull, machinery, includ-
ing the electrical plant and for any special equipment classed, at
the intervals indicated by the character of classification for the
hull. At the special survey the vessel is thoroughly examined,
including audio-gauging to determine the thickness of the steel
structures. Should the thickness be found to be less than class
requirements, the classification society would prescribe steel
renewals. The classification society may grant a one year grace
period for completion of the special survey. Substantial amounts
of money may have to be spent for steel renewals to pass a spe-
cial survey if the vessel experiences excessive wear and tear. In
lieu of the special survey every four or five years, depending on
whether a grace period was granted, a ship owner has the
option of arranging with the classification society for the ves-
sel’s hull or machinery to be on a continuous survey cycle, in
which every part of the vessel would be surveyed within a five
year cycle. At an owner’s application, the surveys required for
class renewal may be split according to an agreed schedule to
extend over the entire period of class. This process is referred to
as continuous class renewal.

All areas subject to survey as defined by the classification society
are required to be surveyed at least once per class period, unless
shorter intervals between surveys are prescribed elsewhere. The
period between two subsequent surveys of each area must not
exceed five years.

Vessels have their underwater parts inspected every 30 to 36
months. Depending on the vessel’s age and other factors, this
inspection can often be done afloat with minimal disruption to
the vessel’s commercial deployment. However, vessels are
required to be drydocked, meaning physically removed from
the water, for inspection and related repairs at least once every
five years from delivery. If any defects are found, the classification
surveyor will issue a recommendation which must be rectified by
the ship owner within prescribed time limits.

Most insurance underwriters make it a condition for insurance
coverage that a vessel be certified as “in-class” by a classifica-
tion society which is a member of the International Association
of Classification Societies. All our vessels are certified as being
“in-class” by American Bureau of Shipping. All new and second-
hand vessels that we purchase must be certified prior to their
delivery under our standard purchase contracts and memo-
randa of agreement. If the vessel is not certified on the sched-
uled date of closing, we have no obligation to take delivery of
the vessel.

In addition to the classification inspections, many of our custom-
ers regularly inspect our vessels as a precondition to chartering
them for voyages. We believe that our well-maintained, high-
quality vessels provide us with a competitive advantage in the
current environment of increasing regulation and customer
emphasis on quality.

Risk of Loss and Liability Insurance

General

The operation of any cargo vessel includes risks such as mechani-
cal failure, collision, property loss, cargo loss or damage and busi-
ness interruption due to political circumstances in foreign
countries, hostilities and labor strikes. In addition, there is always
an inherent possibility of marine disaster, including oil spills and
other environmental mishaps, and the liabilities arising from own-
ing and operating vessels in international trade. OPA, which in cer-
tain circumstances imposes virtually unlimited liability upon
owners, operators and demise charterers of any vessel trading in
the United States exclusive economic zone for certain oil pollution
accidents in the United States, has made liability insurance more
expensive for vessel-owners and operators trading in the United
States market. While we believe that our present insurance cover-
age is adequate, not all risks can be insured against, and there can
be no guarantee that any specific claim will be paid, or that we
will always be able to obtain adequate insurance coverage at rea-
sonable rates.

Marine and War Risks Insurance

We have in force marine and war risks insurance for all of our ves-
sels. Our marine hull and machinery insurance covers risks of par-
ticular average and actual or constructive total loss from collision,
fire, grounding, engine breakdown and other insured named

Part I

Item 4A. Unresolved Staff Comments

perils up to an agreed amount per vessel. Our war risks insurance
covers the risks of particular average and actual or constructive
total loss from confiscation, seizure, capture, vandalism, sabotage,
and other war-related named perils. We have also arranged cover-
age for increased value for each vessel. Under this increased value
coverage, in the event of total loss of a vessel, we will be able to
recover amounts in excess of those recoverable under the hull
and machinery policy in order to compensate for additional costs
associated with replacement of the loss of the vessel. Each vessel
is covered up to at least its fair market value at the time of the
insurance attachment and subject to a fixed deductible per each
single accident or occurrence, but excluding actual or construc-
tive total loss.

Protection and Indemnity Insurance

Protection and indemnity insurance is provided by mutual protec-
tion and indemnity associations, or P&I Associations, and covers
our third party liabilities in connection with our shipping activi-
ties. This includes third-party liability and other related expenses
resulting from injury or death of crew, passengers and other third
parties, loss or damage to cargo, claims arising from collisions with
other vessels, damage to other third-party property, pollution aris-
ing from oil or other substances, and salvage, towing and other
related costs, including wreck removal. Protection and indemnity

insurance is a form of mutual indemnity insurance, extended by
mutual protection and indemnity associations, or “clubs.” Subject
to the “capping” discussed below, our coverage, except for pollu-
tion, is unlimited.

As a member of a P&I Club that is a member of the International
Group of P&I Clubs, or the International Group, we carry protec-
tion and indemnity insurance coverage for pollution of $1 billion
per vessel per incident. The P&I Clubs that comprise the
International Group insure approximately 90% of the world’s com-
mercial tonnage and have entered into a pooling agreement to
reinsure each association’s liabilities. Although the P&I Clubs com-
pete with each other for business, they have found it beneficial to
pool their larger risks under the auspices of the International
Group. This pooling is regulated by a contractual agreement
which defines the risks that are to be pooled and exactly how
these risks are to be shared by the participating P&I Clubs. We are
subject to calls payable to the associations based on its claim
records as well as the claim records of all other members of the
individual associations and members of the pool of P&I Clubs
comprising the International Group.

C. Organizational Structure

As of December 31, 2010, Scorpio Tankers Inc. owned 100% of the
12 subsidiaries listed below.

Company

Noemi Shipping Company Limited
Senatore Shipping Company Limited
Venice Shipping Company Limited
STI Harmony Shipping Company Limited
STI Heritage Shipping Company Limited
STI Conqueror Shipping Company Limited
STI Matador Shipping Company Limited
STI Gladiator Shipping Company Limited
STI Highlander Shipping Company Limited
STI Spirit Shipping Company Limited
STI Chartering and Trading Limited
Sting LLC

Incorporated in

The Republic of The Marshall Islands
The Republic of The Marshall Islands
The Republic of The Marshall Islands
The Republic of The Marshall Islands
The Republic of The Marshall Islands
The Republic of The Marshall Islands
The Republic of The Marshall Islands
The Republic of The Marshall Islands
The Republic of The Marshall Islands
The Republic of The Marshall Islands
The Republic of The Marshall Islands
State of Delaware, United States of America

D. Property, Plant and Equipment

For a description of our fleet, see “Item 4.A. – History and
Development of the Company” and “ Item 4.B. Business
Overview – Our Fleet”.

ITEM 4A. UNRESOLVED STAFF COMMENTS
None.

ITEM 5. OPERATING AND FINANCIAL REVIEW
AND PROSPECTS

A. Operating Results

The following presentation of management’s discussion and analy-
sis of results of operations and financial condition should be read in
conjunction with our consolidated financial statements, accompa-
nying notes thereto and other financial information appearing in
“ITEM 18. Financial Statements”. You should also carefully read the

Part I

Item 5. Operating and Financial Review and Prospects

following discussion with “Risk Factors,” “The International Tanker
Industry,” “Cautionary Statement Regarding Forward-Looking
Statements.” The consolidated financial statements as of December
31, 2010 and 2009 and for the three years ended December 31, 2010
have been prepared in accordance with IFRS as issued by the IASB.
The consolidated financial statements are presented in U.S. Dollars
($) unless otherwise indicated. Any amounts converted from another
non-U.S. currency to U.S. Dollars in this annual report are at the rate
applicable at the relevant date, or the average rate during the appli-
cable period.

Prior to October 1, 2009, our historical consolidated financial state-
ments were prepared on a carve-out basis from the financial
statements of Liberty and include all assets, liabilities and results
of operations of our three vessel-owning subsidiaries, formerly
subsidiaries of Liberty, for those periods. The other financial infor-
mation included in this filing represents the aggregated financial
information of the operations of our three vessel-owning
subsidiaries.

We anticipate additional opportunities to expand our fleet
through acquisitions of tankers, and we believe that recent down-
ward pressure on tanker values will present attractive investment
opportunities to ship operators that have the necessary capital
resources. We may purchase secondhand vessels that meet our
specifications or newbuilding vessels, either directly from ship-
yards or from the current owners with shipyard contracts. The
timing of these acquisitions will depend on our ability to identify
suitable vessels on attractive purchase terms. Since our initial pub-
lic offering, we have purchased seven vessels, all of which have
been delivered as of December 31, 2010. We also time

chartered-in four vessels, one prior to December 31, 2010 and
three after December 31, 2010, all of which have been delivered
and put into our pools as of the date of this annual report.

We generate revenues by charging customers for the transporta-
tion of their crude oil and other petroleum products using our
vessels. Historically, these services generally have been provided
under the following basic types of contractual relationships:

• Voyage charters, which are charters for short intervals that are

priced on current, or “spot,” market rates; and

• Time charters, whereby vessels we operate and for which we
are responsible for crewing and other vessel operating costs
are chartered to customers for a fixed period of time at rates
that are generally fixed, but may contain a variable component
based on inflation, interest rates, or current market rates.

• Commercial Pools, whereby we participate with other ship-
owners, operate a large number of vessels as an integrated
transportation system which offers customers greater flexibil-
ity and a higher level of service while achieving scheduling
efficiencies. Pools negotiate charters primarily in the spot
market. The size and scope of these pools enable them to
enhance utilization rates for pool vessels by securing back-
haul voyages and COA’s, thus generating higher effective TCE
revenues than otherwise might be obtainable in the spot
market. We are responsible for crewing and other vessel oper-
ating costs for our vessels that operate in these pools.

The table below illustrates the primary distinctions among these
types of arrangements:

Voyage Charter

Time Charter

Commercial Pool

Typical contract length

Single voyage

One year or more

Hire rate basis(1)

Voyage expenses(2)

Vessel operating costs (3)

Varies

We pay

Varies

Daily

Customer pays

Pool pays

We pay

Off-hire(4)

Customer does not pay

Pool does not pay

(1)

(2)

“Hire rate” refers to the basic payment from the charterer for the use of the vessel.

“Voyage expenses” refers to expenses incurred due to a vessel’s traveling from a loading port to a discharging port, such as fuel
(bunker) cost, port expenses, agent’s fees, canal dues and extra war risk insurance, as well as commissions.

(3) Defined below under “—Important Financial and Operational Terms and Concepts.”

(4)

“Off-hire” refers to the time a vessel is not available for service due primarily to scheduled and unscheduled repairs or
drydocking.

Part I

Item 5. Operating and Financial Review and Prospects

As of December 31, 2010, ten vessels, the Venice, Senatore, STI
Conqueror, STI Gladiator, STI Harmony, STI Heritage, STI Highlander,
STI Matador STI Spirit and BW Zambesi, were operating in the pools
managed by SCM. The majority of the vessels in these pools trade
in the spot market. The Noemi was chartered to a customer under
a fixed-rate long-term time charter contract that, as of the date of
this annual report, has a remaining duration of approximately
8.5 months.

IMPORTANT FINANCIAL AND OPERATIONAL TERMS AND
CONCEPTS

We use a variety of financial and operational terms and concepts.
These include the following:

Vessel revenues. Vessel revenues primarily include revenues
from time charters, pool revenues and voyage charters (in the
spot market). Vessel revenues are affected by hire rates and the
number of days a vessel operates. Vessel revenues are also
affected by the mix of business between vessels on time charter,
vessels in pools and vessels operating on voyage charter.
Revenues from vessels in pools and on voyage charter are more
volatile, as they are typically tied to prevailing market rates.

Voyage charters. Voyage charters or spot voyages are charters
under which the customer pays a transportation charge for the
movement of a specific cargo between two or more specified
ports. The shipowner pays all voyage expenses, and all vessel
operating costs unless the vessel to which the charter relates has
been time chartered-in.

Voyage expenses. Voyage expenses primarily include bunkers,
port charges, canal tolls, cargo handling operations and broker-
age commissions paid by us under voyage charters. These
expenses are subtracted from voyage charter revenues to calcu-
late time charter equivalent revenues.

Vessel operating costs. We are responsible for vessel operating
costs, which include crewing, repairs and maintenance, insurance,
stores, lube oils, communication expenses, and technical man-
agement fees. The two largest components of our vessel operat-
ing costs are crews and repairs and maintenance. Expenses for
repairs and maintenance tend to fluctuate from period to period
because most repairs and maintenance typically occur during
periodic drydockings. Please read “Drydocking” below. We expect
these expenses to increase as our fleet matures and to the extent
that it expands.

Additionally, these costs include technical management fees
charged by SSM. Historically, our fees under technical manage-
ment arrangements with SSM were under management agree-
ments with other Scorpio Group entities, which are related parties
of ours. Since agreements with related parties are by definition
not at arms length, the expenses incurred under these agree-
ments may have been different than the historical costs incurred
if the subsidiaries had operated as unaffiliated entities during prior

periods. Our estimates of any differences between historical
expenses and the expenses that may have been incurred had the
subsidiaries been stand-alone entities have been disclosed in the
notes to the historical consolidated financial statements included
elsewhere in this annual report. We are currently party to a techni-
cal management agreement with SSM. Under this agreement,
SSM provides us with technical services and the ability to subcon-
tract technical management of the ships with our approval. We
pay market-based fees for this service.

Drydocking. We must periodically drydock each of our vessels
for inspection, repairs and maintenance and any modifications to
comply with industry certification or governmental requirements.
Generally, each vessel is drydocked every 30 months. We capital-
ize a substantial portion of the costs incurred during drydocking
and amortize those costs on a straight-line basis from the comple-
tion of a drydocking to the estimated completion of the next dry-
docking. We immediately expense costs for routine repairs and
maintenance performed during drydocking that do not improve
or extend the useful lives of the assets. The number of drydock-
ings undertaken in a given period and the nature of the work per-
formed determine the level of drydocking expenditures.

Depreciation. Depreciation expense typically consists of:

• charges related to the depreciation of the historical cost of our
fleet (less an estimated residual value) over the estimated use-
ful lives of the vessels; and

• charges related to the amortization of drydocking expendi-
tures over the estimated number of years to the next sched-
uled drydocking.

Time charter equivalent revenue or rates. Time charter equiv-
alent, or TCE, revenue or rates, is a standard shipping industry per-
formance measure which is used to compare results between
different charter types. TCE revenue is vessel revenue less voyage
expenses. The TCE rate achieved on a given voyage is expressed
in U.S. dollars/day and is generally calculated by taking TCE reve-
nue and dividing that figure by the number of days in the period.

Revenue days. Revenue days are the total number of calendar
days our vessels were in our possession during a period, less the
total number of off-hire days during the period associated with
major repairs or drydockings. Consequently, revenue days repre-
sent the total number of days available for the vessel to earn rev-
enue. Idle days, which are days when a vessel is available to earn
revenue, yet is not employed, are included in revenue days. We
use revenue days to show changes in net vessel revenues
between periods.

Average number of vessels. Historical average number of ves-
sels consists of the average number of vessels that were in our
possession during a period. We use average number of vessels
primarily to highlight changes in vessel operating costs and
depreciation and amortization.

Part I

Item 5. Operating and Financial Review and Prospects

Contract of affreightment. A contract of affreightment, or COA,
relates to the carriage of specific quantities of cargo with multiple
voyages over the same route and over a specific period of time
which usually spans a number of years. A COA does not designate
the specific vessels or voyage schedules that will transport the
cargo, thereby providing both the charterer and ship owner
greater operating flexibility than with voyage charters alone. The
charterer has the flexibility to determine the individual voyage
scheduling at a future date while the ship owner may use differ-
ent ships to perform these individual voyages. As a result, COAs
are mostly entered into by large fleet operators such as pools or
ship owners with large fleets of the same vessel type. All of the
ship’s operating, voyage and capital costs are borne by the ship
owner while the freight rate normally is agreed on a per cargo ton
basis.

Commercial pools. To increase vessel utilization and thereby rev-
enues, we participate in commercial pools with other shipowners
of similar modern, well-maintained vessels. By operating a large
number of vessels as an integrated transportation system, com-
mercial pools offer customers greater flexibility and a higher level
of service while achieving scheduling efficiencies. Pools employ
experienced commercial charterers and operators who have close
working relationships with customers and brokers, while technical
management is performed by each shipowner. Pools negotiate
charters with customers primarily in the spot market. The size and
scope of these pools enable them to enhance utilization rates for
pool vessels by securing backhaul voyages and COAs, thus gener-
ating higher effective TCE revenues than otherwise might be
obtainable in the spot market while providing a higher level of
service offerings to customers.

ITEMS YOU SHOULD CONSIDER WHEN EVALUATING OUR
RESULTS

You should consider the following factors when evaluating our
historical financial performance and assessing our future
prospects:

• Our vessel revenues are affected by cyclicality in the
tanker markets. The cyclical nature of the tanker industry
causes significant increases or decreases in the revenue we
earn from our vessels, particularly those we trade in the spot
market. If we choose to pay dividends in the future, this will,
from period to period, affect the cash available to pay such
dividends. We intend to employ a chartering strategy to cap-
ture upside opportunities in the spot market while using fixed-
rate time charters to reduce downside risks, depending on
SCM’s outlook for freight rates, oil tanker market conditions
and global economic conditions. Historically, the tanker indus-
try has been cyclical, experiencing volatility in profitability due
to changes in the supply of, and demand for, tanker capacity.
The supply of tanker capacity is influenced by the number and
size of new vessels built, vessels scrapped, converted and lost,

the number of vessels that are out of service, and regulations
that may effectively cause early obsolescence of tonnage. The
demand for tanker capacity is influenced by, among other
factors:

• global and regional economic and political conditions;

•

increases and decreases in production of and demand for
crude oil and petroleum products;

increases and decreases in OPEC oil production quotas;

the distance crude oil and petroleum products need to be
transported by sea; and

• developments in international trade and changes in sea-

borne and other transportation patterns.

• Tanker rates also fluctuate based on seasonal variations
in demand. Tanker markets are typically stronger in the winter
months as a result of increased oil consumption in the north-
ern hemisphere but weaker in the summer months as a result
of lower oil consumption in the northern hemisphere and
refinery maintenance. In addition, unpredictable weather pat-
terns during the winter months tend to disrupt vessel schedul-
ing. The oil price volatility resulting from these factors has
historically led to increased oil trading activities in the winter
months. As a result, revenues generated by our vessels have
historically been weaker during the quarters ended June 30
and September 30, and stronger in the quarters ended March
31 and December 31.

• Our general and administrative expenses were affected by
the commercial management and administrative services
agreements we entered into with SCM and Liberty Holding
Company Ltd., respectively in December 2009, and costs
incurred from being a public company. Historically, we
incurred management fees for commercial and administrative
management under management agreements with other
Scorpio Group entities, which are parties related to us. Since
agreements with related parties are by definition not at arm’s
length, the expenses incurred under these agreements may
have been different than the historical costs incurred if the sub-
sidiaries had operated as unaffiliated entities during prior peri-
ods. Our estimates of any differences between historical
expenses and the expenses that may have been incurred had
the subsidiaries been stand-alone entities have been disclosed
in the notes to the historical consolidated financial statements
included elsewhere in this annual report.

In December 2009, we entered into a commercial management
agreement with SCM. We also entered into an administrative
services agreement with Liberty Holding Company Ltd., our
Administrator. Under these agreements, SCM provides us with
commercial services and our Administrator provides us with
administrative services. We pay fees under our commercial man-
agement agreement, which are identical to what SCM charges

Part I

Item 5. Operating and Financial Review and Prospects

to its pool participants, including third-party owned vessels. We
reimburse our Administrator for the reasonable direct or indirect
expenses it incurs in providing us with the administrative ser-
vices described above. We also pay our Administrator a fee for
arranging vessel purchases and sales for us equal to 1% of the
gross purchase or sale price, payable upon the consummation of
any such purchase or sale. We believe this 1% fee on purchases
and sales is customary in the tanker industry. Our general and
administrative management fees incurred prior to December 1,
2009 are estimates of the value of the general and administrative
services provided by Scorpio Group affiliates to us. These fees
may not have been equivalent to a market-based fee. The new

technical and administrative services agreements were negoti-
ated at rates similar to the rates under the previous agreements,
which we believe are customary in the tanker industry. In addi-
tion, we continue to incur additional general and administrative
expenses as a result of being a publicly traded company, includ-
ing costs associated with annual reports to shareholders and
SEC filings, investor relations, New York Stock Exchange fees and
tax compliance expenses.

RESULTS OF OPERATIONS

The following tables separately present our operating results for
the years ended December 31, 2010, 2009 and 2008.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2010 COMPARED TO THE YEAR ENDED DECEMBER 31, 2009

Vessel revenue
Vessel operating costs
Voyage expenses
Charterhire
Impairment
Depreciation
General and administrative expenses
Interest expense—bank loan
Net realized and unrealized (loss)/gain on
derivative financial instruments
Interest income
Other expense, net

For the year
Ended December 31,

2010

2009

Change

$ 38,797,913
(18,440,492)
(2,542,298)
(275,532)
—
(10,178,908)
(6,200,094)
(3,230,895)

(279,560)
36,534
(508,766)

27,619,041
(8,562,118)
—
(3,072,916)
(4,511,877)
(6,834,742)
(416,908)
(699,115)

148,035
4,929
(256,292)

11,178,872
(9,878,374)
(2,542,298)
2,797,384
4,511,877
(3,344,166)
(5,783,186)
(2,531,780)

(427,595)
31,605
(252,474)

Net (Loss)/income

$ (2,822,098)

3,418,037

(6,240,135)

Percentage
Change

40%
115%
100%
(91%)
(100%)
49%
1387%
362%

(289%)
641%
99%

(183%)

Net Loss/income. For the year ended December 31, 2010,we
incurred a net loss of $2.8 million, compared to net income of $3.4
million for the year ended December 31, 2009. The differences
between the two periods are discussed below.

Vessel revenue. Vessel revenue was $38.8 million for the year
ended December 31, 2010, an increase of $11.2 million, or 40%,
from vessel revenue of $27.6 million for the year ended December
31, 2009. The following table summarizes our revenue:

For the year
Ended December 31,

2010

2009

Change

% change

$ 19,417,128
15,179,603
3,916,529

17,203,709
7,438,726
—

2,213,419
7,740,877
3,916,529

284,653

2,976,606

(2,691,953)

$ 38,797,913

27,619,041

11,178,872

13%
104%
0%

(90%)

40%

Owned vessels
Time charter revenue
Pool revenue
Voyage revenue
Time chartered-in vessels
Pool revenue

TOTAL

Part I

Item 5. Operating and Financial Review and Prospects

The increase in time charter revenue of $2.2 million, or 13%, was
the result of an increase in the overall number of days of vessels
on time charter from 693 in 2009 to 854 in 2010. This increase was
driven by the acquisition of the STI Harmony and STI Heritage in
June 2010, which were acquired with existing time charter con-
tracts that expired in September and December 2010, respec-
tively. These contracts, along with the time charter contracts for
Noemi and Senatore comprised the time charter revenue for 2010.
The Noemi and Senatore, which were under time charter arrange-
ments beginning in 2007, comprised the time charter revenue for
2009. The time charter contract for the Senatore expired in August
2010 and the time charter contract for the Noemi is scheduled to
expire in December 2011. This increase was offset by a decrease in
the daily TCE rates from $24,824 per day in 2009 to $22,729 in 2010.

The increase in pool revenue of $7.7 million, or 104%, was due to
an increase in the number of days that vessels were employed in
the pools from 486 in 2009 to 1,205 in 2010. In 2009 the Venice and
Noemi (which was under a time charter in arrangement until May
2009) were the only vessels operating in the pool (Scorpio
Panamax Tanker Pool). In 2010, nine of our owned vessels and one
of our time chartered-in vessels operated in either the Scorpio
Aframax, Scorpio Panamax or Scorpio Handymax tanker pools.
This increase was offset by an overall decrease in daily TCE rates
from $21,425 per day in 2009, to $12,833 per day in 2010.

The increase in voyage revenue is a result of an increase in the
number of days that our vessels operated in the spot market from
0 in 2009 to 177 in 2010. During 2010, our newly purchased ves-
sels, STI Conqueror, STI Gladiator, STI Matador and STI Highlander
operated in the spot market prior to their entry in the Scorpio
Handymax Tanker Pool for 167 days. Additionally, the Senatore
operated in the spot market for 10 days subsequent to the termi-
nation of its time charter agreement and prior to its entry in the
Scorpio Panamax Tanker Pool.

The reduction of pool revenue for time chartered-in vessels of
$2.7 million, or 90%, was due to a reduction of time chartered-in
operating days from 121 in 2009 to 20 in 2010. In 2009, the Noemi
was time chartered-in for 121 days, while in 2010, the BW Zambesi
was time chartered in for 20 days. Both vessels operated in the
Scorpio Panamax Tanker Pool.

Vessel operating costs. Vessel operating costs for owned vessels
of $18.4 million for the year ended December 31, 2010, increased
$9.9 million, or 115%, from $8.6 million for the year ended
December 31, 2009. The increase is the result of an additional 1,163
operating days in 2010 which was driven by the purchase of seven
additional vessels in 2010.

Voyage expenses. The increase in voyage expenses is a result of
an increase in the number of days that our vessels operated in the
spot market from 0 in 2009 to 177 in 2010. During 2010, our newly
purchased vessels, STI Conqueror, STI Gladiator, STI Matador and STI
Highlander operated in the spot market for 167 days prior to their
entry in the Scorpio Handymax Tanker Pool. Additionally, the

Senatore operated in the spot market for 10 days subsequent to
the termination of its time charter agreement and prior to its
entry in the Scorpio Panamax Tanker Pool.

Charterhire. Charterhire expense of $0.3 million for the year
ended December 31, 2010 decreased $2.8 million, or 91%, from $3.1
million for the year ended December 31, 2009. The decrease was
due to 101 less operating days in the year ended December 31,
2010 and a reduction in the charter-hire rate we paid on our time
chartered-in vessels in 2010 compared to 2009. The BW Zambesi
was chartered in for a total of 20 days in 2010 at a charter-hire rate
of $13,850 per day. The Noemi was chartered-in by us for 121 days
in 2009 at a charter-hire rate of $26,750 per day plus a 50% profit
and loss arrangement where we agreed to pay 50% of the vessel’s
earnings in the pool above the daily charter-hire rate, and we
would receive 50% of the vessels earnings in the pool below
$26,750 per day. For year ended December 31, 2009, we recorded a
reduction in the charterhire expense of $108,000 because the ves-
sel’s earnings in the pool were less than $26,750 per day.

Impairment. In the year ended December 31, 2009, we recog-
nized an impairment loss of $4.5 million for Noemi and Senatore.
This impairment loss was triggered by reductions in vessel values,
and represented the difference between the carrying value and
recoverable amount, being fair value less cost to sell. We deter-
mined the fair value of each vessel by adding (i) the charter free
market value of the vessel to (ii) the discounted value of each ves-
sel’s time charter, which is the difference between each vessel’s
time charter contracted rate and the market rate for a similar type
of vessel with a similar contracted duration. In determining the
charter free market value, we took into consideration the estimated
valuations provided by an independent ship broker. No impair-
ments were recognized in the year ended December 31, 2010.

Impairment methodology

The carrying values of our vessels may not represent their fair mar-
ket value at any point in time since the market prices of second-
hand vessels tend to fluctuate with changes in charter rates and
the cost of constructing new vessels. At each reporting period
end date, we review the carrying amounts of our vessels to deter-
mine whether there is any indication that those vessels may have
suffered an impairment loss. In this regard, fluctuations in market
values below carrying values are considered to represent an
impairment triggering event that necessitates performance of a
full impairment review.

Impairment losses are calculated as the excess of a vessel’s carry-
ing amount over its recoverable amount. Under IFRS, the recover-
able amount is the higher of an asset’s (i) fair value less costs to
sell and (ii) value in use. Fair value less costs to sell is defined by
IFRS as “the amount obtainable from the sale of an asset or cash-
generating unit in an arm’s length transaction between knowl-
edgeable, willing parties, less the costs of disposal”. When we
calculate value in use, we discount the expected future cash flows
to be generated by our vessels to their net present value.

Part I

Item 5. Operating and Financial Review and Prospects

Our evaluation is performed on an individual vessel basis. The first
step of our impairment evaluation is to assess the fair value less
cost to sell of our vessels by obtaining vessel valuations from lead-
ing, independent and internationally recognized ship brokers. We
do this once each year. We then compare the market values from
the broker valuations (less an estimate of selling costs) to each
vessel’s carrying value and, if the carrying value exceeds the ves-
sel’s market value, an indicator of impairment exists. The indicator
of impairment prompts us to perform a calculation of the poten-
tially impaired vessel’s value in use.

In assessing value in use, the estimated future cash flows are dis-
counted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money
and the risks specific to the asset for which the estimates of future
cash flows have not been adjusted. In developing estimates of
future cash flows, we make assumptions about future charter
rates, vessel operating expenses, the estimated remaining useful
lives of the vessels and the discount rate. These assumptions are
based on historical trends as well as future expectations. Although
management believes that the assumptions used to evaluate
potential impairment are reasonable and appropriate, such
assumptions are highly subjective. Reasonable changes in the
assumptions for the discount rate or future charter rates could
lead to a value in use for some of our vessels that is equal to or less
than the carrying amount for such vessels. All of the aforemen-
tioned assumptions have been highly volatile in both the current
market and historically.

All of our owned vessels were built within the past ten years and
delivered to us within the past seven years, with seven of our ten
owned vessels being delivered in the year ended December 31,
2010. Thus, our fleet is relatively new. However, given the current
and historical volatility in market prices for similar vessels and
recent downward pressure on charter rates, the independent bro-
ker valuations we obtained in the current year reflected potential
indicators of impairment for six of our ten owned vessels.

At December 31, 2010, we performed an assessment as described
above. At that date, the carrying amounts of our vessels were
greater than the basic, meaning charter free, market value for six
of our ten owned vessels. In line with our policy, for each of the
aforementioned six vessels we performed a value in use calcula-
tion where we estimated the vessel’s future cash flows based on a
combination of the latest forecast time charter rates for the next
three years (obtained from a third party service provider), the ten
year historical average of charter rates in the shipping industry for
periods thereafter, and our best estimate of vessel operating
expenses. These cash flows were then discounted to their present
value, using a discount rate based on our current borrowing rates
adjusted for certain credit risks. The value in use calculations were
greater than the carrying amounts of the vessels in all instances,
which resulted in no impairment being recognized. In addition, if
the charter rates were adjusted downward by 5% or the discount

rate was increased by 1% the value in use of the vessels would still
have exceeded the carrying value of the six vessels in question.

Illustrative comparison of possible excess of carrying amounts over
estimated charter-free market value of certain vessels

During the past few years, the market values of vessels have expe-
rienced particular volatility, with substantial declines in many ves-
sel classes. As a result, the charter-free market value, or basic
market value, of certain of our vessels may have declined below
the carrying amounts of those vessels. As described above, our
accounting policy is such that while this is considered to be an
impairment triggering event, recoverable amount which consid-
ers value in use must also be considered. In this regard, we have
concluded that the value in use for our vessels is higher than their
carrying values and consequently, no impairment is required.

The table set forth below indicates (i) the carrying amount of each
of our vessels as of December 31, 2010, (ii) which of our vessels
had a higher or lower carrying value than vessel valuations we
received from two shipping brokers, and (iii) the aggregate differ-
ence between the carrying amount and the market value repre-
sented by such vessels. This aggregate difference represents the
approximate analysis of the amount by which we believe we
would record a loss if we sold those vessels with a carrying value
higher than their vessel valuations, or a gain if we sold those ves-
sels with a carrying value lower than their vessel valuations, in the
current environment, on industry standard terms, in cash transac-
tions, and to a willing buyer where we are not under any compul-
sion to sell, and where the buyer is not under any compulsion to
buy. For purposes of this calculation, we have assumed that the
vessels would be sold at a price that reflects our estimate of their
current basic market values. However, we are not holding our ves-
sels for sale.

Our estimates of basic market value assume that our vessels are all
in good and seaworthy condition without need for repair and if
inspected would be certified in class without notations of any
kind. Our estimates are based on information available from vari-
ous industry sources, including:

•

reports by industry analysts and data providers that focus on
our industry and related dynamics affecting vessel values;

• news and industry reports of similar vessel sales;

• news and industry reports of sales of vessels that are not simi-
lar to our vessels where we have made certain adjustments in
an attempt to derive information that can be used as part of
our estimates;

• approximate market values for our vessels or similar vessels
that we have received from shipbrokers, whether solicited or
unsolicited, or that shipbrokers have generally disseminated;

• offers that we may have received from potential purchasers of

our vessels; and

Part I

Item 5. Operating and Financial Review and Prospects

• vessel sale prices and values of which we are aware through
both formal and informal communications with shipown-
ers, shipbrokers, industry analysts and various other ship-
ping industry participants and observers.

As we obtain information from various industry and other sources, our
estimates of basic market value are inherently uncertain. In addition,
vessel values and revenues are highly volatile; as such, our estimates
may not be indicative of the current or future basic market value of
our vessels or prices that we could achieve if we were to sell them.

Vessel Name

Year Built

Carrying value (in $ millions)

1
2
3
4
5
6
7
8
9
10

(1)

(2)

Noemi
Senatore
Venice
STI Conqueror
STI Harmony
STI Heritage
STI Matador
STI Gladiator
STI Highlander
STI Spirit

Total

2004
2004
2001
2005
2007
2008
2003
2003
2007
2008

37.4(1)
35.7(2)
21.2(2)
26.1(1)
44.5(1)
44.2(2)
22.6(1)
22.7(1)
26.8(2)
52.3(1)

333.5

Indicates vessels for which we believe, as of December 31, 2010, the basic charter-free market value is lower than the vessel’s
carrying value. We believe that the aggregate carrying value of these vessels exceeds their aggregate basic charter-free market
value by approximately $5.5 million.

Indicates vessels for which we believe, as of December 31, 2010, the basic charter-free market value is higher than the vessel’s
carrying value. We believe that the aggregate carrying value of these vessels is less than their aggregate basic charter-free
market value by approximately $14.6 million.

We note that one of our vessels, the Noemi, is currently employed
under a long-term, time charter, which expires in December 2011.
If we sell this vessel with the charter attached, the sale price may
be affected by the relationship of the charter rate to the prevailing
market rate for a comparable charter with the same terms. In the
case of the Noemi, we believe this is an above-market time char-
ter, and that if this vessel were sold with the charter attached, we
would receive a premium over its basic charter-free market value.

We refer you to the risk factor entitled “The market values of our
vessels may decrease, which could cause us to breach covenants
in our credit facilities and adversely affect our operating results”
and the discussion herein under the heading “Risks Related To Our
Industry.”

Depreciation. Depreciation of $10.2 million for the year ended
December 31, 2010 increased $3.3 million, or 49%, from $6.8 mil-
lion for the year ended December 31, 2009. The increase in depre-
ciation expense was primarily due to an increase in our average
number of owned vessels from 3.00 in 2009 to 6.19 in 2010. This
increase was offset by a change in the depreciable life of our
owned vessels from 20 to 25 years in the second quarter 2010. The
estimated useful life of 25 years is management’s best estimate
and is also consistent with industry practice for similar vessels. This
change in estimate was applied prospectively and the impact on

the income statement for the year ended December 31, 2010
resulted in a decrease in depreciation expense and increase in net
income of $1.2 million. This change will result in a decrease in
depreciation expense of approximately $1.6 million for each year
prospectively until the 20 year anniversary date of the vessels
impacted by this change. It was also offset by an increase in the
estimated residual value due to changes in scrap rates since
December 31, 2009. This change resulted in a decrease in depre-
ciation expense of $0.4 million in the year ended December 31,
2010, as compared to the depreciation which would have been
recorded using the estimated residual values prevailing at
December 31, 2009. See discussion of this change in estimate in
Note 1 to the audited consolidated financial statements included
in “ITEM 18 Financial Statements”.

General and administrative expense. General and administra-
tive expense, which includes the commercial management and
administrative fees, of $6.2 million for the year ended December
31, 2010, increased $5.8 million, or 1,387%, from $0.4 million for the
year ended December 31, 2009. This increase is a result of incre-
mental costs incurred to operate as a public company. Specifically,
general and administrative expenses in 2010 were comprised of
salaries of $2.4 million, restricted stock amortization of $1.0 million,
legal and professional fees of $0.9 million, commercial

Part I

Item 5. Operating and Financial Review and Prospects

management fees of $0.9 million, directors’ and officers’ insurance
and fees of $0.6 million and other related expenses. General and
administrative expenses in 2009 were comprised of commercial
management fees of $0.3 million and other related expenses.

Interest expense—bank loan. Interest expense-bank loan was
$3.2 million for the year ended December 31, 2010, an increase of
$2.5 million or 362% from $0.7 million for year ended December
31, 2009. The year ended December 31, 2010 included interest
expense of $2.6 million on the 2010 Credit Facility and 2005 Credit
Facility in addition to $0.5 million of lender commitment fees on
the undrawn portion of the 2010 Credit Facility and $0.1 million of
other finance charges. The year ended December 31, 2009
included interest expense on the 2005 Credit Facility.

value of the swap (the contract rate versus the current market
rate). The realized loss is the result of the settlement difference
between contracted interest rates and the actual market interest
rates (LIBOR). The interest rate swap, which was related to the
2005 Credit Facility was terminated on April 9, 2010.

Interest income. Interest income was $36,534 for the year ended
December 31, 2010, an increase of $31,605 or 641% from the $4,929
for the year ended December 31, 2009. The increase was primarily
due to an increase in our cash balance during the period.

Other expense, net. Other expense, net was a loss of $508,766
for the year ended December 31, 2010, and a net loss of $256,292
for the year ended December 31, 2009. The increase was primarily
driven by expenses incurred for the initial public offering in April
2010.

Results of operations – segment analysis

Panamax/LR1 segment

The following table summarizes vessel operations for our Panamax
segment

Panamax/LR1 segment

2010

2009

Change

For the year
Ended December 31,

Vessel revenue
Vessel operating costs
Voyage expenses
Charterhire expense
Impairment
Depreciation
General and administrative expenses
Interest expense, net
Realized and unrealized (loss)/gain on derivative

financial instruments

Other expense, net

Segment profit

Time charter revenue per day
Pool revenue per day
Voyage revenue per day
Operating costs per day

Time charter revenue days
Pool revenue days
Voyage revenue days
Operating days

Average number of owned vessels
Average number of time chartered-in vessels

$ 29,344,505
(12,363,968)
(253,106)
(275,532)
—
(7,493,632)
(600,476)
(133,708)

27,619,041
(8,562,118)
—
(3,072,916)
(4,511,877)
(6,834,742)
(416,908)
(694,186)

$ 1,725,464
3,801,850
253,106
(2,797,384)
(4,511,877)
658,890
183,568
(560,478)

(279,560)
(4,420)

148,035
(256,292)

427,595
(251,872)

7,940,103

3,418,037

4,522,066

22,729
15,213
2,839
8,189

854
634
10
1,510

4.14
0.05

24,824
21,425
—
7,819

693
486
—
1,095

3.00
0.33

(2,095)
(6,212)
2,839
370

161
148
10
415

1.14
(0.28)

Percentage
Change

6%
44%
(100%)
(91%)
(100%)
10%
44%
(81%)

(289%)
(98%)

132%

(8%)
(29%)
100%
5%

23%
30%
100%
38%

38%
(85%)

Vessel Revenue. The increase in revenue of $1.7 million, or 6%,
was the result of an increase in the overall number of total reve-
nue days from 1,179 days in 2009 to 1,499 days in 2010. This was

driven by the acquisition of the STI Harmony and STI Heritage in
June 2010 which were acquired with existing time charter con-
in September and December 2010,
tracts that expired

Part I

Item 5. Operating and Financial Review and Prospects

respectively. These, along with the time charter contracts with the
Noemi and Senatore comprised the time charter revenue for 2010.
This is compared to 2009 where only the Noemi and Senatore were
under time charter arrangements beginning in 2007. The time
charter contract for the Senatore expired in August 2010 and the
time charter contract for the Noemi is scheduled to expire in
December 2011.

The number of days of vessels employed in the pool increased
from 486 in 2009 to 634 in 2010. In 2010, four of our owned vessels
and one of our time chartered-in vessels operated in the Scorpio
Panamax Tanker Pool. In 2009 the Venice and Noemi (which was
under a time charter-in arrangement) were the only vessels oper-
ating in the pool (Scorpio Panamax Tanker Pool). The increase was
offset by an overall decrease in daily TCE rates from $21,425 per
day in 2009, to $15,213 per day in 2010.

Vessel operating costs. Vessel operating costs increased as a
result of an increase in the number of operating days from 1,095 in
2009 to 1,510 in 2010 which was driven by the purchase of the STI
Harmony and STI Heritage in the second quarter 2010.

Voyage expenses. The increase in voyage expenses is a result of
the Senatore operating in the spot market for 10 days subsequent
to the termination of its time charter agreement and prior to its
entry in the Scorpio Panamax Tanker Pool.

Charterhire. Charterhire expense of $0.3 million for the year
ended December 31, 2010 decreased $2.8 million, or 91%, from
$3.1 million for the year ended December 31, 2009. The decrease
was due to 101 less operating days in the year ended December
31, 2010and a reduction in the charter-hire rate we paid on our
time chartered-in vessels in 2010 compared to 2009. The BW
Zambesi was chartered in for a total of 20 days in 2010 at a charter-
hire rate of $13,850 per day. The Noemi was chartered-in by us for
121 days in 2009 at a charter-hire rate of $26,750 per day plus a
50% profit and loss arrangement where we agreed to pay 50% of
the vessel’s earnings in the pool above the daily charter-hire rate,
and we would receive 50% of the vessels earnings in the pool
below $26,750 per day. For the year ended December 31, 2009, we
recorded a reduction in the charterhire expense of $108,000
because the vessel’s earnings in the pool were less than $26,750
per day.

Impairment. In the year ended December 31, 2009, we recog-
nized an impairment loss of $4.5 million for Noemi and Senatore,
both Panamax vessels. No impairment was recognized in 2010.

Depreciation. Depreciation and amortization expense of $7.5
million for the year ended December 31, 2010, increased $0.7 mil-
lion, or 10%, from $6.8 million for the year ended December 31,
2009. The increase in depreciation expense was primarily due to
an increase in our average number of owned vessels from 3.00 in
2009 to 4.14 in 2010. This increase was offset by the effect from a
change in the depreciable life of our owned vessels from 20 to 25
years, which occurred in the second quarter of 2010, together with

the effect of an increase in estimated residual values of our vessels.
See discussion of these changes in Note 1 to the audited consoli-
dated financial statements included in “ITEM 18 Financial
Statements.”

General and administrative expense. General and administra-
tive expense of $0.6 million for the year ended December 31, 2010,
increased $0.2 million or 44% from $0.4 million for the year ended
December 31, 2009. General and administrative expenses for the
Panamax/LR1 segment primarily consist of commercial manage-
ment fees and administrative fees to SCM. The increase is the
result of an increase in the average number of owned vessels from
3.00 in 2009 to 4.14 in 2010. These fees are described in Note 14 to
the audited consolidated financial statements in “ITEM 18 Financial
Statements”.

Interest expense, net. Interest expense, net was $0.2 million for
the year ended December 31, 2010, a decrease of approximately
$0.6 million or 81% from $0.7 million for year ended December
31, 2009. Interest expense for the Panamax/LR1 segment repre-
sents interest for the 2005 Credit Facility. Interest expense in
2010 represents only three months of interest as this facility was
repaid in April 2010 while 2009 represents interest expense
incurred for the entire year.

Net realized/unrealized (loss) on derivative financial instru-
ments. Gain/(loss) on derivatives from our interest rate swap,
which consists of realized and unrealized gains and losses, was a
realized loss of $0.3 million for the year ended December 31, 2010.
For the year ended December 31, 2009, there was an unrealized
gain of $1.0 million offset by a realized loss of $0.8 million. The
unrealized gains and losses reflect the adjustment of the market
value of the swap (the contract rate versus the current market
rate). The realized loss is the result of the settlement difference
between contracted interest rates and the actual market interest
rates (LIBOR). The interest rate swap, which was related to the
2005 Credit Facility, was terminated on April 9, 2010.

Other expense, net. Other expense, net was a loss of $4,420 for
the year ended December 31, 2010, and a net loss of $256,292 for
the year ended December 31, 2009. The change was primarily
driven by expenses incurred in 2009 for the initial public offering
in April 2010. IPO related expenses incurred in 2010 were not
recorded as part of the Panamax/LR1 segment.

Aframax/LR2 segment

On November 2010, we took delivery of the STI Spirit, a 113,091
dwt Aframax/LR2 product tanker. From delivery on November
10, 2010 through January 11, 2011, the STI Spirit operated in the
Scorpio Aframax Tanker Pool, which traded a mix of crude and
product tankers. As of March 25, 2011, this vessel joined the
Scorpio LR2 Pool, which focuses solely on product tankers.
This is the only vessel operating in our Aframax/LR2 segment.
We did not have vessels operating in this segment in prior
years.

Part I

Item 5. Operating and Financial Review and Prospects

The following table summarizes vessel operations for our Aframax segment.

Aframax/LR2 segment

Vessel revenue
Vessel operating costs
Depreciation
General and administrative expenses
Interest income

Segment loss

Pool revenue per day
Operating costs per day

Pool revenue days
Operating days

Average number of owned vessels

For the year
Ended December 31,

2010

641,278
(426,788)
(293,211)
(14,747)
778

(92,690)

12,460
8,293

51
51

0.14

Handymax segment

In June and July 2010 we took delivery of the Handymax vessels
STI Conqueror, STI Gladiator, STI Matador and STI Highlander. These
vessels operated in the spot market prior to their entry in the
Scorpio Handymax Tanker Pool for a total of 167 days. These

vessels currently comprise all of the vessels in our Handymax
operating segment. We did not have vessels operating in this
segment in prior years.

The following table summarizes vessel operations for our
Handymax segment.

Handymax segment

Vessel revenue
Vessel operating costs
Voyage expenses
Charterhire expense
Depreciation
General and administrative expenses
Interest income

Segment loss

Pool revenue per day
Voyage revenue per day
Operating costs per day

Pool revenue days
Voyage revenue days
Operating days

Average number of owned vessels

For the year
Ended December 31,

2010

8,812,130
(5,649,736)
(2,289,192)
—
(2,389,669)
(266,509)
1,383

(1,781,593)

9,965
8,077
8,107

520
167
697

1.91

Part I

Item 5. Operating and Financial Review and Prospects

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2009 COMPARED TO THE YEAR ENDED DECEMBER 31, 2008

Vessel revenue
Vessel operating costs
Charterhire
Impairment
Depreciation
General and administrative expenses
Interest expense—bank loan
Net realized and unrealized gain/(loss) on derivative

financial instruments

Interest income
Other expense, net

Net Income

For the year
Ended December 31,

2009

2008

Change

27,619,041
(8,562,118)
(3,072,916)
(4,511,877)
(6,834,742)
(416,908)
(699,115)

148,035
4,929
(256,292)

39,274,196
(8,623,318)
(6,722,334)
—
(6,984,444)
(600,361)
(1,710,907)

(2,463,648)
35,492
(18,752)

(11,655,155)
61,200
3,649,418
(4,511,877)
149,702
183,453
1,011,792

2,611,683
(30,563)
(237,540)

3,418,037

12,185,924

(8,767,887)

Percentage
Change

(30%)
(1%)
(54%)
—
(2%)
(31%)
(59%)

(106%)
(86%)
(1267%)

(72%)

Net income. Net income for the year ended December 31, 2009
was $3.4 million, a decrease of $8.8 million, or 72%, when com-
pared to net income of $12.2 million for the year ended December
31, 2008. The differences between the two periods are discussed
below.

Vessel revenue. Revenue was $27.6 million for the year ended
December 31, 2009, a decrease of $11.7 million, or 30%, from reve-
nue of $39.3 million for the year ended December 31, 2008. The
following table summarizes our revenue:

Owned vessels
Time charter revenue
Pool revenue
Time chartered-in vessels
Pool revenue

TOTAL

For the year
Ended December 31,

2009

2008

Change

% change

17,203,709
7,438,726

18,293,963
13,201,424

(1,090,254)
(5,762,698)

2,976,606

7,778,809

(4,802,203)

27,619,041

39,274,196

(11,655,155)

(6%)
(44%)

(62%)

(30%)

The reduction in time charter revenue of $1.1 million, or 6%, was
primarily the result of Noemi and Senatore both being drydocked
in 2009. Noemi was drydocked in August 2009 (off-hire for 23
days), which reduced revenue by $0.6 million, and Senatore was
drydocked in May 2009 (off-hire for 14 days), which reduced reve-
nue by $0.4 million. Noemi and Senatore were employed on time
charters that began in 2007 for the years ended December 31,
2009 and 2008.

The reduction in pool revenue for the owned vessel Venice of $5.8
million, or 44%, was due to a decrease in the spot market rates.
The majority of the vessels in the Scorpio Panamax Tanker Pool
operate in the spot market.

The reduction of the pool revenue for time chartered-in vessels of
$4.8 million, or 62%, was due to 95 less operating days in the year
ended December 31, 2009 due to the termination of a time

Part I

Item 5. Operating and Financial Review and Prospects

charter-in of a vessel that was chartered in for the period of April
29, 2008 to May 1, 2009 and a decrease in spot market rates, which
resulted in a decrease in the pool rates.

Vessel operating costs. Vessel operating costs for owned vessels
for the years ended December 31, 2009 and 2008 were $8.6 mil-
lion in each year; there were no significant changes in vessel oper-
ating costs from one year to another.

Charterhire. Charterhire expense of $3.1 million for the year
ended December 31, 2009 decreased $3.6 million, or 54%, from
$6.7 million for the year ended December 31, 2008. The decrease
was due to 95 less operating days in the year ended December 31,
2009 due to the termination of a time charter-in vessel in May
2009, and a reduction in the profit and loss arrangement included
in the charterparty. The vessel was chartered-in by us from May
29, 2008 to May 1, 2009 at $26,750 per day plus a 50% profit and
loss arrangement where we agreed to pay 50% of the vessel’s
earnings in the pool above the daily charterhire rate, and we
would receive 50% of the vessels earnings in the pool below
$26,750 per day. For the year ended December 31, 2009, we
recorded a reduction in charterhire expense of $108,000 because
the vessel’s earnings in the pool were less than $26,750 per day.
For the year ended December 31, 2008, we recorded an increase
in the charterhire expense of $1.0 million because the vessel’s
earnings in the pool were more than $26,750 per day.

Impairment. In the year ended December 31, 2009, we recog-
nized an impairment loss of $4.5 million for Noemi and Senatore.
This impairment loss was triggered by reductions in vessel val-
ues, and represented the difference between the carrying value
and recoverable amount, being fair value less cost to sell. We
determined the fair value of each vessel by adding (i) the charter
free market value of the vessel to (ii) the discounted value of
each vessel’s time charter, which is the difference between each
vessel’s time charter contracted rate and the market rate for a
similar type of vessel with a similar contracted duration. In deter-
mining the charter free market value, we took into consideration
the estimated valuations provided by an independent ship
broker.

General and administrative expense. General and administra-
tive expense, which includes commercial management and
administrative fees, of $0.4 million for the year ended December
31, 2009, decreased $0.2 million, or 31%, from $0.6 million for the
year ended December 31, 2008. This decrease in 2009 primarily
resulted from the reduction in the administrative fees charged by
our managers.

Interest expense—bank loan. Interest expense-bank loan was
$0.7 million for the year ended December 31, 2009, a decrease of
$1.0 million, or 59%, from $1.7 million for year ended December 31,
2008. The decrease in interest expense was primarily due to a
reduction in LIBOR and a decrease in the principal outstanding
during the periods the 2005 Credit Facility was outstanding,
which was paid in full from the proceeds of the initial public offer-
ing. The average interest rate including margin decreased to
1.70% for the year ended December 31, 2009 from 3.71% for the
year ended December 31, 2008. The average principal for the year
ended December 31, 2009 and 2008 was $41.6 million and $45.2
million, respectively.

Gain/(loss) on derivative financial instruments. Gain/(loss) on
derivatives from our interest rate swap, which consists of realized
and unrealized gains and losses, was a gain of $0.1 million for the
year ended December 31, 2009; there was an unrealized gain of
$1.0 million offset by a realized loss of $0.8 million. For the year
ended December 31, 2008, there was a loss on derivatives of $2.5
million, which was from an unrealized loss of $2.1 million and a
realized loss of $0.4 million. The unrealized gains and losses reflect
the adjustment of the market value of the swap (the contract rate
versus the current market rate). The realized loss is the result of the
settlement difference between contracted interest rates and the
actual market interest rates (LIBOR).

Interest income. Interest income was $4,929 for the year ended
December 31, 2009, a decrease of $30,563, or 86%, from the
$35,492 for the year ended December 31, 2008. The decrease was
primarily due a reduction in interest rates for our cash deposits
and reduction in the cash balance.

Other expense, net. Other expense, net was a loss of $256,292
for the year ended December 31, 2009, and a loss of $18,752 for
the year ended December 31, 2008. This change was primarily the
result of sundry finance expenses and changes in foreign currency
gains and losses.

Results of operations – segment analysis

Panamax segment

As discussed in Note 1 to the consolidated financial statements in
Item 18 below, the Panamax/LR1 segment was our only operating
segment in 2009 and 2008. Therefore, all discussion regarding
fluctuations in income statement account line items between the
periods can be obtained from the 2009 compared to 2008 con-
solidated results of operations discussion above.

The following table summarizes income from vessel operations
for our Panamax/LR1 segment

Part I

Item 5. Operating and Financial Review and Prospects

Panamax/LR1 segment

2009

2008

Change

For the year
Ended December 31,

Vessel revenue
Vessel operating costs
Charterhire expense
Impairment
Depreciation
General and administrative expenses
Interest expense, net
Realized and unrealized (loss)/gain on derivative

financial instruments

Other expense, net

Segment profit

Time charter revenue per day
Pool revenue per day
Operating costs per day

Time charter revenue days
Pool revenue days
Operating days

Average number of owned vessels
Average number of time chartered-in vessels

27,619,041
(8,562,118)
(3,072,916)
(4,511,877)
(6,834,742)
(416,908)
(694,186)

148,035
(256,292)

39,274,196
(8,623,318)
(6,722,334)
—
(6,984,444)
(600,361)
(1,675,415)

(2,463,648)
(18,752)

3,418,037

12,185,924

(11,655,155)
(61,200)
(3,649,418)
4,511,877
(149,702)
(183,453)
(981,229)

(2,611,683)
237,540

(8,767,887)

24,824
21,425
7,819

693
486
1,095

3.00
0.33

36,049
24,992
7,875

732
582
1,314

3.00
0.59

(11,225)
(3,567)
(56)

(39)
(96)
(219)

—
(0.26)

Percentage
Change

(30%)
(1%)
(54%)
(100%)
(2%)
(31%)
(59%)

(106%)
1267%

(72%)

(31%)
(14%)
(1%)

(5%)
(16%)
(17%)

0%
(44%)

B. Liquidity and Capital Resources

On April 6, 2010, we closed the issuance of 12,500,000 shares of
common stock at $13.00 per share in our initial public offering and
received net proceeds of $149.6 million, after deducting under-
writers’ discounts and offering expenses. On April 9, 2010, we
repaid in full the outstanding balance of $38.9 million of our 2005
Credit Facility from the proceeds of the initial public offering. On
May 4, 2010, we closed the issuance of 450,000 shares of common
stock at $13.00 and received $5.2 million, after deducting under-
writers’ discounts, when the underwriters in the Company’s initial
public offering partially exercised their over-allotment option.

On June 2, 2010, we executed our $150.0 million loan facility, the
2010 Credit Facility, which is described below. During 2010 we
drew the entire amount of the 2010 Credit Facility to partially
finance the vessel acquisitions.

stock at $9.80 and received $6.4 million, after deducting under-
writers’ discounts, when the underwriters in our follow-on public
offering fully exercised their over-allotment option. Additionally,
510,204 shares were issued in a concurrent private placement to a
member of the Lolli-Ghetti family for total proceeds of $5.0
million.

The remaining proceeds of our initial public offering and follow-
on offering will be used for working capital, general corporate
expenses, and vessel acquisitions.

On March 9, 2011, we executed a credit facility with DVB Bank SE
(described below) for a senior secured term loan facility for $27.3
million.

Our primary source of funds for our short-term and long-term
liquidity needs will be the cash flows generated from our vessel
operations, which are currently derived from our time charter-out
contract for the Noemi and the pool income from our remaining
vessels. Time charters provide contracted revenue that reduces
the volatility (rates can fluctuate within months) and seasonality
(rates are generally stronger in first and fourth quarters of the year)
from vessels that operate in the spot market. The pools reduce

Part I

Item 5. Operating and Financial Review and Prospects

volatility because (i) they aggregate the revenues and expenses of
all pool participants and distribute net earnings to the partici-
pants based on an agreed upon formula and (ii) some of the ves-
sels in the pool are on time charter. We believe these cash flows
from operations, and our cash balance will be sufficient to meet
our existing liquidity needs for the next 12 months from the date
of this annual report.

As of December 31, 2010, our cash balance was $68.2 million,
which is up from our cash balance of $0.4 million as of December
31, 2009. The increase in cash balance was due to proceeds from
our initial public offering in April 2010 along with the subsequent
follow-on offering in November 2010 in addition to the full draw
down of our 2010 Credit Facility. These proceeds were offset by
the purchase of seven vessels throughout the year. For the year
ended December 31, 2010, our net cash inflow from operating
activities was $4.9 million, our net cash outflow from investing
activities was $245.6 million and the net cash inflow from financ-
ing activities was $308.4 million. For the year ended December 31,
2009, our net cash inflow from operating activities was $9.3 mil-
lion and the net cash outflow from financing activities was $12.5
million, which included a dividend $8.7 million.

Facility and obligations under our four time charter-in
arrangements.

The 2010 Credit Facility and STI Spirit Credit Facility require us to
comply with a number of covenants, including financial cove-
nants related to liquidity, consolidated net worth, loan to value
ratios and collateral maintenance; delivery of quarterly and annual
financial statements and annual projections; maintaining ade-
quate insurances; compliance with laws (including environmen-
tal); compliance with ERISA; maintenance of flag and class of the
initial vessels; restrictions on consolidations, mergers or sales of
assets; approvals on changes in the manager of the vessels; limita-
tions on liens; limitations on additional indebtedness; prohibitions
on paying dividends if a covenant breach or an event of default
has occurred or would occur as a result of payment of a dividend;
prohibitions on transactions with affiliates; and other customary
covenants.

We have one vessel which as of December 31, 2010, is scheduled
to be drydocked within the next 12 months for an estimated cost
of $0.9 million.

Cash Flows

As of December 31, 2010, our long-term liquidity needs were com-
prised of our debt repayment obligations for our 2010 Credit

The table below summarizes our sources and uses of cash for the
periods presented:

Condensed Cash Flows
Cash inflow from operating activities
Cash outflow from investing activities
Cash inflow/(outflow) from financing activities

For the Year Ended
December 31,

2010

2009

2008

4,906,478
(245,594,809)
308,430,737

9,305,851
—
(12,468,990)

24,837,892
—
(22,384,000)

Cash flows for the year ended December 31, 2010 com-
pared to the year ended December 31, 2009

Cash inflow from operating activities

Net cash inflow from operating activities was $4.9 million for the
year ended December 31, 2010, which was a decrease of $4.4 mil-
lion from the year ended December 31, 2009. The primary reasons
for the decrease were (i) an increase in vessel operating expenses
of $9.9 million, (ii) an increase in voyage expenses of $2.5 million
(iii) an increase in general and administrative expenses of $5.8 mil-
lion, (iv) an increase in interest expense of $2.5 million, (v) a net
increase in other assets and liabilities of $7.5 million and (vii) an
interest rate swap termination payment of $1.9 million. These
increases were offset by (i) an increase in vessel revenue of $11.2
million, (ii) a decrease in charter hire expense of $2.8 million, (iii) a
decrease of realized losses on derivative financial instruments of
$0.5 million, (iv) a decrease in drydock payments of $0.6 million, (v)

a decrease of shareholder receivables $3.9 million, (vi) a one-time
payment to shareholders of $3.2 million in 2009 and (vii) non-cash
amortization expense of $3.3 million (relating to the amortization
of acquired time charter contracts of $2.3 million and restricted
stock amortization of $1.0 million which is included in the change
in vessel revenue and general and administrative expenses above).

Cash outflow from investing activities

Cash outflow from investing activities was $245.6 million for the
year ended December 31, 2010; no cash was used for investing
activities in the year ended December 31, 2009. This increase is
entirely attributable to the cash payments for the purchase and
delivery of three vessels in June 2010, two vessels in July 2010, one
vessel in August 2010 and one vessel in November 2010.

• Two of the tankers delivered in June 2010 are LR1 ice class 1A
sister ships, STI Harmony and STI Heritage, and were acquired for

Part I

Item 5. Operating and Financial Review and Prospects

an aggregate price of $92.9 million (including a 1% commission
paid to Liberty, a related party administrator), which included an
estimated $2.3 million related to the value of the existing time
charter contracts. The third vessel delivered in June 2010 was
the STI Conqueror, which is a Handymax ice class 1B ship, and
was acquired for $26.3 million (including a 1% commission paid
to Liberty, a related party administrator).

• The vessels delivered in July 2010 were the STI Matador and STI
Gladiator which are Handymax vessels and were acquired for
an aggregate price of $46.4 million (including a 1% commis-
sion paid to Liberty, a related party administrator).

• The vessel delivered in August 2010, the STI Highlander, which
is a Handymax vessel was acquired for a purchase price of
$27.3 million (including a 1% commission paid to Liberty, a
related party administrator).

• The vessel acquired in November 2010, the STI Spirit, an LR2
Aframax product tanker for a purchase price of $52.7 million
(including a 1% commission paid to Liberty, a related party
administrator).

o The agreement also included two purchase options with
the seller. Each option grants us the right, but not the obli-
gation, to purchase a 2008 built LR1 ice class-1A product
tanker (approximately 63,600 dead weight tons) for a price
of $45.0 million. Each option can be exercised at any time
until September 2011. The combined fair value of the two
options has been estimated at $126,337. The fair value of
the options has been reflected as part of other assets and
the options will be expensed through the income state-
ment if they are impaired or expire unexercised.

Cash inflow from/(outflow from) financing activities

Cash flow from financing activities was an inflow $308.4 million
for the year ended December 31, 2010, and an outflow of $12.5
million for the year ended December 31, 2009 representing a
$320.9 million increase in cash flow compared to the prior year.
This increase was due to the net proceeds of the initial public
offering of $154.8 million, proceeds from the issuance of long-
term debt under the 2010 Credit Facility of $150.0 million and net
proceeds from the follow-on offering in November 2010 of $53.2
million offset by principal payments on the 2010 Credit Facility
of $4.8 million, the repayment of the 2005 Credit Facility of $39.8
million, payment of deferred financing fees under the 2010
Credit Facility of $2.2 million and the acquisition of treasury
shares of $2.6 million. Cash outflow from financing activities for
the year ended December 31, 2009 was attributable to dividends
paid of $8.6 million, bank loan repayments of $3.6 million and
the payment expenses related to the initial public offering of
$0.3 million.

Cash flows for the year ended December 31, 2009 compared
to the year ended December 31, 2008

Cash inflow from operating activities

Net cash inflow from operating activities was $9.3 million for the
year ended December 31, 2009, which was a decrease of $15.5 mil-
lion from the year ended December 31, 2008. The primary reasons
for the decrease were (i) lower revenues from the vessels in the
pool ($10.6 million), (ii) 37 off-hire days for two of the vessels that
were in drydock during 2009 ($1.0 million); changes in the share-
holder receivable and payable ($7.7 million) and (iii) drydock pay-
ments for two of our vessels that were performed in 2009 ($1.6
million). These reductions were partially offset by (i) a decrease in
the charterhire expense ($3.6 million), and (ii) changes in other
assets and liabilities ($1.8 million).

Cash flow from investing activities

There was no cash used in investing activities for either of the
periods.

Cash outflow from financing activities

Cash outflow from financing activities was $12.5 million for the
year ended December 31, 2009, which was $9.9 million less than
the cash used for the year ended December 31, 2008. This
decrease was due to a reduction in dividends paid of $10.1 million
($8.7 million for the year ended December 31, 2009 and $18.8 mil-
lion in the year ended December 31, 2008). During the years
ended December 31, 2009 and 2008, we made scheduled princi-
pal payments on our debt of $3.6 million.

Long-Term Debt Obligations and Credit Arrangements

2005 Credit Facility

Two of our wholly-owned subsidiaries, Senatore Shipping
Company Limited and Noemi Shipping Company Limited, were
joint and several borrowers under a loan agreement dated May 17,
2005, or the 2005 Credit Facility, entered into with The Royal Bank
of Scotland plc, as lender, which was secured by, among other
things, a first preferred mortgage over each of Senatore and
Noemi. The initial amount of the 2005 Credit Facility was
$56,000,000 and consisted of two tranches, one for each vessel-
owning subsidiary. Each tranche was repayable in 40 consecutive
quarterly installments of $450,000, plus a balloon payment of
$10,000,000, to be made together with the 40th installment of
each tranche. The 2005 Credit Facility was due to mature on May
18, 2015. The interest rate on the loan was 0.70% above LIBOR. As
of December 31, 2009, the outstanding balance was $39.8 million,
with $3.6 million due within the next 12 months. As of December
31, 2009, we were in compliance with all of our loan covenants. On
April 9, 2010, we repaid the outstanding balance of $38.9 million
with a portion of the proceeds from our initial public offering.

Part I

Item 5. Operating and Financial Review and Prospects

2010 Credit Facility

On June 2, 2010, we executed a credit facility with Nordea Bank
Finland plc, acting through its New York branch, DnB NOR
Bank ASA, acting through its New York branch, and Fortis Bank
Nederland, or the lead arrangers, for a senior secured term loan
facility of up to $150 million. Drawdowns under the credit facility
were available until December 2, 2011 and bear interest at LIBOR
plus an applicable margin of 3.00% per annum when our debt to
capitalization (total debt plus equity) ratio is equal to or less than
50% and 3.50% per annum when our debt to capitalization ratio is
greater than 50%. A commitment fee equal to 40% of the appli-
cable margin is payable on the unused daily portion of the credit
facility. The credit facility matures on May 15, 2015 and can only be
used to partially finance the cost of vessel acquisitions where the
acquired vessels would then become collateral for the credit
facility.

Borrowings for each vessel financed under this facility, represent
a separate tranche, with repayment terms dependent on the
age of the vessel at acquisition. Each tranche under the new
credit facility is repayable in equal quarterly installments, with a
lump sum payment at maturity, based on a full repayment of
such tranche when the vessel to which it relates is fifteen years
of age. Our subsidiaries, which may at any time own one or more
of our initial vessels, will act as guarantors under the credit facil-
ity. This facility was fully drawn as of December 31, 2010. The
amount outstanding at that date of $145.2 million reflects princi-
pal payments made at September 30, 2010 and December 31,
2010.

The credit facility requires us to comply with a number of cove-
nants, including financial covenants; delivery of quarterly and
annual financial statements and annual projections; maintaining
adequate insurances; compliance with laws (including environ-
mental); compliance with ERISA; maintenance of flag and class of
the initial vessels; restrictions on consolidations, mergers or sales
of assets; approval on changes in the Manager of our initial ves-
sels; limitations on liens; limitations on additional indebtedness;
prohibitions on paying dividends if a covenant breach or an event
of default has occurred or would occur as a result of payment of a
dividend; prohibitions on transactions with affiliates; and other
customary covenants.

The financial covenants include:

• The ratio of debt to capitalization shall be no greater than 0.60

to 1.00.

• Consolidated tangible net worth shall be no less than US$
150,000,000 plus 25% of cumulative positive net income (on a
consolidated basis) for each fiscal quarter from July 1, 2010
going forward and 75% of the value of any new equity issues
from July 1, 2010 going forward.

• The ratio of EBITDA to actual interest expense shall be no less
than 2.50 to 1.00 commencing with the fifth fiscal quarter fol-
lowing the closing of the credit facility. Such ratio shall be cal-
culated quarterly on a trailing quarter basis from and including
the fifth fiscal quarter however for the ninth fiscal quarter and
periods thereafter the ratio shall be calculated on a trailing four
quarter basis.

• Unrestricted cash and cash equivalents including amounts on
deposit with the lead arrangers for the first five fiscal quarters
following the closing of our initial public offering shall at all
times be no less than the higher of (i) US$ 2,000,000 per vessel
or (ii) US$ 10,000,000 and thereafter unrestricted cash and cash
equivalents shall at all times be no less than the higher of (i)
US$ 1,000,000 per vessel or (ii) US$ 10,000,000.

• The aggregate fair market value of the collateral vessels shall at
all times be no less than 150% of the then aggregate outstand-
ing principal amount of loans under the credit facility.

STI Spirit Credit Facility

On March 9, 2011, we executed a credit facility with DVB Bank SE
for a senior secured term loan facility of $27.3 million with the STI
Spirit as collateral, which was acquired on November 10, 2010. The
credit facility has a maturity date of seven years after the draw-
down date, and the loan bears interest at LIBOR plus a margin of
2.75% per annum. A commitment fee equal to 1.50% per annum is
calculated on the undrawn loan from the date of execution. The
credit facility may only be used to finance the STI Spirit. The loan
will be repaid over 28 equal quarterly installments and a lump
sum payment at maturity. The quarterly installments, which com-
mence three months after the drawdown, are calculated using an
18 year amortization profile. Our subsidiary, STI Spirit Shipping
Company Limited, which owns the vessel, is the borrower and
Scorpio Tankers Inc. is the guarantor. This credit facility was fully
drawn on March 17, 2011.

The credit facility requires us to comply with a number of cove-
nants, including financial covenants; delivery of quarterly and
annual financial statements and annual projections; maintaining
adequate insurances; compliance with laws (including environ-
mental); compliance with ERISA; maintenance of flag and class;
restrictions on consolidations, mergers or sales of assets; approval
on changes in the Manager; limitations on liens; limitations on
additional indebtedness; prohibitions on paying dividends if a
covenant breach or an event of default has occurred or would
occur as a result of payment of a dividend; prohibitions on trans-
actions with affiliates; and other customary covenants.

The financial covenants which pertain to Scorpio Tankers Inc.
include:

• The ratio of debt to capitalization shall be no greater than 0.60

to 1.00.

Part I

Item 5. Operating and Financial Review and Prospects

• Consolidated tangible net worth shall be no less than US$
150,000,000 plus 25% of cumulative positive net income (on a
consolidated basis) for each fiscal quarter.

• The ratio of EBITDA to actual interest expense shall be no less
than 2.50 to 1.00 commencing with the third fiscal quarter of
2011. Such ratio shall be calculated quarterly on a trailing quar-
terly basis from and including the third fiscal quarter of 2011
until the third fiscal quarter of 2012 when the ratio shall be cal-
culated on a trailing four quarter basis.

• Unrestricted cash and cash equivalents shall be no less than
the higher of (i) US$500,000 per vessel at all times or (ii)
US$10,000,000 during the earlier of the first five fiscal quarters
after the first drawdown date or the third fiscal quarter of 2011.

• The aggregate fair market value of the collateral vessels shall at
all times be no less than (i) 140% of the then outstanding loan
balance if the vessel is operating in a pool or in the spot mar-
ket or (ii) 130% of the then outstanding loan if the vessel is on
time charter with a duration of at least one year.

Interest Rate Swaps

As of December 31, 2009, we had one interest rate swap. The
notional value was $19.9 million, and the effective fixed interest
rate was 4.79%. The swap began in May 2005 and was scheduled
to end in May 2015. The interest rate swap was terminated when
the 2005 Credit Facility was repaid in April 2010. We had no inter-
est rate swaps in place as of December 31, 2010. In the future, we
may enter into interest rate swaps to manage our exposure inter-
est rates.

CAPITAL EXPENDITURES

Vessel acquisitions

In the first half of June 2010, we took delivery of three product
tanker vessels that we previously agreed to acquire. STI Conqueror,
a Handymax ice class 1B ship, was acquired for $26.0 million and
trades in the Scorpio Handymax Tanker Pool. STI Harmony and STI
Heritage, LR1 ice class 1A sister ships, were acquired for an aggre-
gate price of $92.0 million, which included $2.3 million for the
value of the existing time charter contracts. The value of the time
charter contracts is amortized as a reduction to vessel revenue
over the remaining life of the time charter contracts. STI Harmony
and STI Heritage entered the Scorpio Panamax Tanker Pool upon
the completion of their time charters in September 2010 and
December 2010, respectively.

In July 2010, we took delivery of three Handymax tankers, STI
Matador, STI Gladiator and STI Highlander for an aggregate price of
$73.0 million. These vessels trade in the Scorpio Handymax Tanker
Pool.

In November 2010, we took delivery of an LR2 Aframax product
tanker, STI Spirit, for which we paid a purchase price of $52.2 million.

Additionally, we capitalized $2.4 million as part of these vessel
purchases for the 1% fee of the gross purchase or sale price that
we pay our Administrator upon the consummation of any such
purchase or sale.

Drydock

The Noemi and Senatore were drydocked in 2009 for an aggregate
cost of $1.6 million and 37 off-hire days, and Venice received an
underwater survey in 2009. The STI Heritage and STI Conqueror
were drydocked in the third quarter of 2010. The aggregated dry-
dock cost for the two vessels was $0.9 million. The aggregate off-
hire for both vessels was 24 days. The Venice is scheduled to be
drydocked in 2011 for an estimated cost of $0.9 million.

As our fleet matures and expands, our drydock expenses will likely
increase. Ongoing costs for compliance with environmental regu-
lations and society classification survey costs are a component of
our vessel operating costs. We are not currently aware of any reg-
ulatory changes or environmental liabilities that we anticipate will
have a material impact on our results of operations or financial
condition.

Dividends

We do not have immediate plans to pay dividends, but we will
continue to assess our dividend policy. In the future, our board of
directors may determine to pay dividends.

Share Buy-Back

On July 9, 2010, the board of directors authorized a share buy-
back program of $20 million. As of December 31, 2010, we have
repurchased 244,146 of its shares at an average price per share of
$10.85. See Item 16.E for further information.

C. Research and Development, Patents and Licenses, Etc.

Not applicable.

D. Trend Information

See ITEM 4.B “The International Tanker Industry”.

E. Off-Balance Sheet Arrangements

As of December 31, 2010, we were committed to make charter-
hire payments to third parties for certain chartered-in vessels.
These arrangements are accounted for as operating leases.

F. Tabular Disclosure of Contractual Obligations

The following table sets forth our total contractual obligations at
December 31, 2010 (1):

Part I

Item 5. Operating and Financial Review and Prospects

Bank Loan(1)
Bank Loan—Interest payments(2)
Time charter-in commitment(3)
Technical management fees(4)
Commercial management fees(5)

Total

in millions of $

Less than
1 year

16,271,020
7,077,971
16,542,140
2,000,000
91,250

1 to 3
years

32,542,040
11,596,800
787,323
1,833,333
5,250

3 to 5
years

96,361,522
5,515,248
—
—
—

41,982,381

46,764,746

101,876,770

More than
5 years

—
—
—
—
—

—

(1) On June 2, 2010, we executed a new $150 million credit facility to partially finance the acquisition of new vessels. As of

December 31, 2010, we have drawn down the full amount of this credit facility and made principal payments of $4.8 million.

(2)

(3)

The interest expense on our loan is variable and based on LIBOR. The payments in the above schedule were calculated using a
5 year interest swap rate of 2.20% (as published by the US Federal Reserve as of December 31, 2010) plus a margin of 3.00%,
which is the margin for the 2010 Credit Facility so long as our debt to capitalization ratio remains less than 50%.

Represents amounts due under our Time Charter-In arrangement for the BW Zambesi, Kraslava, Krisjanis Valdemars and Histria
Azure.

(4) We pay our technical manager, SSM, $548 per day per owned vessel.

(5) We pay our commercial manager, SCM, $250 per day per owned vessel plus 1.25% of gross revenue for vessels that are not in a
pool. This amount represents the estimated minimum commercial management fees for the Noemi, which is under a time
charter-out contract until December 2011.

G. Safe Harbor

See “Cautionary Statement Regarding Forward-Looking
Statements” at the beginning of this annual report.

CRITICAL JUDGEMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY

In the application of the accounting policies, we are required to
make judgements, estimates and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent from
other sources. The estimates and associated assumptions are
based on historical experience and other factors that are consid-
ered to be relevant. Actual results may differ from these
estimates.

The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognized
in the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future peri-
ods if the revision affects both current and future periods.

The significant judgements and estimates are as follows:

Revenue recognition

We currently generate all revenue from time charters, spot voy-
ages, or pools. Revenue recognition for time charters and pools is
generally not as complex or as subjective as voyage charters (spot

voyages). Time charters are for a specific period of time at a spe-
cific rate per day. For long-term time charters, revenue is recog-
nized on a straight-line basis over the term of the charter. Pool
revenues are determined by the pool managers from the total
revenues and expenses of the pool and allocated to pool partici-
pants using a mechanism set out in the pool agreement.

We generated revenue from spot voyages during the year ended
December 31, 2010. Within the shipping industry, there are two
methods used to account for spot voyage revenue: (1) ratably over
the estimated length of each voyage or (2) completed voyage.
The recognition of voyage revenues ratably over the estimated
length of each voyage is the most prevalent method of account-
ing for voyage revenues and the method used by us. Under each
method, voyages may be calculated on either a load-to-load or
discharge-to-discharge basis. In applying our revenue recognition
method, we believe that the discharge-to-discharge basis of cal-
culating voyages more accurately estimates voyage results than
the load-to-load basis. Since, at the time of discharge, manage-
ment generally knows the next load port and expected discharge
port, the discharge-to-discharge calculation of spot voyage reve-
nues can be estimated with a greater degree of accuracy.

Vessel impairment

We evaluate the carrying amounts of our vessels to determine
whether there is any indication that those vessels have suffered an

Part I

Item 6. Directors, Senior Management and Employees

impairment loss. If any such indication exists, the recoverable
amount of vessels is estimated in order to determine the extent of
the impairment loss (if any).

Recoverable amount is the higher of fair value less costs to sell
and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted. The pro-
jection of cash flows related to vessels is complex and requires us
to make various estimates including future freight rates, earnings
from the vessels and discount rates. All of these items have been
historically volatile. In assessing the fair value less cost to sell of the
vessel, we obtain vessel valuations from leading, independent and
internationally recognized ship brokers on an annual basis or
when there is an indication that an asset or assets may be
impaired. If an indication of impairment is identified, the need for
recognizing an impairment loss is assessed by comparing the car-
rying amount of the vessels to the higher of the fair value less cost
to sell and the value in use. Likewise, if there is an indication that
an impairment loss recognized in prior periods no longer exists or
may have decreased, the need for recognizing an impairment
reversal is assessed by comparing the carrying amount of the ves-
sels to the lower of fair value less cost to sell and value in use.

At December 31, 2010, the carrying amounts of our vessels were
greater than the independent broker valuation (after adjusting for
estimated selling costs) for six of our ten owned vessels, which
served as indicators of impairment. In line with our policy, for each
of the aforementioned six vessels we performed a value in use
calculation where we estimated the vessel’s future cash flows
based on a combination of the latest forecast time charter rates
for the next three years (obtained from a third party service pro-
vider), the ten year historical average of charter rates in the ship-
ping industry for periods thereafter, and our best estimate of
vessel operating expenses. These cash flows were then dis-
counted to their present value, using a discount rate based on our
current borrowing rates adjusted for certain credit risks. The value
in use calculations were greater than the carrying amounts of the
vessels in all instances, which resulted in no impairment being
recognized. In addition, if the charter rates were adjusted down-
ward by 5% or the discount rate was increased by 1% the value in
use of the vessels would still have exceeded the carrying value of
the six vessels in question.

25 years from the date of initial delivery from the shipyard. The
estimated useful life of 25 years is management’s best estimate
and is also consistent with industry practice for similar vessels. The
residual value is estimated as the lightweight tonnage of each
vessel multiplied by a forecast scrap value per ton. The scrap value
per ton is estimated taking into consideration the historical four
year scrap market rate average at the balance sheet date. See the
“Changes in accounting estimates” section in Note 1 to the
Consolidated Financial Statements included in Item 18, Financial
Statements, for a discussion of changes in the residual values dur-
ing the period.

An increase in the estimated useful life of a vessel or in its scrap
value would have the effect of decreasing the annual deprecia-
tion charge and extending it into later periods. A decrease in the
useful life of a vessel or scrap value would have the effect of
increasing the annual depreciation charge.

When regulations place significant limitations over the ability of a
vessel to trade on a worldwide basis, the vessel’s useful life is
adjusted to end at the date such regulations become effective.
The estimated salvage value of the vessels may not represent the
fair market value at any one time since market prices of scrap val-
ues tend to fluctuate.

Deferred drydock cost

We recognize drydock costs as a separate component of the ves-
sels’ carrying amounts and amortize the drydock cost on a
straight-line basis over the estimated period until the next dry-
dock. We use judgment when estimating the period between
drydocks performed, which can result in adjustments to the esti-
mated amortization of the drydock expense. If the vessel is dis-
posed of before the next drydock, the remaining balance of the
deferred drydock is written-off and forms part of the gain or loss
recognized upon disposal of vessels in the period when con-
tracted. We expect that our vessels will be required to be dry-
docked approximately every 30 to 60 months for major repairs
and maintenance that cannot be performed while the vessels are
operating. Costs capitalized as part of the drydock include actual
costs incurred at the drydock yard and parts and supplies used in
making such repairs.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT
AND EMPLOYEES

Vessel lives and residual value

A. Directors and Senior Management

Set forth below are the names, ages and positions of our directors
and executive officers. Our board of directors is elected annually,
and each director elected holds office for a three-year term or
until his successor shall have been duly elected and qualified,
except in the event of his death, resignation, removal or the earlier

Part I

Item 6. Directors, Senior Management and Employees

termination of his term of office. The initial term of office of each
director is as follows: Two will serve for a term expiring at the 2011
annual meeting of shareholders, two will serve for a term expiring
at the 2012 annual meeting of shareholders, and one will serve for
a term expiring at the 2013 annual meeting of the shareholders.
Officers are elected from time to time by vote of our board of
directors and hold office until a successor is elected. The business
address for each director and executive officer is the address of
our principal executive office which is Scorpio Tankers Inc., 9,
Boulevard Charles III, Monaco 98000.

Messrs. Lauro and Mr. Bugbee, our Chief Executive Officer and
President, respectively, are involved in other business activities
with members of the Scorpio Group, which may result in their

spending less time than is appropriate or necessary to manage
our business successfully. We estimate that Messrs. Lauro and
Bugbee spend approximately 70-85% of their monthly business
time on our business activities and their remaining time on the
business of members of the Scorpio Group. However, the actual
allocation of time could vary significantly from time to time
depending on various circumstances and needs of the busi-
nesses, such as the relative levels of strategic activities of the
businesses. While there will be no formal requirements or guide-
lines for the allocation of Messrs. Lauro’s and Bugbee’s time
between our business and the business of members of the
Scorpio Group, Messrs. Lauro’s and Bugbee’s performance of
their duties will be subject to the ongoing oversight of our board
of directors.

Name

Emanuele A. Lauro
Robert Bugbee
Brian Lee
Cameron Mackey
Luca Forgione
Sergio Gianfranchi
Alexandre Albertini
Ademaro Lanzara
Donald C. Trauscht

Age

Position

32
50
44
42
34
66
34
67
76

Chairman, Class I Director, and Chief Executive Officer
President and Class II Director
Chief Financial Officer
Chief Operating Officer
General Counsel
Vice President, Vessel Operations
Class III Director
Class I Director
Class II Director

Biographical information with respect to each of our directors and
executive officers is set forth below.

Emanuele A. Lauro, Chairman & Chief Executive Officer

Emanuele A. Lauro, our founder, Chairman and Chief Executive
Officer, joined Scorpio Group in 2003 and has continued to serve
there in a senior management position since 2004. Under Mr.
Lauro’s leadership, Scorpio Group has grown from an owner of
three vessels in 2003 to an operator or manager of approximately
67 vessels in 2011. Over the course of the last six years, Mr. Lauro
has founded and developed the Scorpio Aframax Tanker Pool,
Scorpio LR2 Pool, Scorpio Panamax Tanker Pool and the Scorpio
Handymax Tanker Pool. He also founded Scorpio Logistics in May
2007, a company within the Scorpio Group which owns and oper-
ates specialized assets engaged in coal transshipment in Indonesia
and which engages in strategic investments in coastal shipping
and port development in India. Furthermore, Mr. Lauro formed a
joint venture with Koenig &cie., Scorship Navigation, in August
2005 which engages in the identification, placement, and man-
agement of certain international shipping investments on behalf
of German investors. Mr. Lauro has a degree in international busi-
ness from the European Business School, London, and he has
served as the Vice President of the Chamber of Shipping of
Monaco since 2006.

Robert Bugbee, President and Director

Robert Bugbee, our President, has more than 25 years of experi-
ence in the shipping industry. He joined Scorpio Group in
February 2009 and has continued to serve there in senior man-
agement. Prior to joining Scorpio Group, Mr. Bugbee was a part-
ner at Ospraie Management LLP between 2007 and 2008, a
company which advises and invests in commodities and basic
industry. From 1995 to 2007, Mr Bugbee was employed at OMI
Corporation, or OMI, a NYSE-listed tanker company sold in 2007.
While at OMI, Mr. Bugbee most recently served as President from
January 2002 until the sale of the company, and he previously
served as Executive Vice President since January 2001, Chief
Operating Officer since March 2000 and Senior Vice President of
OMI from August 1995 to June 1998. Mr. Bugbee joined OMI in
February 1993. Prior to this, he was employed by Gotaas-Larsen
Shipping Corporation since 1984. During this time he took a two
year sabbatical from 1987 for the M.I.B. Programme at the
Norwegian School for Economics and Business administration in
Bergen. He has a Fellowship from the International Shipbrokers
Association and a B.A. (Honors) in from London University.

Brian Lee, Chief Financial Officer

Brian Lee, our Chief Financial Officer, joined Scorpio Group in April
2009. In June 2009, he became the Scorpio Group’s Controller. He

Part I

Item 6. Directors, Senior Management and Employees

has been employed in the shipping industry since 1998. Prior to join-
ing Scorpio Group, he was the Controller of OMI Corporation from
2001 until the sale of the company in 2007. Mr. Lee has a M.B.A. from
the University of Connecticut and has B.S. in Business Administration
from the University at Buffalo, State University of New York.

Cameron Mackey, Chief Operating Officer

Cameron Mackey, our Chief Operating Officer, joined Scorpio
Group in March 2009, where he has served as Chief Operating
Officer. Prior to joining Scorpio Group, he was an equity and com-
modity analyst at Ospraie Management LLC from 2007-2008. Prior
to that, he was Senior Vice President of OMI Marine Services LLC
from 2004-2007 and in Business Development at OMI Corporation
from 2002-2004. He has been employed in the shipping industry
since 1994 and, earlier in his career, was employed in unlicensed
and licensed positions in the merchant navy, primarily on tankers
in the international fleet of Mobil Oil Corporation, where he held
the qualification of Master Mariner. He has an M.B.A. from the
Sloan School of Management at the Massachusetts Institute of
Technology, a B.S. from the Massachusetts Maritime Academy and
a B.A. from Princeton University.

Luca Forgione, General Counsel

Luca Forgione, our General Counsel, joined Scorpio Group in
August 2009 as General Counsel. He is licensed as a lawyer in his
native Italy and as a Solicitor of the Supreme Court of England &
Wales. Mr. Forgione has six years of shipping industry experience
and has worked in the fields of shipping, offshore logistics, com-
modity trading and energy since the beginning of his in-house
career, most recently with Constellation Energy Commodities
Group Ltd. in London, which is part of Constellation Energy Group
Inc. listed on the NYSE under “CEG,” from 2007 to 2009., and previ-
ously with Coeclerici S.p.a. in Milan from 2004 to 2007. He has
experience with all aspects of the supply chain of drybulk and
energy commodities (upstream and downstream), and has devel-
oped considerable understanding of the regulatory and compli-
ance regimes surrounding the trading of physical and financial
commodities as well as the owning, managing and chartering of
vessels. Mr. Forgione was a Tutor in International Trade Law and
Admiralty Law at University College London (U.K.) and more
recently a Visiting Lecturer in International Trade Law at King’s
College (U.K.). He has a Masters Degree in Maritime Law from the
University of Southampton (U.K.) and a Law Degree from the
University of Genoa (Italy).

Sergio Gianfranchi, Vice President, Vessel Operations

Sergio Gianfranchi, our Vice President of Vessel Operations, served
as Operations Manager of our technical manager, SSM, at its head-
quarters in Monaco from 2002 to 2004. He has been instrumental
in launching and operating the Scorpio Group’s Panamax,
Handymax and Aframax pools during the last five years, and was
employed as the Fleet Manager of SCM, the Scorpio

Group affiliate that manages the commercial operations of
approximately 50 vessels grouped in the three Scorpio Group
pools, from 2007 to 2009. Mr. Gianfranchi is currently employed as
the Pool Fleet Manager of SCM. From 1999 to 2001, Mr. Gianfranchi
served as the on-site owner’s representative of the Scorpio Group
affiliates named Doria Shipping, Tristan Shipping, Milan Shipping
and Roma Shipping, to survey the construction of their Panamax
and Post-Panamax newbuilding tankers being built at the 3Maj
Shipyard in Rijeka, Croatia. When Mr. Gianfranchi joined SSM in
1989, he began as vessel master of its OBOs (multipurpose vessels
that carry ore, heavy drybulk and oil). Upon obtaining his Master
Mariner License in 1972, he served until 1989 as a vessel master
with prominent Italian shipping companies, including NAI, which
is the largest private Italian shipping company and owned by the
Lolli-Ghetti family, and Almare, initially a subsidiary of NAI but later
controlled by Finmare, the Italian state shipping financial holding
company. In this position he served mostly on OBOs, tankers and
drybulk carriers. He graduated from La Spezia Nautical Institute in
Italy in 1963.

Alexandre Albertini, Director

Alexandre Albertini has more than 10 years of experience in the
shipping industry. He has been employed by Marfin Management
SAM, a drybulk ship management company, since 1997 and has
served as Managing Director there since 2009, working in fields
related to crew and human resources, insurance, legal, financial,
technical, commercial, and information technology. He is a direc-
tor of eight drybulk shipowning companies and serves as
President of Ant. Topic srl, a vessel and crewing agent based in
Italy. The aggregate valuation of the drybulk shipping companies
for which Mr. Albertini serves as a Secretary or director is approxi-
mately $300 million. In 2008, Mr. Albertini was elected as a mem-
ber of the Executive Committee of InterManager. He is a founding
member of the Chamber of Shipping of Monaco and has served
as its Secretary General since 2006. Mr. Albertini also holds various
board positions in several other local business and associations.

Ademaro Lanzara, Director

Ademaro Lanzara has served as the Chairman of BPV Finance
(International) Plc Dublin, a subsidiary of Banca Popolare di
Vicenza, Italy, since 2008. He is also a director of Istituto
dell’Enciclopedia Italiana fondata da Giovanni Treccani Spa, Rome.
From 1963 to 2006, Mr. Lanzara held a number of positions with
BNL spa Rome, a leading Italian banking group, including acting
as the Chairman of the Credit Committee, Chairman of the Finance
Committee and Deputy CEO. He also served as Chairman and/or
director of a number of BNL controlled banks or financial compa-
nies in Europe, the United States and South America. He formerly
served as a director of each of the Institute of International Finance
Inc. in Washington DC, Compagnie Financiere Edmond de
Rothschild Banque, in Paris, France, ABI—Italian Banking
Association in Rome, Italy, FITD—Interbank deposit Protection

Part I

Item 6. Directors, Senior Management and Employees

Fund, in Rome, Italy, ICC International Chamber of Commerce
Italian section, Rome, Italy Co-Chairman Round Table of Bankers
and Small and Medium Enterprises, European Commission, in
Brussels, Belgium. Mr. Lanzara has an economics degree (gradu-
ated magna cum laude) from the University of Naples, a law
degree from the University of Naples and completed the Program
for Management Development (PMD) at Harvard Business School.

Donald C. Trauscht, Director

Donald C. Trauscht has served as the Chairman of BW Capital
Corporation, a private investment company, since 1996. From
1967 to 1995, Mr. Trauscht held a number of positions at Borg-
Warner Corporation, including Chairman and Chief Executive
Officer. While at Borg Warner, Mr. Trauscht supervised an annual
capital budget of $250 million and was responsible for risk assess-
ment decisions involving the company’s investments. He has par-
ticipated in acquisitions, divestments, financings, public offerings
and other transactions whose combined value is over $30 billion.
Mr. Trauscht is a director of Esco Technologies Inc., Hydac
International Corporation, Bourns Inc., and EyesForLearning LLC.
He formerly served as a director of Baker Hughes Inc., Cordant
Technologies Inc., Blue Bird Corporation, Imo Industries Inc.,
Mannesmann Capital Corporation, Wynn International Inc., Recon
Optical Inc., Global Motorsport Group Inc., OMI Corporation, IES
Corporation, and NSK-Warner Ltd. He has served as the Chairman,
Lead Director, and Audit Committee, Compensation Committee,
and Governance Committee Chairman at numerous public and
private companies.

B. Compensation

We did not pay any compensation to members of our senior exec-
utive officers in 2009. We paid an aggregate compensation of $3.0
million to our senior executive officers in 2010 for the period April
6, 2010 to December 31, 2010. For the period April 6, 2010 through
December 31, 2010 executive management remuneration was as
follows:

As of December 31

2010

Short term employee benefits

(salaries)

Share-based compensation (1)

Total

2,059,907
922,123

2,982,030

(1)

Represents restricted stock issued under the 2010 Equity
Incentive Plan. See Note 13 in the consolidated financial
statements for further description.

Each of our non-employee directors receive annual cash compen-
sation in the aggregate amount of $45,000 annually, plus an addi-
tional fee of $5,000 for each committee on which a director serves
plus an additional fee of $15,000 for each committee for which a
director serves as Chairman, per year, plus an additional fee of
$20,000 to the lead independent director, plus reimbursements
for actual expenses incurred while acting in their capacity as a
director. We paid an aggregate compensation of $0.3 million to
our directors in 2010 for the period April 6, 2010 to December 31,
2010. Our officers and directors are eligible to receive awards
under our equity incentive plan which is described below under
“—2010 Equity Incentive Plan.”

We believe that it is important to align the interests of our direc-
tors and management with that of our shareholders. In this regard,
we have determined that it will generally be beneficial to us and
to our shareholders for our directors and management to have a
stake in our long-term performance. We expect to have a mean-
ingful component of our compensation package for our directors
and management consist of equity interests in the Company in
order to provide them on an on-going basis with a meaningful
percentage of ownership in the Company.

We do not have a retirement plan for our officers or directors.

2010 Equity Incentive Plan

We have adopted an equity incentive plan, which we refer to as
the plan, under which directors, officers, employees, consultants
and service providers of us and our subsidiaries and affiliates are
eligible to receive incentive stock options and non-qualified stock
options, stock appreciation rights, restricted stock, restricted stock
units and unrestricted common stock. We have reserved a total of
1,148,916 common shares for issuance under the plan, subject to
adjustment for changes in capitalization as provided in the plan
and it is not expected that any additional common shares will be
reserved for issuance under our equity incentive plan prior to the
third anniversary of the closing of our initial public offering. The
plan is administered by our compensation committee. We issued
a total of 559,458 restricted shares under the plan to our executive
officers in the second quarter of 2010 which will vest in three
equal installments on the third, fourth and fifth anniversaries,
respectively, of the closing date of the initial public offering, which
was April 6, 2010. In the second quarter of 2010, we also issued
9,000 restricted shares to our independent directors, which vest
on April 6, 2011. We issued a total of 281,000 restricted shares
under the plan to our executive officers in the first quarter of 2011
which will vest ratably in three equal installments on the first, sec-
ond and third anniversaries, respectively, of the grant date, which
was January 31, 2011. In the first quarter of 2011, we also issued
9,000 restricted shares to our independent directors, which vest
on January 31, 2012.

Part I

Item 6. Directors, Senior Management and Employees

Under the terms of the plan, stock options and stock apprecia-
tion rights granted under the plan will have an exercise price
equal to the fair market value of a common share on the date of
grant, unless otherwise determined by the plan administrator,
but in no event will the exercise price be less than the fair market
value of a common share on the date of grant. Options and stock
appreciation rights will be exercisable at times and under condi-
tions as determined by the plan administrator, but in no event
will they be exercisable later than ten years from the date of
grant.

The plan administrator may grant shares of restricted stock and
awards of restricted stock units subject to vesting, forfeiture and
other terms and conditions as determined by the plan administra-
tor. Following the vesting of a restricted stock unit, the award
recipient will be paid an amount equal to the number of vested
restricted stock units multiplied by the fair market value of a com-
mon share on the date of vesting, which payment may be paid in
the form of cash or common shares or a combination of both, as
determined by the plan administrator. The plan administrator may
grant dividend equivalents with respect to grants of restricted
stock units.

Adjustments may be made to outstanding awards in the event of
a corporate transaction or change in capitalization or other
extraordinary event. In the event of a “change in control” (as
defined in the plan), unless otherwise provided by the plan
administrator in an award agreement, awards then outstanding
will become fully vested and exercisable in full.

Our board of directors may amend or terminate the plan and may
amend outstanding awards, provided that no such amendment
or termination may be made that would materially impair any
rights, or materially increase any obligations, of a grantee under an
outstanding award. Shareholder approval of plan amendments
will be required under certain circumstances. Unless terminated
earlier by our board of directors, the plan will expire ten years from
the date the plan is adopted.

Employment Agreements

We have agreed to enter into employment agreements with each
of our executives. These employment agreements are in effect for
a period of up to two years, and will automatically renew for the
same successive employment periods unless terminated in accor-
dance with the terms of such agreements. Pursuant to the terms
of their respective employment agreements, our executives will
be prohibited from disclosing or unlawfully using any of our mate-
rial confidential information.

employment is terminated within two years of a change in con-
trol due to either disability or a reason other than “for cause,” he
will be entitled to receive upon termination an assurance bonus
equal to such fixed bonus and an immediate lump-sum payment
in an amount equal to three times the sum of the executive’s
then current base salary and the assurance bonus, and he will
continue to receive all salary, compensation payment and bene-
fits, including additional bonus payments, otherwise due to him,
to the extent permitted by applicable law, for the remaining bal-
ance of his then-existing employment period. If an executive’s
employment is terminated for cause or voluntarily by the
employee, he shall not be entitled to any salary, benefits or reim-
bursements beyond those accrued through the date of his termi-
nation, unless he voluntarily terminated his employment in
connection with certain conditions. Those conditions include a
change in control combined with a significant geographic reloca-
tion of his office, a material diminution of his duties and responsi-
bilities, and other conditions identified in the employment
agreement.

C. Board Practices

Our board of directors currently consists of five directors, three of
whom have been determined by our board of directors to be
independent under the rules of the New York Stock Exchange and
the rules and regulations of the SEC. Our board has an Audit
Committee, a Nominating Committee and a Compensation
Committee, each of which is comprised of our three independent
directors, who are Messrs. Alexandre Albertini, Ademaro Lanzara
and Donald Trauscht. The Audit Committee, among other things,
reviews our external financial reporting, engage our external audi-
tors and oversee our internal audit activities, procedures and the
adequacy of our internal controls. In addition, provided that no
member of the Audit Committee has a material interest in such
transaction, the Audit Committee is responsible for reviewing
transactions that we may enter into in the future with other mem-
bers of the Scorpio Group that our board believes may present
potential conflicts of interests between us and the Scorpio Group.
The Nominating and Corporate Governance Committee is respon-
sible for recommending to the board of directors nominees for
director and directors for appointment to board committees and
advising the board with regard to corporate governance prac-
tices. The Compensation Committee oversees our equity incen-
tive plan and recommends director and senior employee
compensation. Our shareholders may also nominate directors in
accordance with procedures set forth in our bylaws.

D. Employees

Upon a change in control of the Company, the annual bonus pro-
vided under the employment agreement becomes a fixed bonus
of up to 150% of the executive’s base salary. If an executive’s

As of December 31, 2010, we had seven employees. The commer-
cial and operational responsibility of the Company was adminis-
tered by SSM and SCM.

Part I

Item 7. Major Shareholders and Related Party Transactions

E. Share Ownership

The following table sets forth information regarding the share
ownership of the our common stock as of the date of this annual
report by our directors and officers, including the restricted
shares issued to our executive officers and to our independent
directors as well as shares purchased in the open market.

Name

No. of Shares

% Owned

Emanuele A. Lauro(1)
Robert Bugbee (2)
Cameron Mackey (3)
All other officers and
directors individually

465,151
563,958
269,246

1.9%
2.3%
1.1%

(1)

(2)

Includes 262,418 shares of restricted stock from the 2010
Equity Incentive Plan.

(3)

Includes 145,108 shares of restricted stock from the 2010
Equity Incentive Plan.

The remaining officers and directors individually each
own less than 1% of our outstanding shares of common
stock.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED
PARTY TRANSACTIONS

A. Major Shareholders

The following table sets forth information regarding beneficial
ownership of our common stock for owners of more than five
percent of our common stock, of which we are aware as of the
date of this annual report.

Name

No. of Shares

% Owned

Steelhead Partners, LLC; James Michael Johnston; Brian Katz Klein and Steelhead
Navigator Master, L.P. (1)
Annalisa Lolli-Ghetti (2)
Giovanna Lolli-Ghetti (2)
Maria Amelia Lolli-Ghetti (2)
Kensico Capital Management Corporation, Michael Lowenstein and Thomas J. Coleman (3)
Robeco Investment Management, Inc. (4)
Robert Bugbee (5)
Emanuele A. Lauro (2) (5)
Cameron Mackey (5)
All other officers and directors individually (5)

2,961,700
2,280,101
1,863,049
1,863,049
1,797,794
1,573,732
563,958
465,151
269,246
*

11.9%
9.1%
7.5%
7.5%
7.2%
6.3%
2.3%
1.9%
1.1%

(1)

This information is based on the Schedule 13G/A filed jointly by Steelhead Partners, LLC; James Michael Johnston; Brian Katz
Klein and Steelhead Navigator Master, L.P. on November 19, 2010. Steelhead Navigator Master, L.P. reports ownership of
2,911,700 shares of common stock, representing 11.7% of our issued and outstanding shares as of the date of this annual
report.

(2) Denotes members of the Lolli-Ghetti family. In January 2011, Scorpio Owning Holding Ltd. distributed its shares in Scorpio
Tankers Inc. (via a dividend) to the shareholders of Liberty, which is 97% owned by members of the Lolli-Ghetti family, of which
our CEO and Chairman is a member. The holdings of Maria Amelia Lolli-Ghetti, Giovanna Lolli-Ghetti and Annalisa Lolli-Ghetti
are derived from the Schedule 13G’s filed with the SEC on February 17, 2011, February 17, 2011, and February 25, 2011,
respectively.

(3)

(4)

(5)

This information is based on the Schedule 13G filed jointly by Kensico Capital Management Corporation, Michael Lowenstein
and Thomas J. Coleman on November 24, 2010.

This information is based on the Schedule 13G filed by Robeco Investment Management, Inc. on February 4, 2011.

Includes shares of restricted stock issued pursuant to our 2010 Equity Incentive Plan.

The remaining officers and directors individually each own less than 1% of our outstanding shares of common stock.

Part I

Item 7. Major Shareholders and Related Party Transactions

B. Related Party Transactions

Administrative Services Agreement

Liberty Holding Company Ltd., which we refer to as our
Administrator, is a Scorpio Group affiliate which provides us with
administrative services pursuant to an administrative services
agreement. The administrative services provided under the agree-
ment primarily include accounting, legal compliance, financial,
information technology services, and the provision of administra-
tive staff and office space. Our Administrator will also arrange ves-
sel sales and purchases for us. Further, pursuant to our
administrative services agreement, Liberty, on behalf of itself and
other members of the Scorpio Group, has agreed that it will not
directly own product or crude tankers ranging in size from 35,000
dwt to 200,000 dwt. We expect that our Administrator will sub-
contract many of its responsibilities to other entities within the
Scorpio Group.

We reimburse our Administrator for the reasonable direct or indi-
rect expenses it incurs in providing us with the administrative ser-
vices described above. We also pay our Administrator a fee for
arranging vessel purchases and sales for us equal to 1% of the
gross purchase or sale price, payable upon the consummation of
any such purchase or sale. We believe this 1% fee on purchases
and sales is customary in the tanker industry.

Commercial and Technical Management Agreements

As our commercial and technical managers, SCM and SSM provide
us with commercial and technical services pursuant to their
respective commercial and technical management agreements
with us. We expect to enter into similar agreements with respect
to each vessel we acquire going forward. Commercial manage-
ment services include securing employment, on both spot market
and time charters, for our vessels. Where we plan to employ a ves-
sel on the spot charter market, we intend to generally place such
vessel in a tanker pool managed by our commercial manager that
pertains to that vessel’s size class. Technical management services
include day-to-day vessel operation, performing general mainte-
nance, monitoring regulatory and classification society compli-
ance, customer vetting procedures, supervising the maintenance
and general efficiency of vessels, arranging the hiring of qualified
officers and crew, arranging and supervising drydocking and
repairs, purchasing supplies, spare parts and new equipment for
vessels, appointing supervisors and technical consultants and pro-
viding technical support. We pay our managers fees for these ser-
vices and reimburse our managers for the reasonable direct or
indirect expenses they incur in providing us with these services.

We pay management fees to our commercial manager, SCM, a
related party within the Scorpio Group. In the years ended
December 31, 2009 and 2008, certain of the expenses incurred for

commercial management services were under management
agreements with other Scorpio Group entities, which were also
related parties. Since agreements with related parties are by defi-
nition not at arm’s length, the expenses incurred under these
agreements may have been different than the historical costs
incurred if the subsidiaries had operated as unaffiliated entities
during prior periods. Our estimates of any differences between
historical expenses and the expenses that may have been incurred
had the subsidiaries been stand-alone entities have been dis-
closed in the notes to the historical combined financial state-
ments included elsewhere in this filing. In December 2009, we
entered into new commercial management agreements with
SCM for each of our vessels, each for a period of three years and
which may be terminated upon two years’ notice. Pursuant to
these agreements, since December 1, 2009, we pay SCM as our
commercial manager a fee of $250 per vessel per day for each
post-Panamax/LR1/LR2 vessels and $300 per vessel per day for
each Handymax vessel, plus a 1.25% commission per charter fix-
ture when SCM provides commercial management services for
vessels that are not in any of the Scorpio Group pools. The Scorpio
Aframax Tanker Pool, Scorpio LR2 Pool, Scorpio Panamax Tanker
Pool and Scorpio Handymax Tanker Pool participants collectively
pay SCM’s agent fee of $250 per vessel per day, with respect to
post-Panamax/LR1/LR2 vessels, or $300 per vessel per day, with
respect to Handymax vessels, plus a 1.25% commission per char-
ter fixture. These are the same fees that SCM charges other vessels
in these pools, including third party owned vessels.

Additionally, we pay our technical manager, SSM, also a related
party within the Scorpio Group, $548 per vessel per day to pro-
vide technical management services for each of our vessels. New
technical services agreements were signed for each of our vessels
in December 2009 at rates similar to the rates under the previous
agreements, which were the rates that SSM charged to third par-
ties at the time the agreement was signed.

Tanker pools

To increase vessel utilization and thereby revenues, we participate
in commercial pools with other shipowners of similar modern,
well-maintained vessels. By operating a large number of vessels as
an integrated transportation system, commercial pools offer cus-
tomers greater flexibility and a higher level of service while
achieving scheduling efficiencies. Pools employ experienced
commercial charterers and operators who have close working
relationships with customers and brokers, while technical man-
agement is performed by each shipowner. The managers of the
pools negotiate charters with customers primarily in the spot mar-
ket. The size and scope of these pools enable them to enhance
utilization rates for pool vessels by securing backhaul voyages and
COAs, thus generating higher effective TCE revenues than other-
wise might be obtainable in the spot market while providing a

Part I

Item 7. Major Shareholders and Related Party Transactions

higher level of service offerings to customers. Where we plan to
employ a vessel in the spot charter market, we intend to generally
place such vessel in a tanker pool managed by our commercial
manager that pertains to that vessel’s size class. The earnings allo-
cated to vessels (charterhire expense for the pool) are aggregated
and divided on the basis of a weighted scale, or Pool Points, which
reflect comparative voyage results on hypothetical benchmark
routes. The Pool Point system generally favors those vessels with
greater cargo-carrying capacity and those with better fuel con-
sumption. Pool Points are also awarded to vessels capable of car-
rying clean products and to vessels capable of trading in certain
ice conditions. We currently participate in three pools: the Scorpio
LR2 Tanker Pool, the Scorpio Panamax Tanker Pool and the Scorpio
Handymax Tanker Pool.

SCM is responsible for the commercial management of partici-
pating vessels in the pools, including the marketing, chartering,
operating and bunker (fuel oil) purchases of the vessels. The
Scorpio LR2 Pool is administered by Scorpio LR2 Pool Ltd., the
Scorpio Panamax Tanker Pool is administered by Scorpio
Panamax Tanker Pool Ltd., or SPTP and the Scorpio Handymax
Tanker Pool is administered by Scorpio Handymax Tanker Pool
Ltd., or SHTP. Our founder, Chairman and Chief Executive Officer
is a member of the Lolli-Ghetti family which owns 97% of all
issued and outstanding stock of SLR2P, SPTP and SHTP. Taking
into account the recommendations of a pool committee and a
technical committee, each of which is comprised of representa-
tives of each pool participant, SLR2P, SPTP and SHTP set the
respective pool policies and issues directives to the pool partici-
pants and SCM. The pool participants remain responsible for all
other costs including the financing, insurance, manning and
technical management of their vessels. The earnings of all of the
vessels are aggregated and divided according to the relative
performance capabilities of the vessel and the actual earning
days each vessel is available.

Our Relationship with Scorpio Group and its Affiliates

We were incorporated in the Republic of The Marshall Islands on
July 1, 2009 by Simon Financial Limited, or Simon, which is owned
by members of the Lolli-Ghetti family and manages their shipping
interests. On October 1, 2009, (i) Simon transferred three operat-
ing subsidiary companies to us, which owned the vessels in our
fleet consisting of the Venice, Senatore and Noemi; (ii) Liberty
Holding Company Ltd., or Liberty, became a wholly-owned sub-
sidiary and operating vehicle of Simon; (iii) Scorpio Owning
Holding Ltd. became a wholly-owned subsidiary of Liberty; and
(iv) we became a wholly-owned subsidiary of Scorpio Owning
Holding Ltd. Liberty’s operations include the Scorpio Group’s
logistics operations in Southeast Asia, owning an offshore floating
terminal, vessel pools, chartered-in vessels, and interests in joint

ventures and investments. As of December 31, 2010, Scorpio
Group and its affiliates, through Scorpio Owning Holding Ltd.,
owned 22.7% of the outstanding shares of our common stock,
which represent 22.7% of the voting and economic interest in our
common stock. Scorpio Group does not have an ownership inter-
est in any tanker vessels other than our tanker vessels, and will
preclude itself from directly owning product or crude tankers
ranging in size from 35,000 dwt to 200,000 dwt.

Our board of directors consists of five individuals, three of
whom are independent directors. The three independent direc-
tors form the board’s Audit Committee and, pursuant to the
Audit Committee charter, are required to review all potential
conflicts of interest between us and Scorpio Group. The two
non-independent directors, Emanuele Lauro and Robert Bugbee,
serve in senior management positions within the Scorpio Group
and have an ownership stake in Liberty, which is our Administrator,
and which is also an affiliate of the Scorpio Group.

The Scorpio Group is owned and controlled by members of the
Lolli-Ghetti family, of which Mr. Lauro is a member. Mr. Lauro is
considered to be the acting Chief Executive Officer and Mr.
Bugbee is considered to be the acting President of the Scorpio
Group. Mr. Lauro
is employed by Scorpio Commercial
Management and Mr. Bugbee is employed by Scorpio USA, and
both entities are affiliates within the Scorpio Group. Mr. Lauro
and Mr. Bugbee have a restricted stock ownership interest of 2%
and 1.75%, respectively, in Liberty, an affiliate of the Scorpio
Group, but they have no other ownership interests in the Scorpio
Group. We are not affiliated with any other entities in the ship-
ping industry other than those that are members of the Scorpio
Group.

In January 2011, Scorpio Owning Holding Ltd. distributed its shares
in Scorpio Tankers Inc. (via a dividend) to the shareholders of
Liberty, which is 97% owned by members of the Lolli-Ghetti fam-
ily, of which our CEO and Chairman is a member. The members of
the Lolli-Ghetti family have not sold the shares.

SCM and SSM, which as noted previously are affiliates of Scorpio
Group, provide commercial and technical management services
to us pursuant to our commercial and technical management
agreements. Under the commercial management agreement, we
pay SCM a fee of 1.25% commission per charter fixture plus $250
per vessel per day for Panamax, LRI, and LR2 vessels and $300 per
vessel per day for Handymax vessels for vessels that do not partici-
pate in one of the Scorpio Group pools. For vessels operating in a
Scorpio Group pool, we pay a fee of 1.25% commission per char-
ter fixture plus $250 per vessel per day for Panamax, LRI, and LR2
vessels and $300 per vessel per day for Handymax vessels. We pay
SSM $548 per vessel per day to provide technical management
services for each of our vessels. We have entered into separate

Part I

Item 7. Major Shareholders and Related Party Transactions

commercial and technical management agreements for each of
our vessels and expect to enter into similar agreements with
respect to each vessel that we acquire going forward. The com-
mercial and technical management agreements with SCM and
SSM are each for a period of three years, and may be terminated
upon two years’ notice.

We will reimburse Liberty, which as noted previously is our
Administrator and also an affiliate of the Scorpio Group, for the
reasonable direct or indirect expenses it incurs in providing us
with the administrative services described above. We will also pay
our Administrator a fee for arranging vessel purchases and sales
for us equal to 1% of the gross purchase or sale price, payable
upon the consummation of any such purchase or sale. We believe
this 1% fee on purchases and sales is customary in the tanker
industry.

Pursuant to our administrative services agreement, Liberty, on
behalf of itself and other members of the Scorpio Group, has
agreed that it will not directly own product or crude tankers
ranging in size from 35,000 dwt to 200,000 dwt. We have no
other agreements with SCM, SSM, our Administrator, or any
other party providing for a resolution of potential conflicts in
our favor.

For further details about our relationship and agreements with
the Scorpio Group and its affiliates, please read “Related Party

Transactions” and “Management—Board of Directors and
Committees.”

Related Party Payable and Shareholder Payable

Prior to November 18, 2009, we had a shareholder payable of $18.9
million and a related party payable to a subsidiary of Liberty of
$27.4 million. On November 30, 2009, these payables were con-
verted to equity as a capital contribution with no shares being
exchanged in this transaction.

King Dustin

King Dustin Tankschiffahrts GmbH&Co.KG, or King Dustin, is a spe-
cial purpose entity that is owned equally by affiliates of Koenig &
cie and Scorpio Group. King Dustin time charters-in Noemi from
us at $24,500 per day pursuant to a time charter that expires in
January 2012. The time charter began in January 2007. King Dustin
time charters-out Noemi to ST Shipping, a wholly owned subsid-
iary of Glencore S.A. of Zug, Switzerland.

Transactions with subsidiaries of Simon

Transactions with subsidiaries of Simon (herein referred to as
Simon subsidiaries) and transactions with entities outside of
Simon but controlled by the Lolli-Ghetti family (herein referred to
as related party affiliates) in the consolidated income statements
and balance sheet are as follows:

Pool revenue(1)
Scorpio Panamax Tanker Pool Limited
Scorpio Handymax Tanker Pool Limited
Scorpio Aframax Tanker Pool Limited
Time charter revenue(2)
King Dustin
Liberty
Vessel operating costs(3)
Commissions(4)
General and administrative expenses(5)
Other(6)

For the year
ended December 31,

2009

10,415,332
—
—

2008

20,980,233
—
—

8,288,767

8,879,913

(600,000)
—
(344,162)
—

(765,422)

(619,421)

2010

9,645,173
5,177,805
641,278

8,700,195
4,779,605
(1,058,699)
(233,546)
(932,460)
(130,602)

(1)

(2)

These transactions relate to revenue earned in the Scorpio Pools.

The revenue earned was for Noemi’s time charter with King Dustin (which is 50% jointly controlled by a Simon subsidiary)
along with STI Harmony’s and STI Heritage’s time charter with Liberty, a Simon subsidiary. See Note 14 to the consolidated
financial statements in Item 18 for the terms of these time charters.

Part I

Item 7. Major Shareholders and Related Party Transactions

(3)

(4)

(5)

These transactions represent technical management fees charged by SSM, a related party affiliate, and included in the vessel
operating costs in the consolidated income statement. We believe our technical management fees for the year ended
December31, 2010 and 2009 were at market rates because they were the same rates charged to other vessels managed by
SSM. Additionally, in December 2009, we signed a Technical Management Agreement (see description below) for each ship
with SSM. Each ship will pay $548 per day for technical management. This fee is the same charged to third parties by SSM, and
therefore the Company believes it represents a market rate for such services.

The Company’s fees under technical management arrangements with SSM were not at market rates for the year ended
December 31, 2008. The Company estimates that its technical management fees for the year ended December 31, 2008 would
have been $601,704 and would have increased net income for the periods by $163,718 had the Company operated as an
unaffiliated entity. The Company’s estimate is based upon the rates charged to third party participants by SSM in 2008.

These transactions represent the expense due to SCM for commissions related to the commercial management services
provided by SCM under the Commercial Management Agreement (see description below). Each of the vessels will pay 1.25%
of their revenue when the vessels are not in the pool. When our vessels are in the pool, SCM, the pool manager, charges all
vessels in the pool (including third party participants) $250 per day and 1.25% of their revenue. We believe that the commercial
management agreement represents a market rate for such services.

There were no charges related to these services for the years ended December 31, 2009 and 2008 and we estimate that the
commissions on its fees for years ended December 31, 2009 and 2008 would have been $215,046 and $228,675, respectively
and would have decreased net income for the period by the same amount if we operated as an unaffiliated entity. Our estimate
is based upon the rates charged by SCM to third party participants in the pools for 2009 and 2008.

Prior to December 2009, SSM provided administrative services directly to us. In December 2009, we signed an administrative
services agreement for each vessel with Liberty. We pay the administrator (Liberty) a fixed monthly fee calculated at cost with
no profit for providing us with administrative services, and reimburses it for the reasonable direct or indirect expenses it incurs
in providing us with such services. SSM continues to provide administrative services to us under this agreement, but now does
so on behalf of Liberty.

The administrative fee included services provided to us for accounting, administrative, information technology and
management. Our fees under administrative services arrangements for the years ended December 31, 2009 and 2008 may not
have been at market rates. We cannot estimate what the cost would have been if we operated as an unaffiliated party, but
believe the charges for the years ended December 31, 2009 and 2008 were reasonable and appropriate for the services
provided.

Our Commercial Management Agreement with SCM includes a daily flat fee charged payable to SCM for the vessels that are
not in one of the pools managed by SCM. The flat fee is $250 per day for Panamax/LR1 and Aframax vessels and $300 per day
for Handymax vessels. The flat fee is the same rate charged by SCM for vessels in the pools managed by SCM.

•

The expense for the year ended December 31, 2010 of $932,460 included the flat fee of $203,405 charged by SCM and
administrative fees of $729,055 charged by Liberty and are both included in general and administrative expenses in the
consolidated income statement.

The expense for the year ended December 31, 2009 of $344,162 included fees of $70,418 charged by SCM and $273,744
charged by SSM for administrative services under the previous administrative agreement. The fees charged by SCM for
the year ended December 31, 2009 were not at market rates. We estimate the fees charged by SCM for the year ended
December 31, 2009 would have been $182,500 and would have decreased net income by $112,082.

The expense for the year ended December 31, 2008 of 619,421 included fees of $37,996 charged by SCM and $581,426
charged by SSM for administrative services under the previous administrative agreement. The fees charged by SCM for
the year ended December 31, 2009 were not at market rates. We estimate the fees charged by SCM for the year ended
December 31, 2009 would have been $183,000 and would have decreased net income by $145,034.

(6)

In accordance with our Administrative Services Agreement with Liberty, we are required to reimburse Liberty for any direct
expenses. These transactions represent reimbursements of $130,602 to Liberty for the year ended December 31, 2010 for
expenses related to the registration of the existing shares.

Part I

Item 8. Financial Information

Balances with related parties

We had the following balances with related parties which have been included in the consolidated balance sheets:

Assets:
Accounts receivable -due from the Pool
Accounts receivable - SSM
Accounts receivable - SCM
Vessels and drydock (7)
Shareholder receivable(8)
Liabilities:
Accounts payable - owed to the Pool
Accounts payable - SSM
Shareholder’s equity:
Additional paid in capital(9)

As of December 31,

2010

6,767,770
117
3,463
2,431,700
—

22,349
101,412

344,490

2009

1,133,030
—
—
—
1,928,253

—

(7)

The Administrative Services Agreement with Liberty includes a fee for arranging vessel purchases and sales, on our behalf,
equal to 1% of the gross purchase or sale price, payable upon the consummation of any such purchase or sale. These fees are
capitalized as part of the carrying value of the related vessel.

•

The balance as of December 31, 2010 of $2,431,700 was the 1% fee for administrative services provided for the purchases
of the STI Harmony, STI Heritage, STI Conqueror, STI Matador, STI Gladiator, STI Highlander and STI Spirit.

(8) During December 2009, we advanced $1,928,253 to a shareholder, which was recognized as a receivable in the condensed
consolidated balance sheet as of December 31, 2009. The receivable was due upon demand and was non-interest bearing and
unsecured. The amount was repaid in the first quarter of 2010.

(9) As per the Administrative Services Agreement, we have to reimburse Liberty for any direct expenses. The $344,490 as of
December 31, 2010 related to expenses for the registration of the shares in the initial public offering, which closed on April 6,
2010 and were recorded as an offset against the proceeds from the offering. The liability has been cash settled as of September
30, 2010.

Key management remuneration

ITEM 8. FINANCIAL INFORMATION

Our executive management was provided by a related party
affiliate and included in the management fees described in (5)
above, until April 6, 2010 when our initial public offering closed.
If we were not part of Simon, and had the same ownership
structure and a contract for administrative services for the peri-
ods up to April 6, 2010, we estimate our general and administra-
tive expenses would have been comparable with the general
and administrative expenses presented in the condensed con-
solidated income statement for the years ended December 31,
2009 and 2008. For the period April 6, 2010 through December
31, 2010 cash and non-cash executive management remunera-
tion of $3.0 million has been included as part of general and
administrative expenses.

C. INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

A. Consolidated Statements and Other Financial
Information

See Item 18.

Legal Proceedings

To our knowledge, we are not currently a party to any lawsuit
that, if adversely determined, would have a material adverse
effect on our financial position, results of operations or liquidity.
As such, we do not believe that pending legal proceedings,
taken as a whole, should have any significant impact on our
financial statements. From time to time in the future we may be
subject to legal proceedings and claims in the ordinary course of
business, principally personal injury and property casualty
claims. While we expect that these claims would be covered by
our existing insurance policies, those claims, even if lacking

Part I

Item 9. The Offer and Listing

merit, could result in the expenditure of significant financial and
managerial resources. We have not been involved in any legal
proceedings which may have, or have had, a significant effect on
our financial position, results of operations or liquidity, nor are
we aware of any proceedings that are pending or threatened
which may have a significant effect on our financial position,
results of operations or liquidity.

Dividend Policy

Since our initial public offering closed on April 6, 2010, we have
not paid a dividend. We will continue to assess our dividend pol-
icy and our board of directors may determine to pay dividends in
the future. Depending on prevailing charter market conditions,
our operating results and capital requirements and other relevant

factors, our board of directors may re-evaluate our dividend
policy.

B. Significant Changes

See ITEM 18 – Financial Statements: Note 22 – Subsequent Events.

ITEM 9. THE OFFER AND LISTING
Share History and Markets

Since our initial public offering, our shares have traded on the
New York Stock Exchange (NYSE) under the symbol STNG. The
high and low market prices for our common stock for the periods
set forth below were as follows:

For the Year Ended

December 31, 2010

For the Quarter Ended

March 31, 2010
June 30, 2010
September 30, 2010
December 31, 2010
March 31, 2011

For the Month

October 2010
November 2010
December 2010
January 2011
February 2011
March 2011

Low

High

9.50

13.01

Low

High

12.10
10.05
10.04
9.50
9.62

Low

11.06
9.50
9.61
9.62
9.75
9.80

12.90
13.01
11.92
11.95
10.82

High

11.89
11.95
10.85
10.82
10.59
10.42

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable

B. Memorandum and articles of association

Our amended and restated articles of incorporation have been
filed as exhibit 3.1 to our Amendment No. 2 to our Registration
Statement on Form F-1 (Registration No. 333-164940), filed with
the SEC on March 18, 2010. Our amended and restated bylaws are
filed as exhibit 1.2 to our Annual Report on Form 20-F filed on
June 29, 2010. The information contained in these exhibits is incor-
porated by reference herein.

Information regarding the rights, preferences and restrictions
attaching to each class of the shares is described in the section

entitled “Description of Capital Stock” in our Prospectus
Supplement on Form 424B4, filed with the SEC on November
18, 2010, which supplements our Registration Statement on
Form F-1 (Registration No. 333-170375) with an effective date of
November 16, 2010, provided that since the date of that
Prospectus Supplement, our total issued and outstanding com-
mon shares has increased to 24,924,913 as of the date of this
Annual Report.

C. Material Contracts

Attached as exhibits to this annual report are the contracts we
consider to be both material and not entered into in the ordinary
course of business. Descriptions are included within Item 5.B with
respect to our credit facilities, and Item 7.B with respect to our
related party transactions.

Part I

Item 10. Additional Information

Other than these contracts, we have no other material contracts,
other than contracts entered into in the ordinary course of busi-
ness, to which the Company is a party.

D. Exchange Controls

Under Marshall Islands law, there are currently no restrictions on
the export or import of capital, including foreign exchange con-
trols or restrictions that affect the remittance of dividends, interest
or other payments to non-resident holders of our common shares.

E. Taxation

Marshall Islands Tax Considerations

The following are the material Marshall Islands tax consequences
of our activities to us and holders of our common shares. We are
incorporated in the Marshall Islands. Under current Marshall
Islands law, we are not subject to tax on income or capital gains,
and no Marshall Islands withholding tax will be imposed upon
payments of dividends by us to our shareholders.

United States Federal Income Tax Considerations

The following are the material United States federal income tax
consequences to us of our activities and to United States Holders
and Non-United States Holders, each as defined below, of the
ownership of common shares. The following discussion of United
States federal income tax matters is based on the United States
Internal Revenue Code of 1986, or the Code, judicial decisions,
administrative pronouncements, and existing and proposed regu-
lations issued by the United States Department of the Treasury, or
the Treasury Regulations, all of which are subject to change, pos-
sibly with retroactive effect. The discussion below is based, in
part, on the description of our business in this Report and assumes
that we conduct our business as described herein. References in
the following discussion to the “Company,” “we,” “our” and “us” are
to Scorpio Tankers Inc. and its subsidiaries on a consolidated basis.

United States Federal Income Taxation of Operating Income: In
General

We earn and anticipate that we will continue to earn substantially
all our income from the hiring or leasing of vessels for use on a
time charter basis, from participation in a pool or from the perfor-
mance of services directly related to those uses, all of which we
refer to as “shipping income.”

Unless exempt from United States federal income taxation under
the rules of Section 883 of the Code, or Section 883, as discussed
below, a foreign corporation such as the Company will be subject
to United States federal income taxation on its “shipping income”
that is treated as derived from sources within the United States,
which we refer to as “United States source shipping income.” For
United States federal income tax purposes, “United States source
shipping income” includes 50% of shipping income that is

attributable to transportation that begins or ends, but that does
not both begin and end, in the United States.

Shipping income attributable to transportation exclusively
between non-United States ports will be considered to be 100%
derived from sources entirely outside the United States. Shipping
income derived from sources outside the United States will not be
subject to any United States federal income tax.

Shipping income attributable to transportation exclusively
between United States ports is considered to be 100% derived
from United States sources. However, we are not permitted by
United States law to engage in the transportation of cargoes that
produces 100% United States source shipping income.

Unless exempt from tax under Section 883, our gross United
States source shipping income would be subject to a 4% tax
imposed without allowance for deductions, as described more
fully below.

Exemption of Operating Income from United States Federal
Income Taxation

Under Section 883 and the Treasury Regulations thereunder, a for-
eign corporation will be exempt from United States federal
income taxation on its United States source shipping income if:

(1) it is organized in a “qualified foreign country,” which is one that
grants an “equivalent exemption” from tax to corporations
organized in the United States in respect of each category of
shipping income for which exemption is being claimed under
Section 883; and

(2) one of the following tests is met:

(A) more than 50% of the value of its shares is beneficially
owned, directly or indirectly, by “qualified shareholders,”
which as defined includes individuals who are “residents” of
a qualified foreign country, which we refer to as the “50%
Ownership Test”; or

(B) its shares are “primarily and regularly traded on an estab-
lished securities market” in a qualified foreign country or in
the United States, to which we refer as the “Publicly-Traded
Test”.

The Republic of The Marshall Islands, the jurisdiction where we
and our ship-owning subsidiaries are incorporated, has been offi-
cially recognized by the United States Internal Revenue Service, or
the IRS, as a qualified foreign country that grants the requisite
“equivalent exemption” from tax in respect of each category of
shipping income we earn and currently expect to earn in the
future. Therefore, we will be exempt from United States federal
income taxation with respect to our United States source ship-
ping income if we satisfy either the 50% Ownership Test or the
Publicly-Traded Test.

Part I

Item 10. Additional Information

For our 2010 tax year, we intend to take the position that we sat-
isfy the Publicly-Traded Test and we anticipate that we will con-
tinue to satisfy the Publicly-Traded Test for future taxable years.
However, as discussed below, this is a factual determination made
on an annual basis. We do not currently anticipate a circumstance
under which we would be able to satisfy the 50% Ownership Test.

Publicly-Traded Test

The Treasury Regulations under Section 883 provide, in pertinent
part, that shares of a foreign corporation will be considered to be
“primarily traded” on an established securities market in a country
if the number of shares of each class of stock that are traded dur-
ing any taxable year on all established securities markets in that
country exceeds the number of shares in each such class that are
traded during that year on established securities markets in any
other single country. Our common shares, which constitute our
sole class of issued and outstanding stock, are “primarily traded”
on the New York Stock Exchange, or the NYSE.

Under the Treasury Regulations, our common shares will be con-
sidered to be “regularly traded” on an established securities mar-
ket if one or more classes of our stock representing more than
50% of our outstanding stock, by both total combined voting
power of all classes of stock entitled to vote and total value, are
listed on such market, to which we refer as the “Listing Threshold.”
Since our common shares are listed on the NYSE, we expect to
satisfy the Listing Threshold.

It is further required that with respect to each class of stock relied
upon to meet the Listing Threshold, (i) such class of stock is traded
on the market, other than in minimal quantities, on at least 60
days during the taxable year or one-sixth of the days in a short
taxable year, or the “Trading Frequency Test”; and (ii) the aggre-
gate number of shares of such class of stock traded on such mar-
ket during the taxable year is at least 10% of the average number
of shares of such class of stock outstanding during such year or as
appropriately adjusted in the case of a short taxable year, or the
“Trading Volume Test.” The Company currently satisfies and antici-
pates that it will continue to satisfy the Trading Frequency Test
and Trading Volume Test. Even if this were not the case, the
Treasury Regulations provide that the Trading Frequency Test and
Trading Volume Tests will be deemed satisfied if, as is the case
with our common shares, such class of stock is traded on an
established securities market in the United States and such class
of stock is regularly quoted by dealers making a market in such
stock.

Notwithstanding the foregoing, the Treasury Regulations provide,
in pertinent part, that a class of stock will not be considered to be
“regularly traded” on an established securities market for any tax-
able year during which 50% or more of the vote and value of the
outstanding shares of such class are owned, actually or

constructively under specified attribution rules, on more than half
the days during the taxable year by persons who each own 5% or
more of the vote and value of such class of outstanding shares, to
which we refer as the “5% Override Rule.”

For purposes of being able to determine the persons who actu-
ally or constructively own 5% or more of the vote and value of our
common shares, or “5% Shareholders,” the Treasury Regulations
permit us to rely on those persons that are identified on Schedule
13G and Schedule 13D filings with the United States Securities and
Exchange Commission, or the SEC, as owning 5% or more of our
common shares. The Treasury Regulations further provide that an
investment company which is registered under the Investment
Company Act of 1940, as amended, will not be treated as a 5%
Shareholder for such purposes.

In the event the 5% Override Rule is triggered, the Treasury
Regulations provide that the 5% Override Rule will nevertheless
not apply if we can establish that within the group of 5%
Shareholders, there are sufficient qualified shareholders for pur-
poses of Section 883 to preclude non-qualified shareholders in
such group from owning 50% or more of our common shares for
more than half the number of days during the taxable year. In
order to benefit from this exception to the 5% Override Rule, the
Company must satisfy certain substantiation requirements in
regards to the identify of its 5% Shareholders.

Based on Schedule 13G and Schedule 13D filings with the SEC, the
Company believes that the 5% Override Rule may have been trig-
gered for the 2010 taxable year, in which case the Company will
not satisfy the Publicly-Traded Test for the 2010 taxable year unless
within the group of our 5% Shareholders there were sufficient
qualified 5% Shareholders to preclude nonqualified 5%
Shareholders from owning 50% or more of our common shares
for more than half the number of days during the 2010 taxable
year. We believe that, during the 2010 taxable year, there existed
sufficient qualified 5% Shareholders for the Company to avail itself
of this exception to the 5% Override Rule. The Company intends
to take this position on its United Sates federal income tax return
for the 2010 taxable year and expects that it will be able to satisfy
the substantiation requirements in regards to its 5% Shareholders.

Accordingly, we believe that we currently satisfy the Publicly-
Traded Test. However, there are factual circumstances beyond our
control that could cause us to lose the benefit of the Section 883
exemption. For example, if we trigger the 5% Override Rule for
any future taxable year, there is no assurance that we will have suf-
ficient qualified 5% Shareholders to preclude nonqualified 5%
Shareholders from owning 50% or more of our common shares
for more than half the number of days during such taxable year, or
that we will be able to satisfy the substantiation requirements in
regards to our 5% Shareholders.

Part I

Item 10. Additional Information

United States Federal Income Taxation In Absence of Section 883
Exemption

If the benefits of Section 883 are unavailable, our United States
source shipping income would be subject to a 4% tax imposed by
Section 887 of the Code on a gross basis, without the benefit of
deductions, which we refer to as the “4% gross basis tax regime,”
to the extent that such income is not considered to be “effectively
connected” with the conduct of a United States trade or business,
as described below. Since under the sourcing rules described
above, no more than 50% of our shipping income would be
treated as being United States source shipping income, the maxi-
mum effective rate of United States federal income tax on our
shipping income would never exceed 2% under the 4% gross
basis tax regime.

To the extent our United States source shipping income is consid-
ered to be “effectively connected” with the conduct of a United
States trade or business, as described below, any such “effectively
connected” United States source shipping income, net of applica-
ble deductions, would be subject to United States federal income
tax, currently imposed at rates of up to 35%. In addition, we would
generally be subject to the 30% “branch profits” tax on earnings
effectively connected with the conduct of such trade or business,
as determined after allowance for certain adjustments, and on
certain interest paid or deemed paid attributable to the conduct
of our United States trade or business.

Our United States source shipping income would be considered
“effectively connected” with the conduct of a United States trade
or business only if:

• we have, or are considered to have, a fixed place of business in
the United States involved in the earning of United States
source shipping income; and

•

substantially all of our United States source shipping income is
attributable to regularly scheduled transportation, such as the
operation of a vessel that follows a published schedule with
repeated sailings at regular intervals between the same points
for voyages that begin or end in the United States.

We do not currently have, intend to have, or permit circumstances
that would result in having, any vessel sailing to or from the United
States on a regularly scheduled basis. Based on the foregoing and
on the expected mode of our shipping operations and other
activities, it is anticipated that none of our United States source
shipping income will be “effectively connected” with the conduct
of a United States trade or business.

United States Federal Income Taxation of Gain on Sale of Vessels

If we qualify for exemption from tax under Section 883 in respect
of the shipping income derived from the international operation

of our vessels, then gain from the sale of any such vessel should
likewise be exempt from United States federal income tax under
Section 883. If, however, our shipping income from such vessels
does not for whatever reason qualify for exemption under Section
883, then any gain on the sale of a vessel will be subject to United
States federal income tax if such sale occurs in the United States.
To the extent possible, we intend to structure the sales of our ves-
sels so that the gain there from is not subject to United States
federal income tax. However, there is no assurance we will be able
to do so.

United States Federal Income Taxation of United States Holders

The following is a discussion of the material United States federal
income tax considerations relevant to an investment decision by a
United States Holder, as defined below, with respect to our com-
mon shares. This discussion does not purport to deal with the tax
consequences of owning common shares to all categories of
investors, some of which may be subject to special rules. You are
encouraged to consult your own tax advisors concerning the
overall tax consequences arising in your own particular situation
under United States federal, state, local or foreign law of the own-
ership of common shares.

As used herein, the term “United States Holder” means a benefi-
cial owner of common shares that is an individual United States
citizen or resident, a United States corporation or other United
States entity taxable as a corporation, an estate the income of
which is subject to United States federal income taxation regard-
less of its source, or a trust if a court within the United States is
able to exercise primary jurisdiction over the administration of the
trust and one or more United States persons have the authority to
control all substantial decisions of the trust.

If a partnership holds our common shares, the tax treatment of a
partner will generally depend upon the status of the partner and
upon the activities of the partnership. If you are a partner in a
partnership holding common shares, you are encouraged to con-
sult your tax advisor.

Distributions

Subject to the discussion of passive foreign investment compa-
nies below, any distributions made by us with respect to our com-
mon shares to a United States Holder will generally constitute
dividends to the extent of our current or accumulated earnings
and profits, as determined under United States federal income tax
principles. Distributions in excess of such earnings and profits will
be treated first as a nontaxable return of capital to the extent of
the United States Holder’s tax basis in his common shares on a
dollar-for-dollar basis and thereafter as capital gain. Because we
are not a United States corporation, United States Holders that are
corporations will not be entitled to claim a dividends received

Part I

Item 10. Additional Information

deduction with respect to any distributions they receive from us.
Dividends paid with respect to our common shares will generally
be treated as “passive category income” for purposes of comput-
ing allowable foreign tax credits for United States foreign tax
credit purposes.

Dividends paid on our common shares to a United States Holder
who is an individual, trust or estate (a “United States Non-
Corporate Holder”) will generally be treated as “qualified dividend
income” that is taxable to such United States Non-Corporate
Holder at preferential tax rates (through 2012) provided that (1) the
common shares are readily tradable on an established securities
market in the United States (such as the NYSE, on which our com-
mon shares are traded); (2) we are not a passive foreign invest-
ment company for the taxable year during which the dividend is
paid or the immediately preceding taxable year (which, as dis-
cussed below, we have not been, are not and do not anticipate
being in the future); (3) the United States Non-Corporate Holder
has owned the common shares for more than 60 days in the 121-
day period beginning 60 days before the date on which the com-
mon shares become ex-dividend; and (4) the United States
Non-Corporate Holder is not under an obligation to make related
payments with respect to positions in substantially similar or
related property.

Legislation has been previously introduced in the United States
Congress which, if enacted in its present form, would preclude
our dividends from qualifying for such preferential rates prospec-
tively from the date of its enactment. Further, in the absence of
legislation extending the term of the preferential tax rates for
qualified dividend income, all dividends received by a taxpayer in
tax years beginning on January 1, 2013 or later will be taxed at
ordinary graduated tax rates. Any distributions out of earnings
and profits we pay which are not eligible for these preferential
rates will be taxed as ordinary income to a United States Non-
Corporate Holder.

Special rules may apply to any “extraordinary dividend”—gener-
ally, a dividend in an amount which is equal to or in excess of 10%
of a shareholder’s adjusted tax basis in his common shares—paid
by us. If we pay an “extraordinary dividend” on our common
shares that is treated as “qualified dividend income,” then any loss
derived by a United States Non-Corporate Holder from the sale or
exchange of such common shares will be treated as long-term
capital loss to the extent of such dividend.

Sale, Exchange or Other Disposition of Common Shares

Assuming we do not constitute a passive foreign investment com-
pany for any taxable year, a United States Holder generally will
recognize taxable gain or loss upon a sale, exchange or other dis-
position of our common shares in an amount equal to the differ-
ence between the amount realized by the United States Holder

from such sale, exchange or other disposition and the United
States Holder’s tax basis in such shares. Such gain or loss will be
treated as long-term capital gain or loss if the United States
Holder’s holding period is greater than one year at the time of the
sale, exchange or other disposition. Such capital gain or loss will
generally be treated as United States source income or loss, as
applicable, for United States foreign tax credit purposes. Long-
term capital gains of United States Non-Corporate Holders are
currently eligible for reduced rates of taxation. A United States
Holder’s ability to deduct capital losses is subject to certain
limitations.

Passive Foreign Investment Company Status and Significant
Tax Consequences

Special United States federal income tax rules apply to a United
States Holder that holds shares in a foreign corporation classified
as a “passive foreign investment company”, or a PFIC, for United
States federal income tax purposes. In general, we will be treated
as a PFIC with respect to a United States Holder if, for any taxable
year in which such Holder holds our common shares, either:

• at least 75% of our gross income for such taxable year consists
of passive income (e.g., dividends, interest, capital gains and
rents derived other than in the active conduct of a rental busi-
ness); or

• at least 50% of the average value of our assets during such tax-
able year produce, or are held for the production of, passive
income.

For purposes of determining whether we are a PFIC, we will be
treated as earning and owning our proportionate share of the
income and assets, respectively, of any of our subsidiary corpora-
tions in which we own at least 25% of the value of the subsidiary’s
stock. Income earned, or deemed earned, by us in connection
with the performance of services would not constitute passive
income. By contrast, rental income would generally constitute
“passive income” unless we were treated under specific rules as
deriving our rental income in the active conduct of a trade or
business.

Based on our current operations and future projections, we do
not believe that we have been, are, nor do we expect to become,
a passive foreign investment company with respect to any taxable
year. Although there is no legal authority directly on point, our
belief is based principally on the position that, for purposes of
determining whether we are a passive foreign investment com-
pany, the gross income we derive or are deemed to derive from
the time chartering and voyage chartering activities of our wholly-
owned subsidiaries should constitute services income, rather than
rental income. Accordingly, such income should not constitute
passive income, and the assets that we own and operate in

Part I

Item 10. Additional Information

connection with the production of such income, in particular, the
vessels, should not constitute assets that produce or are held for
the production of passive income for purposes of determining
whether we are a PFIC. Therefore, based on our current operations
and future projections, we should not be treated as a PFIC with
respect to any taxable year. There is substantial legal authority
supporting this position, consisting of case law and IRS pro-
nouncements concerning the characterization of income derived
from time charters and voyage charters as services income for
other tax purposes. However, there is also authority that charac-
terizes time charter income as rental income rather than services
income for other tax purposes. It should be noted that in the
absence of any legal authority specifically relating to the statutory
provisions governing PFICs, the IRS or a court could disagree with
our position. Furthermore, although we intend to conduct our
affairs in a manner to avoid being classified as a PFIC with respect
to any taxable year, we cannot assure you that the nature of our
operations will not change in the future.

As discussed more fully below, if we were to be treated as a PFIC
for any taxable year, a United States Holder would be subject to
different United States federal income taxation rules depending
on whether the United States Holder makes an election to treat us
as a “Qualified Electing Fund,” which election we refer to as a “QEF
election.” As an alternative to making a QEF election, a United
States Holder should be able to make a “mark-to-market” election
with respect to our common shares, as discussed below. In addi-
tion, if we were to be treated as a PFIC for any taxable year after
2010, a United States Holder would be required to file an annual
report with the IRS for that year with respect to such Holder’s
common shares.

Taxation of United States Holders Making a Timely QEF Election

If a United States Holder makes a timely QEF election, which
United States Holder we refer to as an “Electing Holder,” the
Electing Holder must report for United States federal income tax
purposes his pro rata share of our ordinary earnings and net capi-
tal gain, if any, for each taxable year of the Company during which
it is a PFIC that ends with or within the taxable year of the Electing
Holder, regardless of whether distributions were received from us
by the Electing Holder. No portion of any such inclusions of ordi-
nary earnings will be treated as “qualified dividend income.” Net
capital gain inclusions of United States Non-Corporate Holders
would be eligible for preferential capital gain tax rates. The
Electing Holder’s adjusted tax basis in the common shares will be
increased to reflect taxed but undistributed earnings and profits.
Distributions of earnings and profits that had been previously
taxed will result in a corresponding reduction in the adjusted tax
basis in the common shares and will not be taxed again once dis-
tributed. An Electing Holder would not, however, be entitled to a
deduction for its pro rata share of any losses that we incur with

respect to any taxable year. An Electing Holder would generally
recognize capital gain or loss on the sale, exchange or other dis-
position of our common shares. A United States Holder would
make a timely QEF election for our shares by filing one copy of IRS
Form 8621 with his United States federal income tax return for the
first year in which he held such shares when we were a PFIC. If we
were to be treated as a PFIC for any taxable year, we would pro-
vide each United States Holder with all necessary information in
order to make the QEF election described above.

Taxation of United States Holders Making a “Mark-to-Market”
Election

Alternatively, if we were to be treated as a PFIC for any taxable year
and, as we anticipate will be the case, our common shares are
treated as “marketable stock,” a United States Holder would be
allowed to make a “mark-to-market” election with respect to our
common shares, provided the United States Holder completes
and files IRS Form 8621 in accordance with the relevant instruc-
tions and related Treasury Regulations. If that election is made, the
United States Holder generally would include as ordinary income
in each taxable year the excess, if any, of the fair market value of
the common shares at the end of the taxable year over such
Holder’s adjusted tax basis in the common shares. The United
States Holder would also be permitted an ordinary loss in respect
of the excess, if any, of the United States Holder’s adjusted tax
basis in the common shares over its fair market value at the end of
the taxable year, but only to the extent of the net amount previ-
ously included in income as a result of the mark-to-market elec-
tion. A United States Holder’s tax basis in his common shares
would be adjusted to reflect any such income or loss amount.
Gain realized on the sale, exchange or other disposition of our
common shares would be treated as ordinary income, and any
loss realized on the sale, exchange or other disposition of the
common shares would be treated as ordinary loss to the extent
that such loss does not exceed the net mark-to-market gains pre-
viously included by the United States Holder.

Taxation of United States Holders Not Making a Timely QEF or
Mark-to-Market Election

Finally, if we were to be treated as a PFIC for any taxable year, a
United States Holder who does not make either a QEF election or
a “mark-to-market” election for that year, whom we refer to as a
“Non-Electing Holder,” would be subject to special rules with
respect to (1) any excess distribution (i.e., the portion of any distri-
butions received by the Non-Electing Holder on the common
shares in a taxable year in excess of 125% of the average annual
distributions received by the Non-Electing Holder in the three
preceding taxable years, or, if shorter, the Non-Electing Holder’s
holding period for the common shares), and (2) any gain realized
on the sale, exchange or other disposition of our common shares.
Under these special rules:

the excess distribution or gain would be allocated ratably over
the Non-Electing Holder’s aggregate holding period for the
common shares;

•

the Non-United States Holder is an individual who is present in
the United States for 183 days or more during the taxable year
of disposition and other conditions are met.

Part I

Item 10. Additional Information

•

the amount allocated to the current taxable year, and any tax-
able year prior to the first taxable year in which we were a PFIC,
would be taxed as ordinary income and would not be “quali-
fied dividend income”; and

the amount allocated to each of the other taxable years would
be subject to tax at the highest rate of tax in effect for the
applicable class of taxpayer for that year, and an interest charge
for the deemed tax deferral benefit would be imposed with
respect to the resulting tax attributable to each such other tax-
able year.

United States Federal Income Taxation of “Non-United States
Holders”

A beneficial owner of common shares (other than a partnership)
that is not a United States Holder is referred to herein as a “Non-
United States Holder.”

If a partnership holds common shares, the tax treatment of a part-
ner will generally depend upon the status of the partner and
upon the activities of the partnership. If you are a partner in a
partnership holding common shares, you are encouraged to con-
sult your tax advisor.

Dividends on Common Stock

A Non-United States Holder generally will not be subject to
United States federal income tax or withholding tax on dividends
received from us with respect to his common shares, unless that
income is effectively connected with the Non-United States
Holder’s conduct of a trade or business in the United States. If the
Non-United States Holder is entitled to the benefits of a United
States income tax treaty with respect to those dividends, that
income is subject to United Stated federal income tax only if it is
attributable to a permanent establishment maintained by the
Non-United States Holder in the United States.

Sale, Exchange or Other Disposition of Common Shares

Non-United States Holders generally will not be subject to United
States federal income tax or withholding tax on any gain realized
upon the sale, exchange or other disposition of our common
shares, unless:

•

the gain is effectively connected with the Non-United States
Holder’s conduct of a trade or business in the United States
(and, if the Non-United States Holder is entitled to the bene-
fits of a United States income tax treaty with respect to that
gain, that gain is attributable to a permanent establishment
maintained by the Non-United States Holder in the United
States); or

If the Non-United States Holder is engaged in a United States
trade or business for United States federal income tax purposes,
dividends on the common shares, and gains from the sale,
exchange or other disposition of such shares, that are effectively
connected with the conduct of that trade or business will gener-
ally be subject to regular United States federal income tax in the
same manner as discussed in the previous section relating to the
taxation of United States Holders. In addition, if you are a corpo-
rate Non-United States Holder, your earnings and profits that are
attributable to the effectively connected income, subject to cer-
tain adjustments, may be subject to an additional “branch profits”
tax at a rate of 30%, or at a lower rate as may be specified by an
applicable United States income tax treaty.

Backup Withholding and Information Reporting

In general, dividend payments, or other taxable distributions,
made within the United States to you will be subject to informa-
tion reporting requirements if you are a non-corporate United
States Holder. Such payments or distributions may also be subject
to backup withholding if you are a non-corporate United States
Holder and you:

•

fail to provide an accurate taxpayer identification number;

• are notified by the IRS that you have failed to report all interest
or dividends required to be shown on your United States fed-
eral income tax returns; or

•

in certain circumstances, fail to comply with applicable certifi-
cation requirements.

Non-United States Holders may be required to establish their
exemption from information reporting and backup withholding
by certifying their status on IRS Form W-8BEN, W-8ECI or W-8IMY,
as applicable.

If you are a Non-United States Holder and you sell your common
shares to or through a United States office of a broker, the pay-
ment of the proceeds is subject to both United States backup
withholding and information reporting unless you certify that you
are a non-United States person, under penalties of perjury, or you
otherwise establish an exemption. If you sell your common shares
through a non-United States office of a non-United States broker
and the sales proceeds are paid to you outside the United States,
then information reporting and backup withholding generally will
not apply to that payment. However, United States information
reporting requirements, but not backup withholding, will apply to
a payment of sales proceeds, even if that payment is made to you
outside the United States, if you sell your common shares through

Part I

Item 11. Quantitative and Qualitative Disclosures about Market Risks

a non-United States office of a broker that is a United States per-
son or has some other contacts with the United States. Such infor-
mation reporting requirements will not apply, however, if the
broker has documentary evidence in its records that you are a
non-United States person and certain other conditions are met, or
you otherwise establish an exemption.

Backup withholding is not an additional tax. Rather, you generally
may obtain a refund of any amounts withheld under backup with-
holding rules that exceed your United States federal income tax
liability by filing a refund claim with the IRS.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

We file reports and other information with the SEC. These materi-
als, including this annual report and the accompanying exhibits,
may be inspected and copied at the public reference facilities
maintained by the Commission at 100 F Street, N.E. Washington,
D.C. 20549, or from the SEC’s website http://www.sec.gov. You
may obtain information on the operation of the public reference
room by calling 1 (800) SEC-0330, and you may obtain copies at
prescribed rates.

I. Subsidiary Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISKS
Interest Rate Risk

We are exposed to the impact of interest rate changes primarily
through our unhedged variable-rate borrowings. Significant
increases in interest rates could adversely affect our operating
margins, results of operations and our ability to service our debt.
From time to time, we will use interest rate swaps to reduce our
exposure to market risk from changes in interest rates. The princi-
pal objective of these contracts is to minimize the risks and costs
associated with our variable-rate debt and is not for speculative or
trading purposes. Our interest rate swap expired in April 2010
when the 2005 Credit Facility was repaid. There were no interest
rate swaps in place at December 31, 2010.

Changes in the fair value of our interest rate swaps are offset
against the fair value of assets or liabilities through income. As of
December 31, 2009 the floating rate debt was $39.8 million, and
the notional balance of the interest rate swap was $19.9 million.
The fair market value of our interest rate swaps was a liability of
$1.7 million as of December 31, 2009.

Based on the floating rate debt at December 31, 2010, a one-per-
centage point increase in the floating interest rate would increase
interest expense by $1.5 million per year. The following table pres-
ents the principal payments on their due dates for our floating
rate debt:

as of December 31, 2010

2012 -
2013

2014 -
2015

2011

Thereafter

Principal payments - floating rate debt

16,271,020

32,542,040

96,361,522

—

Since we did not use hedge accounting for our interest rate swap
that commenced in May 2005 and terminated in April 2010, the
changes in the fair value of the interest rate swap were either off-
set against the fair value of assets or liabilities through income. As
of December 31, 2010, our outstanding floating rate debt was
$145.2 million. As of December 31, 2009, our outstanding floating
rate debt was $39.8 million and the notional balance of the inter-
est rate swap was $19.9 million.

The fair market value of our interest rate swaps was a liability of
$1.7 million as of December 31, 2009.

Spot Market Rate Risk

The cyclical nature of the tanker industry causes significant
increases or decreases in the revenue that we earn from our

vessels, particularly those vessels that participate in pools that are
concentrated in the spot market such as the Scorpio LR2, Scorpio
Panamax and Scorpio Handymax Tanker Pools. To reduce this risk,
we currently have one vessel that is on a time charter contract,
which is expected to expire in January 2012 and we have the abil-
ity to remove our vessels from the pools on relatively short notice
if attractive time charter opportunities arise.

Foreign Exchange Rate Risk

Our primary economic environment is the international shipping
market. This market utilizes the U.S. Dollar as its functional cur-
rency. Consequently, virtually all of our revenues and the majority
of our operating expenses are in U.S. Dollars. However, we incur
some of our combined expenses in other currencies, particularly

Part I

Item 12. Description of Securities other than Equity Securities

the Euro. The amount and frequency of some of these expenses
(such as vessel repairs, supplies and stores) may fluctuate from
period to period. Depreciation in the value of the U.S. dollar rela-
tive to other currencies will increase the U.S. dollar cost of us pay-
ing such expenses. The portion of our business conducted in
other currencies could increase in the future, which could expand
our exposure to losses arising from currency fluctuations.

There is a risk that currency fluctuations will have a negative effect
on our cash flows. We have not entered into any hedging con-
tracts to protect against currency fluctuations. However, we have
some ability to shift the purchase of goods and services from one
country to another and, thus, from one currency to another, on
relatively short notice. We may seek to hedge this currency fluc-
tuation risk in the future.

Inflation

We do not expect inflation to be a significant risk to direct
expenses in the current and foreseeable economic environment.

ITEM 12. DESCRIPTION OF SECURITIES OTHER
THAN EQUITY SECURITIES
Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES
AND DELINQUENCIES
Not applicable.

ITEM 14. MATERIAL MODIFICATIONS TO THE
RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

A. Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our reports
under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) is recorded, processed, summarized and reported
within time periods specified in the SEC’s rules and forms, and that
such information is accumulated and communicated to manage-
ment, including the Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding

required disclosures. The Company’s controls and procedures are
designed to provide reasonable assurance of achieving their
objectives.

We carried out an evaluation under the supervision, and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures
(as defined in Exchange Act Rule 13a-15(e)) as of December 31,
2010. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of December 31, 2010 to provide rea-
sonable assurance that (1) information required to be disclosed by
us in the reports that we file under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and (2) that such informa-
tion is accumulated and communicated to our management,
including our Chief Executive Officer and our Chief Financial
Officer, as appropriate, to allow timely decisions regarding
required disclosures.

There are inherent limitations to the effectiveness of any system
of disclosure controls and procedures, including the possibility of
human error and the circumvention or overriding of the controls
and procedures. Accordingly, even effective disclosure controls
and procedures can only provide reasonable assurance of achiev-
ing their control objectives.

B. Management’s Annual Report on Internal Control Over
Financial Reporting.

In accordance with Rule 13a-15(f) of the Securities Exchange Act of
1934, the management of Scorpio Tankers Inc. and its subsidiaries
(the “Company”) is responsible for the establishment and mainte-
nance of adequate internal controls over financial reporting for
the Company. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. The Company’s system of internal control
over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and disposi-
tions of the assets of the Company; (ii) provide reasonable assur-
ance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expendi-
tures of the Company are being made only in accordance with
authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of
the Company’s assets that could have a material effect on the
financial statements. Management has performed an assessment

Part II

Item 16A. Audit Committee Financial Expert

of the effectiveness of the Company’s internal controls over finan-
cial reporting as of December 31, 2010 based on the provisions of
Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission
(“COSO”). Based on our assessment, management determined
that the Company’s internal controls over financial reporting was
effective as of December 31, 2010 based on the criteria in Internal
Control—Integrated Framework issued by COSO.

C. Attestation Report of the Registered Public Accounting
Firm.

The annual report does not include an attestation report of the
Company’s registered public accounting firm regarding internal
control over financial reporting, pursuant to the exemption found
in Section 404(c) of the Sarbanes-Oxley Act of 2002, as added by
Section 989G of the Dodd-Frank Wall Street Reform and Consumer
Protection Act.

D. Changes in Internal Control Over Financial Reporting.

None

ITEM 16A. AUDIT COMMITTEE FINANCIAL
EXPERT
Our Board of Directors has determined that Mr. Ademaro Lanzara,
who serves on the Audit Committee, qualifies as an “audit com-
mittee financial expert” and that he is “independent” according to
Securities and Exchange Commission rules.

ITEM 16B. CODE OF ETHICS
We have adopted a code of ethics applicable to officers, directors
and employees. Our code of ethics complies with applicable
guidelines issued by the SEC and is filed as an exhibit to this
annual report.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND
SERVICES

A. Audit Fees

Our principal accountant for fiscal years ended December 31, 2010
and 2009 was Deloitte LLP (London, United Kingdom), and the
audit fees for those periods were $141,432 and $155,338,
respectively.

B. Audit-Related Fees

During 2010 our principal accountant provided audit related
services for quarterly review procedures and Sarbanes-Oxley
readiness. Fees for those services were $107,234.

C. Tax Fees

None.

D. All Other Fees

During 2010, our principal accountant provided services related to
the initial public offering and follow-on offering, which were
completed on April 6, 2010 and November 22, 2010 respectively.
The fees for these services were $313,532 and $249,658,
respectively.

E. Audit Committee’s Pre-Approval Policies and Procedures

Our Audit Committee pre-approves all audit, audit-related and
non-audit services not prohibited by law to be performed by
our independent auditors and associated fees prior to the
engagement of the independent auditor with respect to such
services.

F. Audit Work Performed by Other Than Principal Accountant
if Greater Than 50%

Not applicable.

ITEM 16D. EXEMPTIONS FROM THE LISTING
STANDARDS FOR AUDIT COMMITTEES
Not applicable.

ITEM 16E. PURCHASE OF EQUITY SECURITIES BY
THE ISSUER AND AFFILIATED PURCHASERS
On July 9, 2010, the board of directors authorized a share buyback
program of $20 million. We repurchase these shares in the open
market at the time and prices that we consider to be appropriate.
As of December 31, 2010, 244,146 shares have been purchased
under the plan at an average price of $10.85 per share, including
commissions. The amounts purchased, by month, are set out in
the table below:

Part II

Item 16F. Change in Registrant’s Certifying Accountant

Issuer Purchases of Equity Securities

Total Number of Shares
Purchased as Part of
Publicly Announced
Programs

Maximum Amount in US $
that may Yet Be Expected on
Share Repurchases Under Programs

75,500
154,846
13,800

244,146

$
$
$

19,159,883
17,498,969
17,352,194

17,352,194

require our non-management directors to regularly hold execu-
tive sessions without management. During 2010 and through the
date of this annual report, our non-management directors met in
executive session five times. The NYSE requires companies to
adopt and disclose corporate governance guidelines. The guide-
lines must address, among other things: director qualification
standards, director responsibilities, director access to manage-
ment and independent advisers, director compensation, director
orientation and continuing education, management succession
and an annual performance evaluation. We are not required to
adopt such guidelines under Marshall Islands law and we have not
adopted such guidelines.

PART III

ITEM 17. FINANCIAL STATEMENTS
Not applicable

ITEM 18. FINANCIAL STATEMENTS
The financial information required by this Item is set forth on
pages F-1 to F-35 and is filed as part of this annual report.

Period

July 2010
August 2010
September 2010

Total

Total Number of
Shares Purchased

75,500
154,846
13,800

244,146

Average
Price Paid
Per Share*

$
$
$

11.13
10.73
10.64

10.85

Includes commissions

ITEM 16F. CHANGE IN REGISTRANT’S
CERTIFYING ACCOUNTANT
Not applicable.

ITEM 16G. CORPORATE GOVERNANCE
Pursuant to an exception for foreign private issuers, we, as a
Marshall Islands company, are not required to comply with the
corporate governance practices followed by U.S. companies
under the NYSE listing standards. We believe that our established
practices in the area of corporate governance are in line with the
spirit of the NYSE standards and provide adequate protection to
our shareholders. In this respect, we have voluntarily adopted
NYSE required practices, such as (i) having a majority of indepen-
dent directors, (ii) establishing audit, compensation and nominat-
ing committees and (iii) adopting a Code of Ethics.

There are two significant differences between our corporate gov-
ernance practices and the practices required by the NYSE. The
NYSE requires that non-management directors meet regularly in
executive sessions without management. The NYSE also requires
that all independent directors meet in an executive session at
least once a year. The Marshall Islands law and our bylaws do not

Part III

Item 19. Exhibits

ITEM 19. EXHIBITS
Exhibit
Number

Description

1.1
1.2
2.1
4.1
4.2
4.3
4.4
4.5
4.6
8.1
11.1
12.1
12.2
13.1

13.2

Amended and Restated Articles of Incorporation of the Company (1)
Amended and Restated Bylaws of the Company (6)
Form of Stock Certificate (2)
Loan Agreement for 2010 Credit Facility (6)
2010 Equity Incentive Plan (6)
Administrative Services Agreement between the Company and Liberty Holding Company Ltd. (3)
Form of Commercial Management Agreement with SCM (4)
Form of Technical Management Agreement with SSM (5)
Loan Agreement for STI Spirit entered into in 2011
Subsidiaries of the Company
Code of Ethics (6)
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002

(1) Filed as Exhibit 3.1 to the Company’s Amended Registration Statement on Form F-1/A (Amendment No. 2) (File No. 333-164940)

on March 18, 2010.

(2) Filed as Exhibit 4.1 to the Company’s Amended Registration Statement on Form F-1/A (Amendment No. 1) (File No. 333-164940)

on March 10, 2010.

(3) Filed as Exhibit 10.1 to the Company’s Amended Registration Statement on Form F-1/A (Amendment No. 2) (File No. 333-

164940) on March 18, 2010.

(4) Filed as Exhibit 10.5 to the Company’s Amended Registration Statement on Form F-1/A (Amendment No. 2) (File No. 333-

164940) on March 18, 2010.

(5) Filed as Exhibit 10.8 to the Company’s Amended Registration Statement on Form F-1/A (Amendment No. 2) (File No. 333-

164940) on March 18, 2010.

(6) Filed as an Exhibit to the Company’s Annual Report filed on Form 20-F on June 29, 2010.

SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the under-
signed to sign this annual report on its behalf.

Dated: April 21, 2011

SK 26596 0004 1189769 v2

Scorpio Tankers Inc.
(Registrant)

Emanuele Lauro
Chief Executive Officer

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Audited Consolidated Financial Statements

Consolidated Balance Sheets as of December 31, 2010 and 2009

Consolidated Income Statements for the years ended December 31, 2010, 2009 and 2008

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2010, 2009 and 2008

Consolidated Cash Flow Statements for the years ended December 31, 2010, 2009 and 2008

Notes to the Consolidated Financial Statements

F-2

F-3

F-4

F-5

F-6

F-7

F-1

Report of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Scorpio Tankers Inc.

Majuro, Marshall Island

We have audited the accompanying consolidated balance sheets of Scorpio Tankers Inc. and subsidiaries (the “Company”) as of December
31, 2010 and 2009, and the related consolidated income statements, consolidated statements of changes in shareholders’ equity, and
consolidated cash flow statements for each of the three years in the period ended December 31, 2010. These consolidated financial state-
ments are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over finan-
cial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Scorpio Tankers Inc.
and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2010, in conformity with International Financial Reporting Standards as issued by the International
Accounting Standards Board.

DELOITTE LLP

London, United Kingdom

April 21, 2011

F-2

Scorpio Tankers Inc. and Subsidiaries

Consolidated balance sheets
December 31, 2010 and 2009

Assets
Current assets
Cash and cash equivalents

Accounts receivable
Prepaid expenses
Shareholder receivable
Inventories

Total current assets
Non-current assets
Vessels and drydock
Other assets

Total non-current assets

Total assets

Current liabilities
Bank loan
Accounts payable
Accrued expenses
Derivative financial instruments

Total current liabilities
Non-current liabilities
Bank loan
Derivative financial instruments

Total non-current liabilities

Total liabilities

Shareholders’ equity
Issued, authorized and fully paid in share capital:
Share capital
Additional paid-in capital
Merger reserve
Treasury shares
(Cumulative deficit)/Retained earnings

As of December 31,

Notes

2010

2009

3
4
14
5

6
8

10
9

10
11

13
13

68,186,902

7,354,252
460,680
—
1,286,507

444,496

1,438,998
583,944
1,928,253
433,428

77,288,341

4,829,119

333,425,386
1,554,713

99,594,267
—

334,980,099

99,594,267

$ 412,268,440

104,423,386

15,826,314
3,173,505
1,123,351
—

3,600,000
656,002
953,532
814,206

20,123,170

6,023,740

127,362,088
—

36,200,000
871,104

127,362,088

37,071,104

147,485,258

43,094,844

248,791
255,003,984
13,292,496
(2,647,807)
(1,114,282)

55,891
46,272,339
13,292,496
—
1,707,816

Total shareholders’ equity

264,783,182

61,328,542

Total liabilities and shareholders’ equity

$ 412,268,440

104,423,386

The accompanying notes are an integral part of these consolidated financial statements.

F-3

Scorpio Tankers Inc. and Subsidiaries

Consolidated income statements
For the years ended December 31, 2010, 2009 and 2008

Revenue:

Vessel revenue

Operating expenses:
Vessel operating costs

Voyage expenses
Charter hire

Impairment
Depreciation
General and administrative expenses

Total operating expenses

Operating income

For the years ended December 31,

Notes

2010

2009

2008

38,797,913

27,619,041

39,274,196

(18,440,492)

(2,542,298)
(275,532)

—
(10,178,908)
(6,200,094)

(8,562,118)

—
(3,072,916)

(4,511,877)
(6,834,742)
(416,908)

(8,623,318)

—
(6,722,334)

—
(6,984,444)
(600,361)

(37,637,324)

(23,398,561)

(22,930,457)

1,160,589

4,220,480

16,343,739

Other expense and income, net:
Interest expense—bank loan

Realized loss on derivative financial instruments
Unrealized gain/(loss) on derivative financial instruments

Interest income
Other expense, net

Total other expense, net

Net (loss)/ income

Attributable to:

Equity holders of the parent

(Loss)/earnings per share:

Basic

Diluted

(3,230,895)
(279,560)
—

36,534
(508,766)

(3,982,687)

(699,115)
(808,085)
956,120

4,929
(256,292)

(802,443)

(1,710,907)
(405,691)
(2,057,957)

35,492
(18,752)

(4,157,815)

(2,822,098)

3,418,037

12,185,924

(2,822,098)

(0.18)

3,418,037

0.61

12,185,924

2.18

For the three years ended December 31, 2010 (i) there were no sources of comprehensive income other than those shown above,
and (ii) all operations were continuing.
The accompanying notes are an integral part of these consolidated financial statements.

F-4

Scorpio Tankers Inc. and Subsidiaries

Consolidated statements of changes in shareholders’ equity
For the years ended December 31, 2010, 2009 and 2008

Common Stock

Number of

outstanding

capital

Additional

paid-in

capital

Treasury

Merger

reserve

Retained

earnings/

(cumulative

deficit)

Total

Balance as of

January 1, 2008

5,589,147

55,891

— $

26,841,351

— $

26,897,242

Net income for the
period

Dividends paid

($3.36 per share)

—

Balance as of
December 31, 2008

5,589,147

55,891

—

46,272,339

—

12,185,924

—

12,185,924

—

(18,784,000)

—

(18,784,000)

—

20,243,275

—

20,299,166

—

1,710,221

1,707,816

3,418,037

—

46,272,339

—

(8,661,000)

—

(8,661,000)

—

5,589,147

55,891

46,272,339

—

13,292,496

1,707,816

61,328,542

Net income for the
period

Capital contribution

Dividends paid

($1.55 per share)

Balance as of
December 31, 2009

Net loss for the
period

—

Issuance of shares

18,721,454

187,215

207,749,057

Issuance of

restricted shares

568,458

5,685

(5,685)

Amortization of

restricted shares

—

Purchase of treasury
shares

(244,146)

—

988,273

—

(2,647,807)

—

(2,822,098)

—

207,936,272

—

988,273

—

(2,647,807)

Balance as of
December 31, 2010

24,634,913

248,791

255,003,984

(2,647,807)

13,292,496

(1,114,282)

264,783,182

The accompanying notes are an integral part of these consolidated financial statements.

F-5

Scorpio Tankers Inc. and Subsidiaries

Consolidated cash flow statements
For the years ended December 31, 2010, 2009 and 2008

Operating activities
Net (loss)/income
Depreciation
Impairment
Amortization of restricted stock
Amortization of deferred financing fees
Amortization of acquired time charter contracts

Changes in assets and liabilities:
Drydock payments
(Increase)/decrease in inventories
(Increase)/decrease in accounts receivable
Decrease/(increase) in prepaid expenses
Increase/(decrease) in accounts payable
Increase/(decrease) in accrued expenses
Decrease/(increase) in the value of derivative financial instruments
Interest rate swap termination payment
Decrease/(increase) in shareholder receivable
(Decrease)/increase in shareholder payable
Increase in other assets

For the years ended December 31,

2010

2009

2008

(2,822,098)
10,178,908
—
988,273
246,130
2,344,495

3,418,037
6,834,742
4,511,877
—
—
—

10,935,708

14,764,656

(974,430)
(853,079)
(5,915,254)
123,265
2,600,483
175,218
164,690
(1,850,000)
1,928,253
—
(1,428,376)

(1,580,826)
69,086
2,262,984
(4,345)
(279,628)
120,641
(956,120)
—
(1,928,253)
(3,162,344)
—

(6,029,230)

(5,458,805)

12,185,924
6,984,444
—
—
—
—

19,170,368

—
(112,778)
1,002,953
22,469
352,254
(250,557)
2,057,957
—
—
2,595,226
—

5,667,524

Net cash inflow from operating activities

4,906,478

9,305,851

24,837,892

Investing activities
Acquisition of vessels
Purchases of other assets
Acquisition of time charter contracts

Net cash outflow from investing activities

Financing activities
Dividends paid
Bank loan repayment
Proceeds of long term debt
Debt issuance fees
Net proceeds from issuance of common stock
Acquisition of Treasury Shares

(243,121,582)
(128,732)
(2,344,495)

(245,594,809)

—
(44,625,418)
150,000,000
(2,232,310)
207,936,272
(2,647,807)

—
—
—

—

—
—
—

—

(8,661,000)
(3,600,000)
—
—
(207,990)
—

(18,784,000)
(3,600,000)
—
—
—
—

Net cash inflow/(outflow) from financing activities

308,430,737

(12,468,990)

(22,384,000)

Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at January 1,

Cash and cash equivalents at December 31

Supplemental information:
Interest paid

67,742,406
444,496

68,186,902

2,276,694

(3,163,139)
3,607,635

444,496

760,974

2,453,892
1,153,743

3,607,635

1,821,439

During 2009 there were two significant non-cash transactions requiring disclosure (i) the legal formation of the Scorpio Tankers Inc.
and its subsidiaries (see Note 1) and (ii) the conversion of the related party payable of $27.4 million and shareholder payable of $18.9
million to equity. There were no non-cash transactions during 2010 requiring disclosure.

The accompanying notes are an integral part of these consolidated financial statements.

F-6

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

1. General information and significant accounting policies

Company

Scorpio Tankers Inc. and its subsidiaries (together “we”, “our” or the
“Company”) are engaged in seaborne transportation of crude oil
and refined petroleum products in the international shipping
markets. Scorpio Tankers Inc. was incorporated in the Republic of
the Marshall Islands on July 1, 2009.

On October 1, 2009, Simon Financial Limited (“Simon”) transferred
to Scorpio Tankers Inc. three operating subsidiary companies, as
described further below. Prior to the initial public offering, a sub-
sidiary of Simon owned 100% of our shares (or 5,589,147 shares).
As of December 31, 2010 and after completion of both the initial
public offering and subsequent follow on offering, the Lolli Ghetti
family no longer maintains a controlling interest in the Company.
Simon is owned by members of the Lolli-Ghetti family of which,
Emanuele Lauro, our founder, Chairman and Chief Executive
Officer is a member.

On April 6, 2010, we closed on the initial public offering of
12,500,000 shares of common stock at $13.00 per share. The stock
trades on the New York Stock Exchange under the symbol STNG.
After deducting underwriters’ discounts and paying offering
expenses, the net proceeds were approximately $149.6 million. On
May 4, 2010, we closed the issuance of 450,000 shares of common
stock at $13.00 and received $5.2 million, after deducting under-
writers’ discounts, when the underwriters in our initial public
offering partially exercised their over-allotment option.

On November 22, 2010, we closed on a follow on public offering
of 4,575,000 shares of common stock at $9.80 per share. After
deducting underwriters’ discounts and paying offering expenses,
the net proceeds were approximately $41.8 million. On December
2, 2010, we closed the issuance of 686,250 shares of common
stock at $9.80 and received $6.4 million, after deducting under-
writers’ discounts, when the underwriters in our follow on public
offering fully exercised their over-allotment option. In addition,
510,204 shares were issued at the follow on public offering price
in a concurrent private placement to a member of the Lolli-Ghetti
family for total proceeds of $5.0 million.

Business

securing employment, in pools, in the spot market and on time
charters.

Our vessels, as described in Note 14, are technically managed by
Scorpio Ship Management S.A.M. (“SSM”), which is also owned by
members of the Lolli-Ghetti family. SSM facilitates vessel support
such as crew, provisions, deck and engine stores, insurance, main-
tenance and repairs, and other services as necessary to operate
the vessels such as drydocks and vetting/inspection under a tech-
nical management agreement.

We have an administrative services agreement with Liberty
Holding Company (“Liberty”), which is a subsidiary of Simon. The
administrative services provided under the agreement primarily
include accounting, legal compliance, financial, information tech-
nology services, and the provision of administrative staff and
office space. Liberty has contracted these services to SCM. We pay
its managers fees for these services and reimburse them for direct
or indirect expenses that they incur in providing these services.

Basis of accounting

The consolidated financial statements have been presented in
United States dollars (USD or $), which is the functional currency
of Scorpio Tankers Inc. and all its subsidiaries. The financial state-
ments have been prepared in accordance with International
Financial Reporting Standards (IFRSs) as issued by the International
Accounting Standards Board and on a historical cost basis, except
for the revaluation of certain financial instruments.

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

Simon transferred three subsidiaries to the Company (see below)
on October 1, 2009 for a nominal consideration. For accounting
purposes, this transfer represented a combination of entities
under common control, with Simon being the ultimate parent
company of all entities in the Company prior to our initial public
offering. As such, this business combination was outside the
scope of IFRS 3 (2004), “Business Combinations”, and for the years
ended December 31, 2009 and 2008 the results have therefore
been prepared using the principles of merger accounting. Under
this method:

Our owned fleet at December 31, 2010 consisted of one LR2 prod-
uct tanker, four LR1 product tankers, four Handymax tankers and
one post-Panamax tanker engaged in seaborne transportation of
crude oil and refined petroleum products in the international
shipping markets. We also had one LR1 product tanker on time
charter-in as of December 31, 2010.

•

Our vessels, as described in Note 14, are commercially managed
by Scorpio Commercial Management S.A.M. (“SCM”), which was a
subsidiary of Simon until October 1, 2009 and is currently owned
by members of the Lolli-Ghetti family. SCM’s services include

the carrying values of the assets and liabilities of the parties to
the combination are recorded at the historical carrying amount
of those assets and liabilities and are not adjusted to fair value
on combination;

the results and cash flows of all the combining entities are
brought into the consolidated financial statements of the com-
bined entity from the beginning of the financial year in which
the combination occurred. Prior year comparatives are also pre-
sented on the basis that the combination was in place through-
out the prior year; and

F-7

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

•

the difference between the historical carrying amount of net
assets transferred and the consideration provided on transfer
has been recognized in equity through share capital and the
merger reserve. The share capital as of December 31, 2008 rep-
resents the share capital of Scorpio Tankers Inc. as if Scorpio
Tankers Inc. has been incorporated throughout the periods
presented. The remaining difference between historical

carrying amount of net assets transferred and consideration
paid was recognized in a merger reserve.

Any profits recognized after the October 1, 2009 reorganiza-
tion have been recognized in equity within retained earnings.

Subsidiaries transferred to Scorpio Tankers Inc. on October 1, 2009
were:

Company

Noemi Shipping Company Limited
Senatore Shipping Company Limited
Venice Shipping Company Limited

Vessel

Noemi
Senatore
Venice

Percent
owned

100%
100%
100%

Incorporated in

The Republic of the Marshall Islands
The Republic of the Marshall Islands
The Republic of the Marshall Islands

All inter-company transactions, balances, income and expenses
were eliminated on consolidation. There have been no cost allo-
cations from Simon, as all costs of doing business have been
included in the operations of the subsidiaries.

Going concern

The financial statements have been prepared in accordance with
the going concern basis of accounting for the reasons outlined in
the “Liquidity Risk” section of Note 20.

Significant Accounting Policies

Common control transactions

The assets and liabilities transferred from entities under common
control were recorded at the transferor’s carrying values. Any dif-
ference between the carrying value of the net assets acquired,
and the consideration paid by us was accounted for as an adjust-
ment to shareholder’s equity. The net assets transferred and their
results were recognized from the date on which control was
obtained by the ultimate controlling party.

Revenue recognition

Vessel revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for
services provided in the normal course of business, net of dis-
counts, and other sales-related or value added taxes.

Vessel revenue is comprised of time charter revenue, voyage rev-
enue and pool revenue.

(1) Time charter revenue is recognized as services are performed
based on the daily rates specified in the time charter contract.

(2) Voyage charter agreements are charter hires, where a contract
is made in the spot market for the use of a vessel for a specific
voyage for a specified charter rate. Revenue from voyage char-
ter agreements is recognized as voyage revenue on a pro-rata
basis over the duration of the voyage.

(3) Pool revenue for each vessel is determined in accordance with
the profit sharing terms specified within each pool agreement.
In particular, the pool manager aggregates the revenues and
expenses of all of the pool participants and distributes the net
earnings to participants based on:

•

the pool points (vessel attributes such as cargo carrying
capacity, fuel consumption, and construction characteris-
tics are taken into consideration); and

the number of days the vessel participated in the pool in
the period.

We recognize pool revenue on a monthly basis, when the vessel
has participated in a pool during the period and the amount of
pool revenue for the month can be estimated reliably. We receive
estimated vessel earnings based on the known number of days
the vessel has participated in the pool, the contract terms, and
the estimated monthly pool revenue. On a quarterly basis, we
receive a report from the pool which identifies the number of
days the vessel participated in the pool, the total pool points for
the period, the total pool revenue for the period, and the calcu-
lated share of pool revenue for the vessel. We review the quarterly
report for consistency with each vessel’s pool agreement and ves-
sel management records. The estimated pool revenue is recon-
ciled quarterly, coinciding with our external reporting periods, to
the actual pool revenue earned, per the pool report. Consequently,
in our financial statements, reported revenues represent actual
pooled revenues. While differences do arise in the performance of
these quarterly reconciliations, such differences are not material to
total reported revenues.

Interest receivable is accrued on a time basis and includes interest
earned on cash deposits.

Acquired time charter contracts

Acquired time charter contracts arise from the purchase of time
charter contracts from third parties and are stated at cost at the

F-8

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

date of acquisition, less accumulated amortization. Where the
time charter contract is acquired along with a vessel, the cost of
the acquisition is determined based on the relative fair values of
each element acquired. Amortization expense is recognized on a
straight line basis over the useful life of the asset, which has been
determined to be the remaining contract life at the date of acqui-
sition. The useful life and amortization method are reviewed at
least annually. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in
the asset are accounted for by changing the amortization period
or method, as appropriate, and are treated as changes in account-
ing estimates. The amortization expense related to the assets is
recognized as an offset to revenue.

Vessel operating costs

Vessel operating costs, which include crewing, repairs and main-
tenance, insurance, stores, lube oils, communication expenses,
and technical management fees, are expensed as incurred.

(Loss)/earnings per share

Basic earnings per share is calculated by dividing the net income
attributable to equity holders of the common shares by the
weighted average number of common shares outstanding assum-
ing that the reorganization described under “Basis of Accounting”
was effective during the period. In addition, the stock split
described in Note 13 has been given retroactive effect for all peri-
ods presented herein. Diluted earnings per share are calculated by
adjusting the net income attributable to equity holders of the par-
ent and the weighted average number of common shares used
for calculating basic earnings per share for the effects of all poten-
tially dilutive shares. Such potentially dilutive common shares are
excluded when the effect would be to increase earnings per share
or reduce a loss per share. For the years ended December 31, 2009
and 2008, we had no potentially dilutive common shares. In the
year ended December 31, 2010, there were potentially dilutive
items as a result of our restricted stock plan (see note 13). However,
we were in a loss making position for the year ended December
31, 2010 and therefore there was no impact of these potentially
dilutive items on earnings per share.

Operating leases

Costs in respect of operating leases are charged to the consoli-
dated income statement on a straight line basis over the lease
term.

Foreign currencies

The individual financial statements of Scorpio Tankers Inc. and
each of its subsidiaries are presented in the currency of the pri-
mary economic environment in which we operate (its functional
currency), which in all cases is US dollars. For the purpose of the
consolidated financial statements, our results and financial posi-
tion are also expressed in US dollars.

In preparing the financial statements of Scorpio Tankers Inc. and
each of its subsidiaries, transactions in currencies other than the
US dollar are recorded at the rate of exchange prevailing on the
dates of the transactions. At the end of each reporting period,
monetary assets and liabilities denominated in other currencies
are retranslated into the functional currency at rates ruling at that
date. All resultant exchange differences have been recognized in
the consolidated income statement. The amount charged to the
consolidated income statement during 2010 was a loss of $506, a
loss of $36,626 in 2009 and a gain of $43,937 in 2008.

Segment reporting

For the years ended December 31, 2009 and 2008 we reported
one business segment and one geographical segment since (i) all
of the vessels during those periods were Panamax vessels that
transport oil and refined petroleum products and (ii) all of the ves-
sels can trade in the international shipping market and are not
limited to specific parts of the world. During those years, the chief
operating decision makers of Simon did not evaluate our operat-
ing results on a discrete basis including on an individual subsidiary
or individual vessel basis or by distinct geographical locations.
Rather, our operating results were assessed on an aggregated
owned vessel basis. We have therefore not presented separate
tables for the results of operations in those periods as all relevant
information can be obtained directly from the consolidated
income statement.

During 2010, we owned or chartered-in eleven vessels spanning
three different classes, Panamax/LR1, Handymax and Aframax/
LR2, all of which earn revenues in the seaborne transportation of
crude oil and refined petroleum products in the international
shipping markets. The Panamax/LR1 class contained six vessels,
the Handymax class contained four vessels and the Aframax/LR2
class contained one vessel. Each vessel within its respective class
qualifies as an operating segment under IFRS. However, each ves-
sel also exhibits similar long-term financial performance and simi-
lar economic characteristics to the other vessels within the
respective vessel class, thereby meeting the aggregation criteria
in IFRS. We have therefore chosen to present our segment infor-
mation by vessel class using the aggregated information from the
individual vessels.

Segment results are evaluated based on reported net income
from each segment. The accounting policies applied to the
reportable segments are the same as those used in the prepara-
tion of our consolidated financial statements.

It is not practical to report revenue or non-current assets on a
geographical basis due to the international nature of the shipping
market.

Vessels and drydock

Our fleet is measured at cost, which includes directly attributable
financing costs and the cost of work undertaken to enhance the

F-9

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

capabilities of the vessels, less accumulated depreciation and
impairment losses.

Depreciation is calculated on a straight-line basis to the estimated
residual value over the anticipated useful life of the vessel from
date of delivery. The residual value is estimated as the lightweight
tonnage of each vessel multiplied by scrap value per ton. The
scrap value per ton is estimated taking into consideration the his-
torical four year scrap market rates at the balance sheet date with
changes accounted for in the period of change and in future peri-
ods. See our “Changes in accounting estimate” section below for
discussion of changes in useful lives and residual values during
the period.

The vessels are required to undergo planned drydocks for replace-
ment of certain components, major repairs and maintenance of
other components, which cannot be carried out while the vessels
are operating, approximately every 30 months or 60 months
depending on the nature of work and external requirements.
These drydock costs are capitalized and depreciated on a straight-
line basis over the estimated period until the next drydock.

For an acquired or newly built vessel, a notional drydock is allo-
cated from the vessel’s cost. The notional drydock cost is esti-
mated by us, based on the expected costs related to the next
drydock, which is based on experience and past history of similar
vessels, and carried separately from the cost of the vessel.
Subsequent drydocks are recorded at actual cost incurred. The
drydock asset is amortized on a straight-line basis to the next esti-
mated drydock. The estimated amortization period for a drydock
is based on the estimated period between drydocks. We estimate
the period between drydocks to be 30 months to 60 months.
When the drydock expenditure is incurred prior to the expiry of
the period, the remaining balance is expensed.

Impairment of vessels and drydock

At each balance sheet date, we review the carrying amount of our
vessels and drydock to determine whether there is any indication
that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the vessels and dry-
dock is estimated in order to determine the extent of the impair-
ment loss (if any). We treat each vessel and the related drydock as
a cash generating unit.

Recoverable amount is the higher of the fair value less cost to sell
and value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.

If the recoverable amount of the cash generating unit is estimated
to be less than its carrying amount, the carrying amount of the
cash-generating unit is reduced to its recoverable amount. An
impairment loss is recognized as an expense immediately.

Where an impairment loss subsequently reverses, the carrying
amount of the cash generating unit is increased to the revised
estimate of its recoverable amount, but so that the increased car-
rying amount does not exceed the carrying amount that would
have been determined had no impairment loss been recognized
for the cash generating unit in the prior years. A reversal of impair-
ment is recognized as income immediately.

Inventories

Inventories consist of lubricating oils and other items including
stock provisions, and are stated at the lower of cost and net realis-
able value. Cost is determined using the first in first out method.
Stores and spares are charged to vessel operating costs when
purchased.

Financial instruments

Financial assets and financial liabilities are recognized in our bal-
ance sheet when we become a party to the contractual provi-
sions of the instrument.

Financial assets

All financial assets are recognized and derecognized on a trade
date where the purchase or sale of a financial asset is under a con-
tract whose terms require delivery within the timeframe estab-
lished by the market concerned, and are initially measured at fair
value, plus transaction costs, except for those financial assets clas-
sified as at fair value through profit or loss, which are initially mea-
sured at fair value.

Financial assets are classified into the following specified catego-
ries: financial assets ‘at fair value through profit or loss’ (FVTPL),
and ‘loans and receivables’. The classification depends on the
nature and purpose of the financial assets and is determined at
the time of initial recognition.

Income is recognized on an effective interest basis for debt instru-
ments other than those financial assets classified as at FVTPL.

Financial assets at FVTPL

Financial assets are classified as at FVTPL where the financial asset
is held for trading.

A financial asset is classified as held for trading if:

•

it has been acquired principally for the purpose of selling in
the near future; or

it is a part of an identified portfolio of financial instruments
that we manage together and has a recent actual pattern of
short-term profit-taking; or

it is a derivative that is not designated and effective as a hedg-
ing instrument.

Financial assets at FVTPL are stated at fair value, with any resultant
gain or loss recognized in profit or loss. The net gain or loss

F-10

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

recognized in profit or loss incorporates any dividend or interest
earned on the financial asset. Fair value is determined in the man-
ner described in Note 20.

Receivables

Amounts due from the pool and other receivables that have fixed
or determinable payments and are not quoted in an active market
are classified as accounts receivable. Accounts receivable are mea-
sured at amortized cost using the effective interest method, less
any impairment. Interest income is recognized by applying the
effective interest rate, except for short-term receivables when the
recognition of interest would be immaterial.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indica-
tors of impairment at each balance sheet date. Financial assets are
impaired where there is objective evidence that, as a result of one
or more events that occurred after the initial recognition of the
financial asset, the estimated future cash flows of the investment
have been impacted.

Financial assets objective evidence of impairment could include:

•

significant financial difficulty of the issuer or counterparty; or

• default or delinquency in interest or principal payments; or

•

it becomes probable that the borrower will enter bankruptcy
or financial re-organization.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand
deposits, and other short-term highly-liquid investments with
original maturities of three months or less, and that are readily
convertible to a known amount of cash and are subject to an
insignificant risk of changes in value. The carrying value of cash
and cash equivalents approximates fair value due to the short-
term nature of these instruments.

Financial liabilities

Financial liabilities are classified as either financial liabilities ‘at
FVTPL’ or ‘other financial liabilities’.

Other financial liabilities

Other financial liabilities, including borrowings, are initially mea-
sured at fair value, net of transaction costs. Other financial liabili-
ties are subsequently measured at amortized cost using the
effective interest method.

Effective interest method

The effective interest method is a method of calculating the
amortized cost of a financial asset and a financial liability. It allo-
cates interest income and interest expense over the relevant
period. The effective interest rate is the rate that discounts esti-
mated future cash flows (including all fees on points paid or
received that form an integral part of the effective interest rate,
transaction costs and other premiums or discounts) over the
expected life of the financial asset and financial liability, or, where
appropriate, a shorter period.

Derivative financial instruments

For the years ended December 31, 2009 and 2008, we were party
to derivative financial instruments to manage our exposure to
interest rate fluctuations. With a portion of the net proceeds from
our initial public offering, on April 9, 2010, we settled the out-
standing portion of an interest rate swap entered into in April
2005 and therefore have no derivatives outstanding as of
December 31, 2010.

Further details of derivative financial instruments are disclosed in
Notes 11 and 20 to the consolidated financial statements.

Derivatives are initially recognized at fair value at the date a deriv-
ative contract is entered into and are subsequently remeasured to
their fair value at each balance sheet date. A derivative with a pos-
itive fair value is recognized as a financial asset whereas a deriva-
tive with a negative fair value is recognized as a financial liability.
The resulting gain or loss is recognized in profit or loss
immediately.

A derivative is presented as a non-current asset or a non-current
liability if the remaining maturity of the instrument is more than
12 months, and it is not expected to be realized or settled within
12 months.

Financial liabilities at FVTPL

Equity instruments

Financial liabilities are classified as at FVTPL where the financial
liability is held for trading, using the criteria set out above for
financial assets.

Financial liabilities at FVTPL are stated at fair value, with any resul-
tant gain or loss recognized in profit or loss as we choose not to
disclose the effective interest rate for debt instruments that are
classified as at fair value through profit or loss. The net gain or loss
recognized in profit or loss incorporates any interest paid on the
financial liability. Fair value is determined in the manner described
in Note 20.

An equity instrument is any contract that evidences a residual
interest in our assets after deducting all of its liabilities. Equity
instruments issued by us are recorded at the proceeds received,
net of direct issue costs.

We have 24,879,059 registered shares authorized and issued with a
par value of $0.01 per share at December 31, 2010. These shares
provide the holders with rights to dividends and voting rights. See
Note 13 for details of a stock split that occurred in 2010 which has
been retroactively reflected in these financial statements.

F-11

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

Provisions

Provisions are recognized when we have a present obligation as a
result of a past event, and it is probable that we will be required to
settle that obligation. Provisions are measured at the our best esti-
mate of the expenditure required to settle the obligation at the
balance sheet date, and are discounted to present value where
the effect is material.

Dividends

A provision for dividends payable is recognized when the divi-
dend has been declared in accordance with the terms of the
shareholder agreement.

Dividend per share presented in these consolidated financial
statements is calculated by dividing the aggregate dividends
declared by all of Scorpio Tankers Inc’s subsidiaries by the number
of Scorpio Tankers Inc shares assuming these shares have been
outstanding throughout the periods presented.

Restricted stock

The restricted stock awards granted to our employees and direc-
tors in June 2010 (Note 13) contain only service conditions and are
classified as equity settled. Accordingly, the fair value of our
restricted stock awards was calculated by multiplying the average
of the high and low share price on the grant date and the number
of restricted stock shares granted that are expected to vest. We
believe that the share price at the grant date serves as a proxy for
the fair value of services to be provided by the employees and
directors under the plan.

Compensation expense related to the awards is recognized rat-
ably over the vesting period, based on our estimate of the num-
ber of awards that will eventually vest. The vesting period is the
period during which an employee or director is required to pro-
vide service in exchange for an award and is updated at each bal-
ance sheet date to reflect any revisions in estimate of the number
of awards expected to vest as a result of the effect of non market-
based vesting conditions. The impact of the revision of the origi-
nal estimate, if any, is recognized in the income statement such
that the cumulative expense reflects the revised estimate, with a
corresponding adjustment to equity reserves.

Critical accounting judgements and key sources of estima-
tion uncertainty

The significant judgements and estimates are as follows:

Revenue recognition

We currently generate all revenue from time charters, spot voy-
ages, or pools. Revenue recognition for time charters and pools is
generally not as complex or as subjective as Voyage charters (spot
voyages). Time charters are for a specific period of time at a spe-
cific rate per day. For long-term time charters, revenue is recog-
nized on a straight-line basis over the term of the charter. Pool
revenues are determined by the pool managers from the total
revenues and expenses of the pool and allocated to pool partici-
pants using a mechanism set out in the pool agreement.

Vessel impairment

We evaluate the carrying amounts of our vessels to determine
whether there is any indication that those vessels have suffered an
impairment loss. If any such indication exists, the recoverable
amount of vessels is estimated in order to determine the extent of
the impairment loss (if any).

F-12

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

internationally recognized ship brokers on an annual basis or
when there is an indication that an asset or assets may be
impaired. If an indication of impairment is identified, the need for
recognising an impairment loss is assessed by comparing the car-
rying amount of the vessels to the higher of the fair value less cost
to sell and the value in use. Likewise, if there is an indication that
an impairment loss recognized in prior periods no longer exists or
may have decreased, the need for recognizing an impairment
reversal is assessed by comparing the carrying amount of the ves-
sels to the lower of fair value less cost to sell and value in use.

Vessel lives and residual value

The carrying value of each of our vessels represents its original
cost at the time it was delivered or purchased less depreciation.
We depreciate our vessels to their residual value on a straight-line
basis over their estimated useful lives. Effective April 1, 2010, we
revised the estimated useful life of our vessels from 20 years to 25
years from the date of initial delivery from the shipyard. The esti-
mated useful life of 25 years is management’s best estimate and is
also consistent with industry practice for similar vessels. The resid-
ual value is estimated as the lightweight tonnage of each vessel
multiplied by a forecast scrap value per ton. The scrap value per
ton is estimated taking into consideration the historical four year
scrap market rate average at the balance sheet date. See the
“Changes in accounting estimates” section below for discussion of
changes in the residual values during the period.

Deferred drydock cost

Changes in accounting estimates

Vessel lives and residual value

Effective April 1, 2010, we revised the estimated useful life of our
vessels from 20 years to 25 years from the date of initial delivery
from the shipyard. The estimated useful life of 25 years is manage-
ment’s best estimate and is also consistent with industry practice
for similar vessels. The change in estimated useful life is not driven
by a change in the use of the vessel as this continues to be the
same as prior periods but as the vessels get older and continue to
demonstrate a longer than anticipated useful life, we have
increased our confidence in extending the useful life to be in line
with industry practice. This change in estimate was applied pro-
spectively and the impact on the income statement for the year
ended December 31, 2010 resulted in a decrease in depreciation
expense of $1.2 million. Based on current scrap rates, this change
in estimate will result in a decrease in depreciation expense of $1.6
million for year prospectively until the 20 year anniversary date of
the vessels impacted by this change.

During 2010, we revised the method of estimating the residual
values of our vessels to base expected value off of a four year his-
torical average of scrap rates rather than using only the period
end scrap rate. This change in estimate was applied prospectively
and the impact on the income statement for the year ended
December 31, 2010 resulted in a decrease in depreciation expense
of $0.4 million and an increase in vessel value for the same
amount. Scrap market rates are historically volatile and therefore it
is impracticable for us to estimate the effect of further changes in

F-13

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

the scrap market rate and the residual values of the vessels on our
depreciation expense in periods subsequent to December 31,
2010.

3. Accounts receivable

Standards and Interpretations adopted during the period

We adopted the following Standards and Interpretations as of
January 1, 2010:

IFRIC 18
IFRS 2 (amended)
IFRIC 17

IFRS 3 (revised 2008)
IAS 27 (revised 2008)

IAS 28 (revised 2008)

Transfers of Assets from Customers
Share-based payments
Distributions of Non-cash Assets to
Owners
Business Combinations
Consolidated and Separate Financial
Statements
Investments in Associates

Improvements to IFRSs (April 2009)

The adoption of these standards did not have a material impact
on any of the information contained within the consolidated
financial information for any periods presented.

Standards and Interpretations in issue not yet adopted

At the date of authorization of these consolidated financial state-
ments, the following Standards and Interpretations which have
not been applied in these financial statements were in issue but
not yet effective:

IFRS 1 (amended)/

IAS 27 (amended)

Cost of an Investment in a Subsidiary,
Jointly Controlled Entity or Associate

IFRS 9
IFRIC 12 (amended)
IFRIC 19

Financial Instruments
Service Concession Arrangements
Extinguishing Financial Liabilities with
Equity Instruments

Scorpio Panamax Tanker
Pool Limited
Scorpio Handymax Tanker
Pool Limited
Scorpio Aframax Tanker Pool
Limited
Insurance receivables
Other receivables

At December 31,

2010

2009

$ 3,277,808

$ 1,133,030

1,347,509

—

714,078
991,606
1,023,251

—
96,195
209,773

$ 7,354,252

$ 1,438,998

Scorpio Aframax Tanker Pool Limited, Scorpio Panamax Tanker
Pool Limited, and Scorpio Handymax Tanker Pool Limited are
related parties, as described in Note 14.

On April 25, 2010, Senatore, one of the Company’s LR-1 tankers on
time charter, suffered damage to one of its ballast tanks. This
resulted in the vessel being off-hire for 17 days in the second
quarter while the vessel was being repaired. The insurance receiv-
ables primarily represent the amount collectible on our insurance
policy in relation to these repairs.

We consider that the carrying amount of accounts receivable
approximates their fair value due to the short maturity thereof.
Accounts receivable are non-interest bearing. At December 31,
2010 and December 31, 2009, no material receivable balances
were past due or impaired.

4. Prepaid expenses

At December 31,

2010

2009

— $

314,120
146,560

540,054
10,113
33,777

460,680

583,944

Improvements to IFRSs (May 2010)

We do not expect that the adoption of these Standards and
Interpretations in future periods will have a material impact on our
financial statements.

Initial public offering fees
Prepaid insurance
Other prepayments

2. Cash and cash equivalents

Operating cash
Deposits (1)
Cash on vessels

At December 31,

2010

$ 18,050,278
50,000,000
136,624

2009

444,496
—
—

$ 68,186,902

444,496

The initial public offering fees were fees incurred prior to
December 31, 2009 related to the initial public offering of our
common shares, which was completed on April 6, 2010 (see Note
13). The fees include professional fees (legal and accounting) and
other fees which were directly attributable to the issuance of the
new shares. These fees were recognized as a reduction to addi-
tional paid in capital in April 2010. Additional fees of $241,475
which relate to the listing of our pre-existing shares were charged
to the 2009 income statement within “Other expenses, net”.

(1) Represents bank deposits with original maturities of

3 months or less

F-14

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

5. Inventories

Lubricating oils
Other

During 2010, we recorded $3.0 million of expense related to the purchases of inventory items.

At December 31,

2010

2009

$ 1,267,144
19,363

$ 1,286,507

422,153
11,275

433,428

6. Vessels and drydock

Cost
As of January 1, 2010
Additions
Write off of fully depreciated assets (1)

As of December 31, 2010

Accumulated Depreciation
As of January 1, 2010
Charge for the period
Write off of fully depreciated assets (1)

As of December 31, 2010

Net Book Value

As of December 31, 2010

Cost
As of January 1, 2009
Additions
Write off of fully depreciated assets (1)

As of December 31, 2009

Accumulated Depreciation
As of January 1, 2009
Charge for the period

Impairment

Vessels

Drydock

Total

138,713,588
241,009,812
—

1,680,784
2,997,820
(89,583)

140,394,372
244,007,632
(89,583)

379,723,400

4,589,021

384,312,421

(40,499,502)
(9,002,011)
—

(300,603)
(1,174,502)
89,583

(40,800,105)
(10,176,513)
89,583

(49,501,513)

(1,385,522)

(50,887,035)

330,221,887

3,203,499

333,425,386

138,713,588
—
—

2,105,847
1,680,784
(2,105,847)

140,819,435
1,680,784
(2,105,847)

138,713,588

1,680,784

140,394,372

(29,718,644)
(6,268,981)
(4,511,877)

(1,840,689)
(565,761)
—

(31,559,333)
(6,834,742)
(4,511,877)

Write off of fully depreciated assets (1)

—

2,105,847

As of December 31, 2009

Net Book Value

As of December 31, 2009

(40,499,502)

98,214,086

(300,603)

1,380,181

(40,800,105)

99,594,267

(1) Write off of fully depreciated assets represents the write off of fully depreciated drydock costs. STI Conqueror and STI Heritage
were drydocked as scheduled in 2010 for a total cost of $886,050. The remaining additions to drydock of $2,022,186 during
2010 resulted from the notional drydock calculated on our vessel purchases during the year. The Noemi and Senatore were
drydocked as scheduled in 2009 for a total cost of $1,680,784 of which $1,580,826 had been paid by December 31, 2009.

F-15

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

Vessel Purchases

In the first half of June 2010, we took delivery of three product
tanker vessels that we previously agreed to acquire. STI Conqueror,
a Handymax ice class 1B ship, was acquired for $26.0 million and
trades in the Scorpio Handymax Tanker Pool. STI Harmony and STI
Heritage, Panamax/LR1 ice class 1A sister ships, were acquired for
an aggregate price of $92.0 million, which included $2.3 million for
the value of the existing time charter contracts. The value of the
time charter contracts is amortized as a reduction to vessel reve-
nue over the remaining life of the time charter contracts. STI
Harmony and STI Heritage entered the Scorpio Panamax Tanker
Pool upon the completion of their time charters in September
2010 and December 2010, respectively.

In November 2010,we took delivery of an LR2 Aframax product
tanker, STI Spirit, for which we paid a purchase price of $52.2
million.

Collateral agreements

Noemi, Senatore, Venice, STI Harmony, STI Heritage, STI Conqueror, STI
Matador, STI Gladiator and STI Highlander, with an aggregated net
book value of $281.2 million as of December 31, 2010 were pro-
vided as collateral under a loan agreement dated June 2, 2010 (the
“2010 Credit Facility”, See Note 10).

Noemi and Senatore with an aggregated net book value as of
December 31, 2009 of $77.4 million and $85.3 million as of
December 31, 2008 were provided as collateral under a loan
agreement dated May 17, 2005 (the “2005 Credit Facility”). See
Note 10 for full details as to the nature of this collateral. On April 9,
2010, we repaid all borrowings under the 2005 Credit Facility and
consequently these vessels are no longer collateralized under this
agreement (see Note 10).

Prior to December 2009, the Venice was provided as collateral to a
third party under an agreement between a subsidiary of Liberty
and a third party. Neither the Venice, Scorpio Tankers Inc. nor any of
its subsidiaries were party to this agreement, nor did they have a
relationship with the third party involved. At the request of Liberty,
in December 2009, the third party agreed to release the Venice
from the agreement in exchange for Liberty providing other col-
lateral in place of the Venice. Scorpio Tankers Inc. and its subsidiar-
ies have no remaining collateral obligation under the agreement.

7. Impairment of vessels

At the end of each reporting period, we evaluate the carrying
amounts of vessels and related drydock costs to determine if
there is any indication that those vessels and related drydock
costs have suffered an impairment loss. If such indication exists,

the recoverable amount of the vessels and related drydock costs
is estimated in order to determine the extent of the impairment
loss (if any). As part of this evaluation, we consider certain indica-
tors of potential impairment, such as discounted projected oper-
ating cash flows, business plans and overall market conditions.

In the nine months ended September 30, 2009, the charter rates
in the oil and petroleum products charter market declined signifi-
cantly and Panamax vessel values also declined, both as a result of
a slowdown in the availability of global credit and the significant
deterioration in charter rates. These were both conditions we con-
sidered indicators of a potential impairment, and therefore we
performed an impairment test as of September 30, 2009 for each
vessel to determine if any impairment loss had occurred.

To test for impairment, we estimated the recoverable amount by
determining the higher of fair value less costs to sell and value in
use for each vessel as of September 30, 2009. The fair value less
costs to sell was estimated by adding (i) the charter free market
value of the vessel and (ii) the discounted value of each vessel’s
time charter, which is the difference between each vessel’s time
charter contracted rate and the market rate for a similar type of
vessel with a similar contracted duration. In determining the char-
ter free market value, we took into consideration the estimated
valuations provided by an independent ship broker. In assessing
value in use, the estimated future cash flows of each vessel were
discounted to their present value using a pre-tax discount rate
reflecting current market assessments of the time value of money
and the risks specific to the vessel for which the estimates of
future cash flows have not been adjusted.

As a result of the test, we determined that the recoverable amount
of each vessel to be the fair value less costs to sell. The recover-
able amounts of Noemi and Senatore were below the carrying val-
ues. This resulted in an impairment loss of $4,511,877 for Noemi
and Senatore which was recognized as a loss in the consolidated
income statement for the year ended December 31, 2009 and a
reduction in the carrying value of the vessels at that date.

At December 31, 2009, we considered certain indicators of poten-
tial impairment, such as discounted projected operating cash
flows, business plans and overall market conditions and con-
cluded that there were no indications of a further deterioration in
the recoverable amount of the vessels and drydock costs.

F-16

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

vessel operating expenses. These cash flows were then dis-
counted to their present value, using a discount rate based on our
current borrowing rates adjusted for certain credit risks. The value
in use calculations were greater than the carrying amounts of the
vessels in all instances, which resulted in no impairment being
recognized. In addition, if the charter rates were adjusted down-
ward by 5% or the discount rate was increased by 1% the value in
use of the vessels would still have exceeded the carrying value of
the six vessels in question.

The majority of accounts payable are settled with a cash payment
within 90 days. No interest is charged on accounts payable. We
consider that the carrying amount of accounts payable approxi-
mate to their fair value.

10. Bank loans

The following is a breakdown of the current and non-current por-
tion of our debt outstanding at December 31, 2010 and 2009:

8. Other assets

Working capital contributions

Upon entrance into the Scorpio Handymax Tanker Pool (“SHTP”),
all vessels are required to make working capital contributions of
both cash and bunkers. The contribution amount is repaid, with-
out interest, upon a vessel’s exit from the SHTP no later than six
months after the exit date. Bunkers on board a vessel exiting the
SHTP are credited against such repayment at the actual invoice
price of the bunkers. We intend to operate our vessels currently in
the SHTP for the foreseeable future and therefore have classified
the working capital receivables as long term. The total value
of the working capital contributions at December 31, 2010 was
$1,428,376 (2009 was $0).

Purchase options

As described in Note 6 above, we purchased and took delivery of
the STI Spirit during the year. The agreement to purchase the STI
Spirit also included two separate purchase options with the seller
which grant us the right, but not the obligation, to purchase a
2008 built Panamax LR1 ice class-1A product tanker for a price of
$45.0 million each. Each option can be exercised at any time until
September 2011. As of December 31, 2010, these options were not
exercised.

The combined fair value of the two options has been estimated at
$126,337. The fair value of the options has been reflected as part of
Other non-current assets and the options will be expensed
through the income statement if they are impaired or expire
unexercised. If exercised, the value of the options will be added to
the vessel cost and amortised on a straight line basis over the esti-
mated useful life of the vessel. There were no indicators of impair-
ment related to the options as of December 31, 2010.

9. Accounts payable

Suppliers
Scorpio Handymax Tanker
Pool Limited
Scorpio Ship Management

At December 31,

2010

2009

$ 3,049,744

656,002

22,349
101,412

—
—

$ 3,173,505

656,002

At December 31,

2010

2009

Current portion (1)
Non-current portion (1)

$ 15,826,314
127,362,088

$ 3,600,000
36,200,000

$143,188,402

$ 39,800,000

(1)

The current portion and non current portion at December
31, 2010 were net of unamortized deferred financing fees
of $444,706 and $1,541,474, respectively.

2005 Credit Facility

On April 6, 2010, we completed an initial public offering of our
common shares (see Note 13). With a portion of the net proceeds
from the offering, on April 9, 2010, we repaid the remaining bal-
ance of $38,900,000 under the 2005 Credit Facility (there was a
payment of principal of $900,000 in February 2010).

2010 Credit Facility

On June 2, 2010, we executed a credit facility with Nordea Bank
Finland plc, acting through its New York branch, DnB NOR
Bank ASA, also acting through its New York branch, and Fortis
Bank Nederland, collectively the lead arrangers, for a senior
secured term loan facility of up to $150 million. Available borrow-
ings under the credit facility can be drawn upon until December
2, 2011 and bear interest at LIBOR plus an applicable margin of
3.00% per annum when our debt to capitalization (total debt plus
equity) ratio is equal to or less than 50% and 3.50% per annum
when our debt to capitalization ratio is greater than 50%. A com-
mitment fee equal to 40% of the applicable margin is payable on
the unused daily portion of the credit facility. Amounts drawn
under this credit facility mature on May 15, 2015 and can only
be used to finance vessels (see Note 20 for remaining obligations
under this facility). Any vessels financed under the credit facility
become collateral assets of the facility.

Borrowings for each vessel financed under this facility, represent a
separate tranche, with repayment terms dependent on the age of
the vessel at acquisition. Each tranche under the new credit facility
is repayable in equal quarterly instalments, with a lump sum pay-
ment at maturity, based on a full repayment of such tranche when
the vessel to which it relates is fifteen years of age. Our subsidiar-
ies, which may, at any time, own one or more of our initial vessels,
act as guarantors under the credit facility. As of December 31,
2010, we had drawn down $150.0 million under this facility, and we
were in compliance with the loan covenants (as described below).

F-17

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

On September 30, 2010 and December 31, 2010, we made princi-
ple payments of $1.4 million and $3.4 million, respectively. As of
December 31, 2010, the outstanding balance was $145.2 million.

The credit facility requires us to comply with a number of cove-
nants, including; delivery of quarterly and annual financial state-
ments and annual projections; maintaining adequate insurances;
compliance with laws (including environmental); compliance with
ERISA; maintenance of flag and class of the initial vessels; restric-
tions on consolidations, mergers or sales of assets; approvals of
changes in the Manager of our vessels; limitations on liens; limita-
tions on additional indebtedness; prohibitions on paying divi-
dends if a covenant breach or an event of default has occurred or
would occur as a result of payment of a dividend; prohibitions on
transactions with affiliates; and other customary covenants.

The financial covenants included in the 2010 Credit Facility are as
follows:

• The ratio of debt to capitalization shall be no greater than 0.60

to 1.00.

• Consolidated tangible net worth shall be no less than
US$150,000,000 plus 25% of cumulative positive net income
(on a consolidated basis) for each fiscal quarter from July 1,
2010 going forward and 75% of the value of any new equity
issues from July 1, 2010 going forward.

• The ratio of EBITDA (as defined below) to actual interest
expense shall be no less than 2.50 to 1.00 commencing with
the fifth fiscal quarter following the closing of the credit facil-
ity. EBITDA is defined as earnings before net interest expense,
income taxes, depreciation, amortization, non-cash expenses
or gains, extraordinary gains or losses not incurred in the ordi-
nary course of business, expenses incurred in connection with
a special or intermediate survey of a vessel and any drydocking
expenses. Such ratio shall be calculated quarterly on a trailing
quarter basis from and including the fifth fiscal quarter how-
ever for the ninth fiscal quarter and in periods thereafter the
ratio shall be calculated on a trailing four quarter basis.

• Unrestricted cash and cash equivalents including amounts on
deposit with the lead arrangers for the first five fiscal quarters
following the closing of our initial public offering shall at all
times be no less than the higher of (i) US$2,000,000 per vessel
or (ii) US$10,000,000 and thereafter unrestricted cash and cash
equivalents shall at all times be no less than the higher of (i)
US$1,000,000 per vessel or (ii) US$10,000,000.

• The aggregate fair market value of the collateral vessels shall at
all times be no less than 150% of the then aggregate outstand-
ing principal amount of loans under the credit facility.

STI Spirit Credit Facility

On March 9, 2011, we executed a credit facility with DVB Bank SE
for a senior secured term loan facility of $27.3 million for STI Spirit,

which was acquired on November 10, 2010. The credit facility has
a maturity date of seven years after the date the funds are drawn,
and the loan bears interest at LIBOR plus a margin of 2.75% per
annum. A commitment fee equal to 1.50% per annum is calcu-
lated on the undrawn loan from the date of execution. The credit
facility may only be used to finance the STI Spirit. The loan will be
repaid over 28 equal quarterly installments and a lump sum pay-
ment at maturity. The quarterly installments, which commence
three months after the drawdown, are calculated using an 18 year
amortization profile. Our subsidiary, STI Spirit Shipping Company
Limited, which owns the vessel, is the borrower and Scorpio
Tankers Inc. is the guarantor. This credit facility was fully drawn on
March 14, 2011.

The credit facility requires us to comply with a number of cove-
nants, including financial covenants; delivery of quarterly and
annual financial statements and annual projections; maintaining
adequate insurances; compliance with laws (including environ-
mental); compliance with ERISA; maintenance of flag and class of
the initial vessels; restrictions on consolidations, mergers or sales
of assets; approval of changes in the Manager of our vessels; limi-
tations on liens; limitations on additional indebtedness; prohibi-
tions on paying dividends if a covenant breach or an event of
default has occurred or would occur as a result of payment of a
dividend; prohibitions on transactions with affiliates; and other
customary covenants.

The financial covenants which pertain to Scorpio Tankers Inc.
include:

• The ratio of debt to capitalization shall be no greater than 0.60

to 1.00.

• Consolidated tangible net worth shall be no less than
US$150,000,000 plus 25% of cumulative positive net income
(on a consolidated basis) for each fiscal quarter.

• The ratio of EBITDA, as defined below, to actual interest
expense shall be no less than 2.50 to 1.00 commencing with
the third fiscal quarter of 2011. EBITDA is defined as earnings
before net interest expense, income taxes, depreciation, amor-
tization, non-cash expenses or gains, extraordinary gains or
losses not incurred in the ordinary course of business, expenses
incurred in connection with a special or intermediate survey of
a vessel and any drydocking expenses. Such ratio shall be cal-
culated quarterly on a trailing quarterly basis from and includ-
ing the third fiscal quarter of 2011 until the third fiscal quarter
of 2012 when the ratio shall be calculated on a trailing four
quarter basis.

• Unrestricted cash and cash equivalents shall be no less
than the higher of (i) US$ 500,000 per vessel at all times or
(ii) US$ 10,000,000 during the earlier of the first five fiscal quar-
ters after the first drawdown date or the third fiscal quarter of
2011.

F-18

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

The aggregate fair market value of the STI Spirit shall at all times
be no less than (i) 140% of the then outstanding loan balance if
the vessel is operating in a pool or in the spot market or (ii) 130%
of the then outstanding loan if the vessel is on time charter with a
duration of at least one year.

Limited each signed an amortizing interest rate swap with The
Royal Bank of Scotland plc on April 15, 2005 for an initial notional
amount of $56,000,000. On February 15, 2007, these swap con-
tracts were amended by reducing the then notional amount by
50% to $24,850,000.

2005 Credit Facility

Two of our wholly-owned subsidiaries, Senatore Shipping
Company Limited and Noemi Shipping Company Limited, were
joint and several borrowers under the 2005 Credit Facility, entered
into with The Royal Bank of Scotland plc. The initial amount of the
2005 Credit Facility was $56,000,000, consisting of two tranches,
one for each vessel-owning subsidiary. Each tranche was repay-
able in 40 consecutive quarterly installments of $450,000, plus a
balloon payment of $10,000,000, to be made together with the
40th installment of each tranche (due on May 18, 2015).

The facility included a variety of restrictive operating covenants
including a loan to value financial covenant and a change of con-
trol covenant.

As security for the loan the lender had:

• a first preferred mortgage on Senatore and Noemi; and

• an assignment of the earnings and any insurance proceeds on

Senatore and Noemi.

11. Derivative financial instruments

In order to fix the interest rate of the 2005 Credit Facility, Senatore
Shipping Company Limited and Noemi Shipping Company

As of and for the year Ended December 31, 2010

The notional interest rate swap amount was $19,900,000 as of
December 31, 2009 and $21,700,000 as of December 31, 2008. We
did not elect to apply hedge accounting for these swaps. On April
6, 2010, we completed an initial public offering of our common
shares. With a portion of the net proceeds from the offering, on
April 9, 2010, we settled the outstanding portion of the interest
rate swap for a payment of $1,850,000. The realized loss recorded
in 2010 relating to this facility was $279,560.

The carrying value (liability) of our interest rate swaps was as
follows:

Current portion
Non-current portion

At December 31,

2010

2009

— $
—

(814,206)
(871,104)

— $ (1,685,310)

These instruments were carried at fair value through profit and
loss. See Note 20 for further details.

12. Segment reporting

Information about our reportable segments for the three years
ended December 31, 2010 is as follows:

Revenue from external customers
Vessel operating costs
Voyage expenses
Charter hire
Depreciation
General and administrative expenses
Interest expense, net
Realized and unrealized gain/(loss) on
derivative financial instruments
Other expense, net

Panamax LR1

Handymax

Aframax/LR2

Other (2)

Total

29,344,505(1)
(12,363,968)
(253,106)
(275,532)
(7,493,632)
(600,476)
(133,708)

$ 8,812,130
(5,649,736)
(2,289,192)
—
(2,389,669)
(266,509)
1,383

641,278
(426,788)
—
—
(293,211)
(14,747)
778

— $ 38,797,913
(18,440,492)
—
(2,542,298)
—
(275,532)
—
(2,396)
(10,178,908)
(5,318,362)
(6,200,094)
(3,062,814)
(3,194,361)

(279,560)
(4,420)

—
—

—
(504,346)

(279,560)
(508,766)

Segment profit or loss

7,940,103

$ (1,781,593)

(92,690) $ (8,887,918) $

(2,822,098)

(1)

Includes amortization expense of $2.3 million related to the amortization of time charter contracts acquired on the STI
Harmony and STI Heritage.

(2) Other represents items that are not allocable to any of our reportable segments.

F-19

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

The Panamax/LR1 and Handymax segments each contained revenue from at least one major customer representing greater than 10% of
total revenue. The revenue from those customers within their respective segments was:

Segment

Panamax/LR1

Customer

2010

2009

2008

Scorpio Panamax Tanker Pool Limited (1)
King Dustin (1)
Liberty (1)
BP

9,645,173
8,700,195
4,779,605
5,937,328

10,415,331
8,288,767
—
8,914,941

20,980,233
8,879,913
—
9,414,050

Handymax

Scorpio Handymax Tanker Pool Limited (1)

5,177,805

—

$ 34,240,106

27,619,039

39,274,196

(1)

These customers are related parties (see Note 14).

13. Common shares

At December 31, 2009, we had 1,500 registered shares authorized
and issued with a par value of $1.00 per share. These shares pro-
vide the holders with rights to dividends and voting rights.

On March 17, 2010, the board of directors amended and restated
the Articles of Incorporation to (i) authorize 275,000,000 registered
shares of which 250,000,000 were designated as common shares
with a par value of $0.01 and 25,000,000 were designated as pre-
ferred shares with a par value of $0.01, and (ii) authorize a stock
split of 3,726.098 to 1 for the issued and outstanding common
shares, which increased the number of shares from 1,500 com-
mon shares issued and outstanding to 5,589,147 common shares
issued and outstanding. All common share amounts in the con-
solidated financial statements have been retroactively adjusted
for all periods presented, including the share amounts used in the
calculation of earnings per share, to give effect to the stock split.

On April 6, 2010, we completed an initial public offering of our
common shares on the New York Stock Exchange. In connection
with the offering, we issued and sold 12,500,000 additional com-
mon shares. In addition, we listed our existing shares. The costs
related to the listing of our existing shares of $0.5 million in the
year ended December 31, 2010 were expensed and included in
Other (expense) and income, net in the consolidated income
statement. On May 4, 2010, the underwriters of the initial public
offering exercised their over-allotment option to purchase an
additional 450,000 shares. Net proceeds from the issuance of the
common shares of 12,950,000, which included the over-allotment,
were $154.8 million Prior to the offering, the Lolli-Ghetti Family, of
which Emanuele Lauro, our Chairman and Chief Executive Officer,
is a member, owned 100% of our outstanding common shares
and maintained a controlling interest in Scorpio Tankers Inc. Total
fees and commissions relating to the initial public offering and
exercise of the over-allotment option were $14.2 million, of which,
$0.7 million were recognized as expense in the income statement
($0.2 million in 2009 and $0.5 million in 2010) as being related to

the registration of existing shares and the remaining $13.5 million
were recorded as a reduction to additional paid in capital.

On November 22, 2010, we completed a follow on public offering
of 4,575,000 shares of common stock at $9.80 per share. After
deducting underwriters’ discounts and paying offering expenses,
the net proceeds were approximately $41.8 million. On December
2, 2010, we closed the issuance of 686,250 shares of common
stock at $9.80 and received $6.4 million, after deducting under-
writers’ discounts, when the underwriters in our follow on public
offering exercised their over-allotment option. In addition, 510,204
shares were issued at the follow on public offering price in a con-
current private placement to a member of the Lolli-Ghetti family
for total proceeds of $5.0 million. Total fees and commissions relat-
ing to the follow-on offering and exercise of the over-allotment
option were $3.4 million and were recorded as a reduction to
additional paid in capital.

Prior to the initial public offering, a subsidiary of Simon owned
100% of our shares (or 5,589,147 shares). Simon is incorporated in
Liberia and is owned by members of the Lolli-Ghetti family.
Emanuele Lauro, our founder, Chairman and Chief Executive
Officer is a member of the Lolli-Ghetti family which, after comple-
tion of the initial public offering, issuance of restricted shares and
subsequent follow on offering, no longer maintains a controlling
interest.

Stock buyback plan – Treasury Shares

On July 9, 2010, the board of directors authorized a share buyback
program of $20 million. We repurchase these shares in the open
market at the time and prices that we consider to be appropriate.
As of December 31, 2010, 244,146 shares have been purchased
under the plan at an average price of $10.85 per share, including
commissions.

Restricted stock issuance

On June 18, 2010, we issued 559,458 shares of restricted stock to
the employees for no cash consideration. The share price at the

F-20

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

date of issue was $10.99 per share. The vesting schedule of the
restricted stock for the executive officers is (i) one-third of the
shares vest on April 6, 2013, (ii) one-third of the shares vest on
April 6, 2014, and (iii) one-third of the shares vest on April 6, 2015.
Compensation expense is recognized ratably over the vesting
periods for each tranche using the straight-line method. For the
year ended December 31, 2010, we recorded $922,123 in expense
for these shares.

On June 21, 2010, we issued 9,000 shares of restricted stock to our
independent directors for no cash consideration. The share price
at the date of issue was $10.85 per share. These shares vest on
April 6, 2011. For the year ended December 31, 2010, we recorded
$66,150 in expense for these shares.

Assuming that all the restricted stock will vest, the stock compen-
sation expense relating to these issuances in future periods will be:

For the year ending December 31, 2011
For the year ending December 31, 2012
For the year ending December 31, 2013
For the year ending December 31, 2014
For the year ending December 31, 2015

Employees

Directors

Total

1,702,382
1,702,382
1,151,776
562,849
106,929

31,500
—
—
—
—

1,733,882
1,702,382
1,151,776
562,849
106,929

5,226,318

31,500

5,257,818

14. Related party transactions

Transactions with subsidiaries of Simon (herein referred to as
Simon subsidiaries) and transactions with entities outside of

Simon but controlled by the Lolli-Ghetti family (herein referred to
as related party affiliates) in the consolidated income statements
and balance sheet are as follows:

Pool revenue (1)
Scorpio Panamax Tanker Pool Limited
Scorpio Handymax Tanker Pool Limited
Scorpio Aframax Tanker Pool Limited
Time charter revenue (2)
King Dustin
Liberty and subsidiaries
Vessel operating costs (3)
Commissions (4)
General and administrative expenses (5)
Other (6)

For the year
ended December 31,

2010

2009

2008

9,645,173
5,177,805
641,278

10,415,332
—
—

$ 20,980,233
—
—

8,700,195
4,779,605
(1,058,699)
(233,546)
(932,460)
(130,602)

8,288,767

8,879,913

(600,000)
—
(344,162)
—

(765,422)

(619,421)

(1)

(2)

(3)

These transactions relate to revenue earned in the Scorpio Aframax, Scorpio Panamax, and Scorpio Handymax Tanker Pools
(the Pools). The Pools are operated by Scorpio Aframax Tanker Pool Limited, Scorpio Panamax Tanker Pool Limited and Scorpio
Handymax Tanker Pool Limited, respectively which are Simon subsidiaries.

These transactions represent technical management fees charged by SSM, a related party affiliate, and included in the vessel
operating costs in the consolidated income statement. We believe our technical management fees for the year ended
December 31, 2010 and 2009 were at market rates because they were the same rates charged to other vessels managed by
SSM. Additionally, in December 2009, we signed a Technical Management Agreement (see description below) for each ship
with SSM. Each vessel pays $548 per day for technical management. This fee is the same charged to third parties by SSM, and
therefore the Company believes it represents a market rate for such services.

F-21

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

The Company’s fees under technical management arrangements with SSM were not at market rates for the year ended
December 31, 2008. The Company estimates that its technical management fees for the year ended December 31, 2008
would have been $601,704 and would have increased net income for the periods by $163,718 had the Company operated as
an unaffiliated entity. The Company’s estimate is based upon the rates charged to third party participants by SSM in 2008.

(4)

(5)

These transactions represent the expense due to SCM for commissions related to the commercial management services
provided by SCM under the Commercial Management Agreement (see description below). Each of the vessels will pay 1.25%
of their revenue when the vessels are not in the Pools. When our vessels are in the Pools, SCM, the pool manager, charges all
vessels in the Pools (including third party participants) $250 per day for Panamax/LR1 and Aframax vessels and $300 per day
for Handymax vessels and 1.25% of their revenue. We believe that the commercial management agreement represents a
market rate for such services.

Prior to December 2009, SSM provided administrative services directly to us. In December 2009, we signed an administrative
services agreement for each vessel with Liberty. We pay the administrator (Liberty) a fixed monthly fee calculated at cost with
no profit for providing us with administrative services, and reimburses it for the reasonable direct or indirect expenses it incurs
in providing us with such services. SSM provided administrative services to us under this agreement until September 30, 2010.
From October 1, 2010, SCM has provided us administrative services under this agreement.

The administrative fee included services provided to us for accounting, administrative, information technology and
management. Our fees under administrative services arrangements for the year ended December 31, 2009 and 2008 may not
have been at market rates. We cannot estimate what the cost would have been if we operated as an unaffiliated party, but
believe the charges for the year ended December 31, 2009 and 2008 were reasonable and appropriate for the services
provided.

•

(6)

F-22

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

We had the following balances with related parties which have
been included in the consolidated balance sheets:

years ended December 31, 2010, 2009 and 2008. For the period
April 6, 2010 through December 31, 2010 key management remu-
neration was as follows:

Assets:
Accounts receivable (due

from the Pools)

Accounts receivable (SSM)
Accounts receivable (SCM)
Vessels and drydock (7)
Shareholder receivable (8)
Liabilities:
Accounts payable (owed to

the Pools)

Accounts payable (SSM)
Shareholder’s equity:
Additional paid in capital (9)

As of December 31,

2010

2009

$ 6,767,770
117
3,463
2,431,700
—

$ 1,133,030
—
—
—
1,928,253

22,349
101,412

344,490

—

(7)

The Administrative Services Agreement with Liberty
includes a fee for arranging vessel purchases and sales, on
our behalf, equal to 1% of the gross purchase or sale price,
payable upon the consummation of any such purchase or
sale. These fees are capitalized as part of the carrying
value of the related vessel.

Short term employee benefits (salaries)
Share-based compensation (1)

Total

As of December 31

2010

2,059,907
922,123

2,982,030

(1)

Represents restricted stock issued under the 2010 Equity
Incentive Plan. See Note 13 for further description.

There are no post-employment benefits.

15. Vessel revenue

During 2010, we had four vessels that were time chartered out and
the remainder either operated in the various Scorpio pools or in the
spot market, on voyage charter. During 2009 and 2008, we had two
vessels that were time chartered out. The remaining revenue in
those earlier years was derived from vessels operating in the Pool.

Revenue sources

For the year Ended December 31,

2010

2009

2008

$ 19,417,128
15,464,256
3,916,529

$ 17,203,709
10,415,332
—

$ 18,293,963
20,980,233

$ 38,797,913

$ 27,619,041

$ 39,274,196

•

The balance as of December 31, 2010 of $2,431,700
was the 1% fee for administrative services provided
for the purchases of the STI Harmony, STI Heritage, STI
Conqueror, STI Matador, STI Gladiator, STI Highlander
and STI Spirit.

Time charter
revenue
Pool revenue
Voyage revenue

(8) During December 2009, we advanced $1,928,253 to a
shareholder, which was recognized as a receivable in the
consolidated balance sheet as of December 31, 2009. The
receivable was due upon demand and was non-interest
bearing and unsecured. The amount was repaid in the
first quarter of 2010.

(9) As per the Administrative Services Agreement, we have to
reimburse Liberty for any direct expenses. The $344,490
as of December 31, 2010 related to expenses for the
registration of the shares in the initial public offering,
which closed on April 6, 2010 and were recorded as an
offset against the proceeds from the offering. The liability
has been cash settled as of December 31, 2010.

Key management remuneration

Our executive management was provided by a related party affili-
ate and included in the management fees described in (5) above,
until April 6, 2010 when the initial public offering closed. If we
were not part of Simon, and had the same ownership structure
and a contract for administrative services for the periods up to
April 6, 2010, we estimate our general and administrative costs
would have been comparable with the general and administra-
tive costs presented in the consolidated income statement for the

Time charter out contracts:

Time Charter Out

Vessel

From

To(1)

Daily rate

Noemi
Senatore (2)
STI Harmony (3)
STI Heritage (3)

Jan 2007
Sep 2007
June 2010
June 2010

Jan 2012
Aug 2010
Sep 2010
Dec 2010

$
$
$
$

24,500
26,000
25,500
25,500

(1)

(2)

(3)

The time charter contracts terminate plus or minus 30
days from the end date.

The time charter contract with the Senatore was
terminated on August 26, 2010.

STI Harmony and STI Heritage were acquired from
unaffiliated third parties in June 2010 with existing time
charter contracts that commenced in October 2007 and
January 2008, respectively. The vessels are chartered to
subsidiaries of Liberty, which are related parties. The time
charter contract with the STI Harmony was terminated on
September 7, 2010 and with the STI Heritage on December
8, 2010.

F-23

—

9,457,000

25,601,500

17. Vessel operating costs

$ 8,722,000 $ 25,601,500

$ 44,034,000

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

The estimated minimum future time charter revenue to be
received is as follows:

As of December 31,

2010

2009

2008

$ 8,722,000 $ 16,144,500

$ 18,432,500

Within 1 year
Between 1
and 5 years

16. Charter hire

On December 12, 2010 the 2010 built LR1 product tanker, BW
Zambesi, was delivered to us on a time charter in agreement. The
term of the agreement was for one year from the date of delivery
at a charter hire rate of $13,850 per day with an option to extend
for an additional year at a charter hire rate of $14,850 per day. The
vessel is currently operating in the Scorpio Panamax Tanker Pool.
The undiscounted remaining future minimum lease payments
under the arrangement as of December 31, 2010 are $4,792,100 in
2011. The total expense during the year ended December 31, 2010
was $275,532.

On May 29, 2008, one of the vessels owned by us, the Noemi, that
was chartered out was chartered-in until May 1, 2009 at a rate of
$26,750 per day and treated as an operating lease. The vessel
operated in the Scorpio Panamax Tanker Pool until the time char-
ter ended on May 1, 2009. The time charter contract also included
a profit and loss sharing arrangement where (i) we agreed to pay
50% of the vessel’s earnings from the pool in excess of $26,750 per
day (an increase in charter hire expense) to the charterer, and

(ii) the charterer agreed to pay 50% of the vessel’s earnings from
the Pool below $26,750 per day (a decrease in charter hire
expense). The total expense, including income and expense from
the profit and loss sharing agreement was $3,072,916 and
$6,722,334 in 2009 and 2008, respectively. The profit sharing
arrangement resulted in additional income of $108,426 in 2009,
and an expense of $1,007,000 in 2008.

Vessel operating costs primarily represent crew related costs,
stores, routine maintenance and repairs, insurance, technical man-
agement fees, and other related costs. The procurement of these
services is managed on our behalf by our technical manager, SSM
(see Note 14).

18. Tax

Scorpio Tankers Inc. and its subsidiaries are incorporated in the
Republic of the Marshall Islands, and in accordance with the
income tax laws of the Marshall Islands, are not subject to Marshall
Islands’ income tax. We are also exempt from income tax in other
jurisdictions including the United States of America due to tax
treaties; therefore, we did not have any tax charges, benefits, or
balances as of or for the periods ended December 31, 2010, 2009
and 2008.

19. (Loss)/Earnings per share

The calculation of both basic and diluted earnings per share is
based on net income attributable to equity holders of the parent
and weighted average outstanding shares of the Company,
adjusted for potentially dilutive items. See the calculation below:

For the year ended December 31,

2010

2009

2008

Net (loss)/income attributable to equity holders of the parent

$ (2,822,098)

3,418,037

12,185,924

Basic weighted average number of shares
Effect of dilutive potential basic shares:

15,600,813

5,589,147

Restricted stock

—

Diluted weighted average number of shares

15,600,813

5,589,147

Basic earnings per share

Diluted earnings per share

(0.18)

0.61

2.18

The weighted average number of shares presented above
includes the stock split mentioned in Note 13 and assumes that
the reorganization mentioned in Note 1 was effective during the
period ended December 31, 2009 and 2008.

We incurred a loss for the year ended December 31, 2010. As a
result, the inclusion of potentially dilutive items related entirely to

the issuance of 568,458 restricted shares in the diluted earnings
per share calculation would have an antidilutive effect on the loss
per share for the period. Therefore, all potentially dilutive items
have been excluded from the diluted earnings per share calcula-
tion for this period.

F-24

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

20. Financial instruments

Funding and capital risk management

We manage our funding and capital resources to ensure our ability to continue as a going concern while maximizing the return to the
shareholder through optimization of the debt and equity balance.

Categories of financial instruments

Financial assets (at amortized cost)
Cash and cash equivalents
Loans and receivable

Carrying value As of December 31

2010

2009

2008

$ 68,186,902
8,782,628

444,496
3,367,251

3,607,635
3,701,980

Financial liabilities
Fair value through profit and loss - Derivative financial instruments
Other liabilities (at amortized cost)

—
147,485,258

1,685,310
41,409,534

2,641,430
94,171,231

On April 6, 2010, we completed an initial public offering of our
common shares. With a portion of the net proceeds from the
offering, on April 9, 2010, we settled the outstanding portion of an
interest rate swap in April 2005, for a payment of $1,850,000.

Derivative financial instruments in 2008 and 2009, comprised
solely of interest rate swaps, were measured at the present value
of future cash flows estimated and discounted based on the
applicable yield curves derived from quoted interest rates to
determine the fair value.

IFRS 7 requires classification of fair value measures into Levels 1, 2
and 3. Level 1 fair value measurements are those derived from
quoted prices (unadjusted) in active markets for identical assets or
liabilities. Level 2 fair value measurements are those derived from
inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and Level 3 fair value measure-
ments are those derived from valuation techniques that include
inputs for the asset or liability that are not based on observable
market data (unobservable inputs). In accordance with IFRS 7, the
fair value measurement for the interest rate swap in 2008 and
2009 was classified as Level 2.

The fair value of other financial assets and liabilities are approxi-
mately equal to their carrying values.

Financial risk management objectives

We identify and evaluate significant risks on an ongoing basis
with the objective of managing the sensitivity of our results and
financial position to those risks. These risks include market risk,
credit risk and liquidity risk.

The use of financial derivatives is governed by our policies as
approved by the board of directors.

Market risk

Our activities expose us to the financial risks of changes in interest
rates. See Note 10 for a description of the interest rate risk.

In the years ended December 31, 2009 and 2008, we were party to
interest rate swaps to mitigate the risk of rising interest rates. The
outstanding portion of the interest rate swap was settled on April
9, 2010 for a payment of $1,850,000.

The consolidated income statement includes the following mate-
rial items in respect of such instruments:

Realized loss on

interest rate swaps
Unrealized (gain)/loss
on interest rate
swaps

For the year ended December 31

2010

2009

2008

$ 279,560 $ 808,085

405,691

—

(956,120)

2,057,957

$ 279,560 $ (148,035) $ 2,463,648

Sensitivity analysis – Interest rate risk

The sensitivity analyses below have been determined based on
the exposure to interest rates for non-derivative instruments at
the balance sheet date. For floating rate liabilities, the analysis is
prepared assuming the amount of liability outstanding at balance
sheet date was outstanding for the whole year.

If interest rates had been 1% higher/lower and all other variables
were held constant, our net income for the year ended December
31, 2010 would have decreased/increased by $0.7 million. This is
mainly attributable to our exposure to interest rate movements
on the 2010 Credit Facility.

F-25

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

If interest rates had been 1% higher/lower and all other variables
were held constant, our net income for the year ended December
31, 2009 would have decreased/increased by $1.0 million (2008:
decreased/increased by $1.0 million). This is mainly attributable to
our exposure to interest rate movements for the portion of the
2005 Credit Facility that was not hedged by the interest rate swap
in place at the time (see Note 11).

Credit risk

Credit risk is the potential exposure of loss in the event of non-
performance by customers and derivative
instrument
counterparties.

Accounts receivable are generally not collateralized; however, we
believe that the credit risk is partially offset by the creditworthi-
ness of our counterparties including the commercial and techni-
cal managers. We did not experience material credit losses on our
accounts receivables portfolio in the years ended December 31,
2010, 2009 and 2008.

The carrying amount of financial assets recognized in the consoli-
dated financial statements represents the maximum exposure to
credit risk without taking account of the value of any collateral
obtained. We did not experience any impairment losses on finan-
cial assets in the years ended December 31, 2010, 2009 and 2008.

We monitor exposure to credit risk, and believe that there is no
substantial credit risk arising from counterparties.

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in
raising funds to meet commitments associated with financial
instruments.

We manage liquidity risk by maintaining adequate reserves and
borrowing facilities and by continuously monitoring forecast and
actual cash flows.

Current economic conditions make forecasting difficult, and there
is the possibility that our actual trading performance during the
coming year may be materially different from expectations.

Based on internal forecasts and projections that take into account
reasonably possible changes in our trading performance, we
believe that we have adequate financial resources to continue in
operation for a period of at least twelve months from the date of
approval of these consolidated financial statements. Accordingly,
we continue to adopt the going concern basis in preparing our
financial statements.

Remaining contractual maturity on secured bank loan (Note 10)

The following table details our remaining contractual maturity for
our secured bank loan. The amounts represent the future undis-
counted cash flows of the financial liability based on the earliest
date on which we can be required to pay. The table includes both
interest and principal cash flows.

As the interest cash flows are not fixed, the interest amount
included has been determined by reference to the projected
interest rates as illustrated by the yield curves existing at the
reporting date.

To be repaid as follows:

As of December 31

2010

2009

— $

6,101,892
17,591,716
147,705,130
—

—
1,273,280
3,757,572
18,786,996
22,200,479

$ 171,398,738

$ 46,018,327

Less than 1 month
1-3 months
3 months to 1 year
1-5 years
5+ years

21. Commitments

On December 24, 2010, we agreed to charter in the Krisjanis
Valdemars, a 2007 built Handymax ice-class 1B product tanker for
10 months at $12,000 per day. The agreement also includes a
profit and loss sharing provision whereby 50% of all profits and
losses (the difference between the vessel’s pool earnings and the
charter hire expense) will be shared with the owner of the vessel.
The vessel was delivered on February 14, 2011.

On December 24, 2010, we agreed to charter in the Kraslava, a
2007 built Handymax ice-class 1B product tanker, for one year at
$12,070 per day. The vessel was delivered on January 26, 2011.

On December 30, 2010, we agreed to charter in the Histria Azure,
a 2007 built Handymax product tanker, for one year at $12,250 per
day. The vessel was delivered on February 6, 2011. The agreement
includes an option for Scorpio Tankers to extend for an additional
year at $13,750 per day or $12,250 per day with a 50% profit shar-
ing agreement.

22. Subsequent events

January 2011 restricted stock issuance

On January 31, 2011, we issued 281,000 shares of restricted stock to
the employees for no cash consideration. The share price at the
date of issue was $9.83 per share. The vesting schedule of the
restricted stock is (i) one-third of the shares vest on January 31,
2012, (ii) one-third of the shares vest on January 31, 2013, and (iii)
one-third of the shares vest on January 31, 2014. Compensation
expense will be recognized ratably over the vesting periods for
each tranche using the straight-line method.

On January 31, 2011, we issued 9,000 shares of restricted stock to
our independent directors for no cash consideration. The share
price at the date of issue was $9.83 per share. These shares vest on
January 31, 2012.

F-26

Scorpio Tankers Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

STI Spirit Credit Facility

Change in vessel operations

On March 9, 2011, we executed a credit facility with DVB Bank SE
for a senior secured term loan facility of $27.3 million for STI Spirit,
which was acquired on November 10, 2010. The credit facility has
a maturity date of seven years after the date the funds are drawn,
and the loan bears interest at LIBOR plus a margin of 2.75% per
annum. A commitment fee equal to 1.50% per annum is calcu-
lated on the undrawn loan from the date of execution. The credit
facility may only be used to finance the STI Spirit. The STI Spirit,
with a net book value of $52.3 million as of December 31, 2010
was provided as collateral under the loan agreement. The loan
will be repaid over 28 equal quarterly installments and a lump
sum payment at maturity. The quarterly installments, which com-
mence three months after the drawdown, are calculated using an
18 year amortization profile. Our subsidiary, STI Spirit Shipping
Company Limited, which owns the vessel, is the borrower and
Scorpio Tankers Inc. is the guarantor.

Delivery of time chartered in vessels

On January 26, 2011, we took delivery of Kraslava, a 2007 built
Handymax ice-class 1B product tanker, which we previously
agreed to time charter in as described in Note 21.

On February 6, 2011, we took delivery of Histria Azure, a 2007 built
Handymax product tanker, which we previously agreed to time
charter in as described in Note 21.

On February 14, 2011, we took delivery of Krisjanis Valdemars, a
2007 built Handymax product tanker, which we previously agreed
to time charter in as described in Note 21.

On January 11, 2011, the STI Spirit left the Scorpio Aframax Tanker
Pool and is now trading in the Scorpio LR2 Pool.

Share distribution

In January 2011, Scorpio Owning Holding Ltd. distributed its shares
in Scorpio Tankers Inc. (via a dividend) to the shareholders of
Liberty, which is 97% owned by members of the Lolli-Ghetti family,
of which our CEO and Chairman is a member. The members of
the Lolli-Ghetti family have not sold the shares.

Potential sale of a Handymax vessel

In March 2011, we entered into an agreement pursuant to which
an unaffiliated third party has the option to purchase one of our
Handymaxes. If the option is exercised, we would realize a gain on
the sale of approximately $5 million. The buyer is required to
notify us if it intends to exercise such option at the end of May
2011.

Time charter-in agreement

F-27

Corporate Information

Senior Management and Directors

Corporate Offices

Emanuele A. Lauro
Chairman & Chief Executive Officer

Robert Bugbee
President and Director

Brian Lee
Chief Financial Officer

Cameron Mackey
Chief Operating Officer

Luca Forgione
General Counsel & Company Secretary

Sergio Gianfranchi
Vice President, Vessel Operations

Alexandre Albertini
Director

Ademaro Lanzara
Director

Donald C. Trauscht
Director

Monaco
Le Millenium - 9, Boulevard Charles III - MC
98000 Monaco
Tel +377 9798 5716

New York
150 East 58th Street - New York, NY 10155
Tel +1 212 542 1616

info@scorpiotankers.com

Stock Listing

Scorpio Tankers, Inc.’s common stock is traded on
the New York Stock Exchange under the symbol
STNG.

Transfer Agent

Computershare
250 Royall Street
Canton, MA 02021
USA

Legal Counsel

Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
USA

Independent Auditors

Deloitte LLP
2 New Street Square
London EC4A 2BZ
United Kingdom

Investor Relations

Brian Lee
Chief Financial Officer

Scorpio Takers Inc.
150 East 58th Street
New York, NY 10155
Tel +1 212 542 1616

Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com

Monaco

Le Millenium - 9, Boulevard Charles III - MC 98000
Monaco
Tel +377 9798 5716

New York

150 East 58th Street - New York, NY 10155
Tel +1 212 542 1616

info@scorpiotankers.com