2022 Annual Report/20-F
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
(cid:134) REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
(cid:134)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
OR
(cid:134)
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report _________________
Commission file number: 001-34677
OR
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
+377-9798-5716
investor.relations@scorpiotankers.com
9, Boulevard Charles III Monaco 98000
(Name, Telephone, E-mail and/or Facsimile, 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 $0.01 per share
7.00% Senior Notes due 2025
Trading Symbol(s)
STNG
SBBA
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
Securities registered or to be registered pursuant to section 12(g) of the Act.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
NONE
(Title of class)
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, 2022 there were 61,262,838 outstanding shares of common stock, par value $0.01 per share.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
(cid:95)
No
If this report is an annual or transition 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
No
(cid:95)
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their
obligations under those Sections.
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
(cid:95)
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes
(cid:95)
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the
definitions of “large accelerated filer”, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer (cid:95)
Accelerated filer (cid:134)
Non-accelerated filer (cid:134)
Emerging growth company (cid:133)
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. (cid:133)(cid:3)
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Yes (cid:95)
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. (cid:134)
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). (cid:134)
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
No (cid:133)
(cid:95)
U.S. GAAP
International Financial Reporting Standards as issued by the International Accounting Standards Board
Other
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:
Item 17
Item 18
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
No
(cid:95)
TABLE OF CONTENTS
PART I
PART II
.........................................................................................................................................................................
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS ...............................
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE .................................................................
ITEM 3. KEY INFORMATION ......................................................................................................................
ITEM 4. INFORMATION ON THE COMPANY ...........................................................................................
ITEM 4A. UNRESOLVED STAFF COMMENTS .........................................................................................
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS ...................................................
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES .....................................................
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS ...................................
ITEM 8. FINANCIAL INFORMATION .........................................................................................................
ITEM 9. OFFER AND THE LISTING ............................................................................................................
ITEM 10. ADDITIONAL INFORMATION ...................................................................................................
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ................
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES ................................
.........................................................................................................................................................................
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES..........................................
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS .....................................................................................................................................................
ITEM 15. CONTROLS AND PROCEDURES ...............................................................................................
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT ...........................................................................
ITEM 16B. CODE OF ETHICS ......................................................................................................................
ITEM 16C. PRINCIPAL ACCOUNTING FEES AND SERVICES ...............................................................
ITEM 16D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES ......................
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS ................................................................................................................................................
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT ...............................................
ITEM 16G. CORPORATE GOVERNANCE ..................................................................................................
ITEM 16H. MINE SAFETY DISCLOSURE ..................................................................................................
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS ................................................................................................................................................
PART III .........................................................................................................................................................................
ITEM 17. FINANCIAL STATEMENTS .........................................................................................................
ITEM 18. FINANCIAL STATEMENTS .........................................................................................................
ITEM 19. EXHIBITS .......................................................................................................................................
1
1
1
1
29
59
59
84
90
95
96
96
108
109
110
110
110
110
111
111
111
111
112
112
112
113
113
114
114
114
114
CAUTIONARY STATEMENT REGARDING 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 information 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. This document includes assumptions,
expectations, projections, intentions and beliefs about future events. These statements are intended as “forward-looking
statements.” We desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 and are including this cautionary statement in connection therewith. This report and any other written or oral statements
made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future
events and financial performance, and are not intended to give any assurance as to future results. We caution that
assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results
and the differences can be material. When used in this document, the words “believe,” “expect,” “anticipate,” “estimate,”
“intend,” “seek,” “plan,” “potential,” “continue,” “contemplate,” “possible,” “target,” “project,” “likely,” “may,” “might,”
“would,” “could” and similar expressions, terms, or phrases may identify forward-looking statements.
These forward-looking statements are not historical facts, but rather are based on current expectations, estimates,
assumptions and projections about the business and our future financial results and readers should not place undue reliance
on them. The forward-looking statements in this report are based upon various assumptions, many of which are based, in
turn, upon further assumptions, including without limitation, 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 important factors and matters discussed elsewhere in this report, and in the documents incorporated by
reference herein, important factors that, in our view, could cause our actual results and developments to differ materially from
those discussed in the forward-looking statements include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our future operating or financial results;
the strength of world economies and currencies;
fluctuations in interest rates and foreign exchange rates;
the impact of the discontinuance of the London Interbank Offered Rate for US Dollars, or LIBOR, after
June 30, 2023 on interest rates of our credit facilities that reference LIBOR in the interest rate;
general market conditions, including the market for our vessels, fluctuations in spot and charter rates and
vessel values;
the length and severity of the ongoing novel coronavirus (COVID-19) outbreak, including its impact on the
demand for seaborne transportation of petroleum products;
availability of financing and refinancing;
our business strategy and other plans and objectives for growth and future operations, including planned
and unplanned capital expenditures;
our ability to successfully employ our vessels;
planned, pending or recent acquisitions, business strategy and expected capital spending or operating
expenses, including drydocking, surveys, upgrades and insurance costs;
potential liability from pending or future litigation;
the impact of increasing scrutiny and changing expectations from investors, lenders and other market
participants with respect to our Environmental, Social and Governance or ESG policies;
general domestic and international political conditions, including the impact of conflict in Ukraine;
potential disruption of shipping routes due to accidents or political events;
vessel breakdowns and instances of off-hire;
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
competition within our industry;
the supply of and demand for vessels comparable to ours;
corruption, piracy, militant activities, political instability, terrorism, and ethnic unrest in locations where we
may operate;
delays and cost overruns in construction projects;
our level of indebtedness;
our ability to obtain financing and to comply with the restrictive and other covenants in our financing
arrangements;
our need for cash to meet our debt service obligations;
our levels of operating and maintenance costs, including bunker prices, drydocking and insurance costs;
our ability to successfully identify, consummate, integrate, and realize the expected benefits from
acquisitions;
reputational risks;
availability of skilled workers and the related labor costs and related costs;
compliance with governmental, tax, environmental and safety regulation;
any non-compliance with the U.S. Foreign Corrupt Practices Act of 1977 (FCPA) or other applicable
regulations relating to bribery;
general economic conditions and conditions in the oil and natural gas industry;
effects of new products and new technology in our industry;
the failure of counterparties to fully perform their contracts with us;
our dependence on key personnel;
adequacy of insurance coverage;
our ability to obtain indemnities from customers;
changes in laws, treaties or regulations applicable to us;
the volatility of the price of our common shares and our other securities;
other factors that may affect our future results; and
these factors and other risk factors described in this annual report and other reports that we furnish or file
with the U.S. Securities and Exchange Commission, or the SEC.
These factors and the other risk factors described in this report are not necessarily all of the important factors that
could cause actual results or developments to differ materially from those expressed in any of our forward-looking
statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that
actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the
expected consequences to, or effects on, us. These forward-looking statements are not guarantees of our future performance,
and actual results and future developments may vary materially from those projected in the forward-looking statements.
Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking
statements, which speak only as of their dates. We undertake no obligation, and specifically decline any obligation, except as
required by law, to publicly update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise. Please see our Risk Factors in “Item 3. Key Information - D. Risk Factors” of this annual report for a
more complete discussion of these and other risks and uncertainties.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
Unless the context otherwise requires, when used in this annual report, the terms “Scorpio Tankers,” the
“Company,” “we,” “our” and “us” refer to Scorpio Tankers Inc. and its subsidiaries. “Scorpio Tankers Inc.” refers only to
Scorpio Tankers Inc. and not its subsidiaries. Unless otherwise indicated, all references to “dollars,” “US dollars” and “$”
in this annual report are to the lawful currency of the United States. We use the term deadweight tons, or dwt, expressed in
metric tons, each of which is equivalent to 1,000 kilograms, in describing the size of tankers.
As used herein, “SLR2P” refers to the Scorpio LR2 Pool, “SLR1P” refers to the Scorpio LR1 Pool, “SMRP” refers
to the Scorpio MR Pool, and “SHTP” refers to the Scorpio Handymax Tanker Pool, which are spot market-oriented tanker
pools in which certain of our vessels operate.
A. Identity of Directors, Senior Management and Advisers
Not applicable.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
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 securities. The occurrence of any of the events described in
this section could significantly and negatively affect our business, financial condition, operating results or cash available for
the payment of dividends on our common shares and interest on our debt securities, or the trading price of our securities.
The following is a summary of the risk factors which are described in further detail in subsequent sections.
• The tanker industry is cyclical and volatile, which may adversely affect our earnings and available cash
flow.
• We are dependent on spot-oriented pools and spot charters and any decrease in spot charter rates in the
future may adversely affect our earnings.
• An over-supply of tanker capacity may depress charter rates, which may limit our ability to operate our
tankers profitability.
• Acts of piracy on ocean-going vessels could adversely affect our business.
• Changes in fuel, or bunkers, prices may adversely affect our profits.
• Tanker rates also fluctuate based on seasonal variations in demand.
• A shift in consumer demand from oil towards other energy sources or changes to trade patterns for refined
oil products may have a material adverse effect on our business.
1
• An inability to effectively time investments could negatively impact our results of operations and financial
condition.
• Volatility in economic conditions throughout the world could have an adverse impact on our results of
operations and financial condition.
• Volatility of LIBOR, SOFR, and potential changes of the use of LIBOR as a benchmark could affect our
profitability, earnings and cash flow.
•
If we, including the Scorpio Pools, cannot meet our customers’ quality and compliance requirements we
may not be able to operate our vessels profitably which could have an adverse effect on our future
performance, results of operations, cash flows and financial position.
• We are required to make significant investments in ballast water management which may have a material
adverse effect on our future performance, results of operations and financial position.
•
Sulfur regulations to reduce air pollution from ships are likely to cause us to incur significant costs.
• We are subject to complex laws and regulations, including environmental laws and regulations, including
environmental laws and regulations that can increase our liability and adversely affect our business, results
of operations, cash flows and financial condition and our 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.
• We operate tankers worldwide, and as a result, we are exposed to inherent operational and international
risks, which may adversely affect our business and financial condition.
• The continuing effects of the COVID-19 pandemic and other outbreaks of epidemic and pandemic diseases
and governmental responses thereto could materially and adversely affect our business, financial condition,
and results of operations.
• Our operations outside the United States expose us to global risks, such as political instability, terrorist or
other attacks, war and international hostilities which may affect the tanker industry and adversely affect our
business.
•
If our vessels call on ports located in countries or territories that are subject to sanctions or embargoes
imposed by the U.S. government, the European Union, the United Nations, or other governments, it could
result in monetary fines or other penalties imposed on us and may adversely affect our reputation and the
market for our securities.
• Breakdowns in our information technology, including as a result of cyberattacks, may negatively impact
our business, including our ability to service customers, and may have a material adverse effect on our
future performance, results of operations, cash flow and financial position.
•
•
Increasing scrutiny and changing expectations from investors, lenders and other market participants with
respect to our Environmental, Social and Governance policies may impose additional costs on us or expose
us to additional risks.
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 operate secondhand vessels, which exposes us to increased operating costs which could adversely
affect our earnings and, as our fleet ages, the risks associated with older vessels could adversely affect our
ability to obtain profitable charters.
• An increase in operating costs would decrease earnings and available cash.
• We will be required to make additional capital expenditures should we determine to expand the number of
vessels in our fleet and to maintain all our vessels.
• Declines in charter rates and other market deterioration have caused, and could cause, us to incur
impairment charges.
2
• Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future, and
as a result, investors in our common stock could incur substantial losses.
• The market values of our vessels may decrease, which could limit the amount of funds that we can borrow
or trigger certain financial covenants under our current or future debt facilities and we may incur a loss if
we sell vessels following a decline in their market value.
•
•
If we are unable to operate our vessels profitably, we may be unsuccessful in competing in the highly
competitive international tanker market, which would negatively affect our financial condition and our
ability to expand our business.
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 condition and available cash.
• Our ability to obtain additional financing may be dependent on the performance of our then existing
charters and the creditworthiness of our charterers.
• We cannot guarantee that our Board of Directors will declare dividends.
• United States tax authorities could treat us as a “passive foreign investment company,” which could have
adverse United States federal income tax consequence to United States shareholders.
• We may have to pay tax on United States source shipping income, which would reduce our earnings.
• We are subject to certain risks with respect to our counterparties on contracts, including our vessel
employment arrangements, and failure of such counterparties to meet their obligations could cause us to
suffer losses or negatively impact our results of operations and cash flows.
• Our insurance may not be adequate to cover our losses that may result from our operations due to inherent
operational risks of the tanker industry.
•
Failure to comply with the U.S. Foreign Corrupt Practices Act could result in fines, criminal penalties,
contract terminations and an adverse effect on our business.
• We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of
corporate law and, as a result, shareholders may have fewer rights and protections under Marshall Islands
law than under a typical jurisdiction in the United States.
• As a Marshall Islands corporation with our headquarters in Monaco, and with a majority of our subsidiaries
being Marshall Islands entities and also having subsidiaries in other offshore jurisdictions, our operations
may be subject to economic substance requirements, which could impact our business.
• We are dependent on our managers and their ability to hire and retain key personnel, and there may be
conflicts of interest between us and our managers that may not be resolved in our favor.
• There may be conflicts of interest between us and our managers that may not be resolved in our favor.
• Our founder, Chairman and Chief Executive Officer, and Vice President have affiliations with our
administrator and commercial and technical managers which may create conflicts of interest.
• Certain of our officers do not devote all of their time to our business, which may hinder our ability to
operate successfully.
• Our commercial and technical managers are each privately held companies and there is little or no publicly
available information about them.
• Our debt and lease financing agreements contain restrictive and financial covenants which may limit our
ability to conduct certain activities, and further, we may be unable to comply with such covenants, which
could result in a default under the terms of such agreements.
3
RISKS RELATED TO OUR INDUSTRY
The tanker industry is cyclical and volatile, which may adversely affect our earnings and available cash flow.
The tanker industry is both cyclical and volatile in terms of charter rates and profitability. Periodic adjustments to
the supply of and demand for oil tankers cause the industry to be cyclical in nature. We expect continued volatility in market
rates for our vessels in the foreseeable future with a consequent effect on our short and medium-term liquidity. A worsening
of current global economic conditions may cause tanker charter rates to decline and thereby adversely affect our ability to
charter or re-charter 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. In addition, the conflict in Ukraine is disrupting energy production
and trade patterns, including shipping in the Black Sea and elsewhere, and its impact on energy prices and tanker rates, which
initially have increased, is uncertain. Fluctuations in charter rates and vessel 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
supply of and demand for energy resources and oil and petroleum products;
changes in the consumption of oil and petroleum products due to availability of new, alternative energy
sources or changes in the price of oil and petroleum products relative to other energy sources or other
factors making consumption of oil and petroleum products less attractive;
regional availability of refining capacity and inventories compared to geographies of oil production
regions;
national policies regarding strategic oil inventories (including if strategic reserves are set at a lower level in
the future as oil decreases in the energy mix);
global and regional economic and political conditions, including armed conflicts, terrorist activities,
embargoes and strikes;
currency exchange rates;
the distance over which oil and oil products are to be moved by sea;
changes in seaborne and other transportation patterns;
changes in governmental or maritime self-regulatory organizations’ rules and regulations or actions taken
by regulatory authorities;
environmental and other legal and regulatory developments;
business disruptions, including supply chain issues, due to natural or other disasters, or otherwise;
developments in international trade, including those relating to the imposition of tariffs;
competition from alternative sources of energy; and
international sanctions, embargoes, import and export restrictions, nationalizations and wars.
The factors that influence the supply of tanker capacity include:
•
•
•
•
supply of and demand for energy resources and oil and petroleum products;
demand for alternative sources of energy;
the number of newbuilding orders and deliveries, including slippage in deliveries;
the number of vessel casualties;
4
•
•
•
•
•
•
•
•
•
•
•
•
•
technological advances in tanker design and capacity;
the number of shipyards and ability of shipyards to deliver vessels;
availability of financing for new vessels and shipping activity;
the degree of scrapping or recycling rate of older vessels, depending, amongst other things, on scrapping or
recycling rates and international scrapping or recycling regulations;
price of steel and vessel equipment;
the number of conversions of tankers to other uses or conversions of other vessels to tankers;
the number of product tankers trading crude or “dirty” oil products (such as fuel oil);
the number of vessels that are out of service, namely those that are laid up, drydocked, awaiting repairs or
otherwise not available for hire;
changes in government and industry environmental and other regulations that may limit the useful lives of
tankers and environmental concerns and regulations;
product imbalances (affecting the level of trading activity);
developments in international trade, including refinery additions and closures;
port or canal congestion; and
speed of vessel operation.
In addition to the prevailing and anticipated freight rates, factors that affect the rate of newbuilding, scrapping and
laying-up include newbuilding prices, secondhand vessel values in relation to scrap prices, costs of bunkers and other
operating costs, costs associated with classification society surveys, normal maintenance costs, insurance coverage costs, the
efficiency and age profile of the existing tanker fleet in the market, and government and industry regulation of maritime
transportation practices, particularly environmental protection laws and regulations. These factors influencing the supply of
and demand for shipping capacity are outside of our control, and we may not be able to correctly assess the nature, timing
and degree of changes in industry conditions.
We anticipate that the future demand for our tankers will be dependent upon economic growth in the world’s
economies, seasonal and regional changes in demand, changes in the capacity of the global tanker fleet and the sources and
supply of oil and petroleum products to be transported by sea. Given the number of new tankers currently on order with
shipyards, the capacity of the global tanker fleet seems likely to increase and there can be no assurance as to the timing or
extent of future economic growth. Adverse economic, political, social or other developments could have a material adverse
effect on our business and operating results.
Declines in oil and natural gas prices for an extended period of time, or market expectations of potential decreases in
these prices, could negatively affect our future growth in the tanker and offshore sector. Sustained periods of low oil and
natural gas prices typically result in reduced exploration and extraction because oil and natural gas companies’ capital
expenditure budgets are subject to cash flow from such activities and are therefore sensitive to changes in energy prices.
These changes in commodity prices can have a material effect on demand for our services, and periods of low demand can
cause excess vessel supply and intensify the competition in the industry, which often results in vessels, particularly older and
less technologically-advanced vessels, being idle for long periods of time. We cannot predict the future level of demand for
our services or future conditions of the oil and natural gas industry. Any decrease in exploration, development or production
expenditures by oil and natural gas companies could reduce our revenues and materially harm our business, results of
operations and cash available for distribution.
5
We are dependent on spot-oriented pools and spot charters and any decrease in spot charter rates in the future may
adversely affect our earnings.
As of March 23, 2023, 99 of our vessels were employed in either the spot market or in spot market-oriented tanker
pools such as the SLR2P, SMRP or SHTP, which we refer to collectively as the Scorpio Pools and which are managed by
companies that are members of the Scorpio group of companies, or Scorpio, exposing us to fluctuations in spot market
charter rates. The spot charter market may fluctuate significantly based upon tanker and oil supply and demand. The
successful operation of our vessels in the competitive spot charter market, including within the Scorpio Pools, depends on,
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 market is very volatile, and, in the past, there have been periods
when spot charter rates have declined below the operating cost of vessels. If spot charter rates decline, then we may be unable
to operate our vessels trading in the spot market profitably, meet our obligations, including payments on indebtedness, or pay
dividends 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 generally experience delays in realizing the
benefits from such increases.
Our ability to renew expiring charters or obtain new charters will depend on the prevailing market conditions at the
time. If we are not able to obtain new charters in direct continuation with existing charters or upon taking delivery of a newly
acquired vessel, or if new charters are entered into at charter rates substantially below the existing charter rates or on terms
otherwise less favorable compared to existing charter terms, our revenues and profitability could be adversely affected.
An over-supply of tanker capacity may depress charter rates, which may limit our ability to operate our tankers
profitably.
The market supply of tankers is affected by a number of factors, such as supply and demand for energy resources,
including oil and petroleum products, supply and demand for seaborne transportation of such energy resources, and the
current and expected purchase orders for newbuildings. If the capacity of new tankers delivered exceeds the capacity of
tankers being scrapped and converted to non-trading tankers, tanker capacity will increase. According to Drewry Shipping
Consultants Ltd., or Drewry, as of February 28, 2023, the newbuilding order book, which extends to 2025 and beyond,
equaled approximately 3.8% of the existing world tanker fleet and the order book may increase further in proportion to the
existing fleet. If the supply of tanker capacity increases and if the demand for tanker capacity does not increase
correspondingly or declines, 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.
In addition, product tankers may be “cleaned up” from “dirty/crude” trades and swapped back into the product
tanker market which would increase the available product tanker tonnage which may in turn affect the supply and demand
balance for product tankers. This could have an adverse effect on our future performance, results of operations, cash flows
and financial position.
Acts of piracy on ocean-going vessels could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China
Sea, the Indian Ocean, the Gulf of Guinea, the Gulf of Aden and the Sulu Sea. Sea piracy incidents continue to occur, with
drybulk vessels and tankers particularly vulnerable to such attacks. If these piracy attacks result in regions in which our
vessels are deployed being characterized by insurers as “war risk” zones or Joint War Committee “war and strikes” listed
areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to
obtain. In addition, crew and security equipment costs, including costs which may be incurred to the extent we employ
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, detention or hijacking as a result of an act of piracy
against our vessels, or increases in cost associated with seeking to avoid such events (including increased bunker costs
resulting from vessels being rerouted or travelling at increased speeds as recommended by BMP4), or unavailability of
insurance for our vessels, could have a material adverse impact on our business, results of operations, ability to pay
dividends, cash flows and financial condition and may result in loss of revenues, increased costs and decreased cash flows to
our customers, which could impair their ability to make payments to us under our charters.
Changes in fuel, or bunkers, prices may adversely affect our profits.
Since we primarily employ our vessels in the spot market or in spot market oriented pools, fuel, or bunkers, is
typically the largest expense affecting our shipping operations for our vessels and changes in the price of fuel may adversely
affect our profitability. The cost of fuel, including the fuel efficiency or capability to use lower priced fuel, can also be an
6
important factor considered by charterers in negotiating charter rates. While we believe that we can transfer increased costs to
the customer, and will experience a competitive advantage as a result of increased bunker prices due to the greater fuel
efficiency of our vessels compared to the average global fleet, 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, such as the conflict between Russia and Ukraine, 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.
In addition, the entry into force, on January 1, 2020, of the 0.5% global sulfur cap in marine fuels used by vessels
that are not equipped with sulfur oxide (“SOx”) exhaust gas cleaning systems (“scrubbers”) under the International
Convention for Prevention of Pollution from Ships (“MARPOL”) Annex VI may lead to changes in the production quantities
and prices of different grades of marine fuel by refineries and introduces an additional element of uncertainty in fuel markets,
which could result in additional costs and adversely affect our cash flows, earnings and results from operations.
Furthermore, since the implementation of the IMO’s sulfur oxide emission limits on January 1, 2020, we have been
using compliant low sulfur fuels for some of our vessels that have not yet been retrofitted with scrubbers or that are trading in
regions where the use of scrubbers is not permitted, the price of which has increased as a result of increased demand. Fuel
may continue to become much more expensive in the future, which may adversely affect the competitiveness of our business
compared to other forms of transportation and reduce our profitability.
In addition, if the recent sharp increase in crude oil prices and widening of the spread between the prices of high
sulfur fuel and low sulfur fuel resulting from conflict between Russia and Ukraine continues, this might lead to a decrease in
the economic viability of older vessels that lack fuel efficiency and a reduction of useful lives of these vessels.
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 northern
hemisphere but weaker in the summer months as a result of lower oil consumption in the northern hemisphere and refinery
maintenance that is typically conducted in the summer months. In addition, unpredictable weather patterns during the winter
months in the northern hemisphere tend to disrupt vessel routing and scheduling. 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.
A shift in consumer demand from oil towards other energy sources or changes to trade patterns for refined oil
products may have a material adverse effect on our business.
A significant portion of our earnings are related to the oil industry. We rely almost exclusively on the cash flows
generated from the employment of our vessels that operate in the tanker sector of the shipping industry. Due to our lack of
diversification, adverse developments in the tanker shipping industry have a significantly greater impact on our financial
condition and results of operations than if we maintained more diverse assets or lines of business. Adverse developments in
the tanker business could therefore reduce our ability to meet our payment obligations and our profitability.
A shift in or disruption of the consumer demand from oil towards other energy resources such as electricity, natural
gas, liquefied natural gas or hydrogen will potentially affect the demand for our product tankers. A shift from the use of
internal combustion engine vehicles to electric vehicles may also reduce the demand for oil. These factors could have a
material adverse effect on our future performance, results of operations, cash flows and financial position.
“Peak oil” is the year when the maximum rate of extraction of oil is reached. Recent forecasts of “peak oil” range
from the 2020s to the 2040s, depending on economics and how governments respond to global warming. Irrespective of
“peak oil”, the continuing shift in consumer demand from oil towards other energy resources such as wind energy, solar
energy, hydrogen energy or nuclear energy, which shift appears to be accelerating as a result of the COVID-19 pandemic, as
well a shift in government commitments and support for energy transition programs, may have a material adverse effect on
our future performance, results of operations, cash flows and financial position.
Seaborne trading and distribution patterns are primarily influenced by the relative advantage of the various sources
of production, locations of consumption, pricing differentials and seasonality. Changes to the trade patterns of refined oil
products may have a significant negative or positive impact on the ton-mile and therefore the demand for our product tankers.
This could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
7
An inability to effectively time investments in and divestments of vessels could prevent the implementation of our
business strategy and negatively impact our results of operations and financial condition
Our strategy is to own and operate a fleet large enough to provide global coverage, but no larger than what the
demand for our services can support over a longer period by both contracting newbuildings and through acquisitions and
disposals in the second-hand market. Our business is greatly influenced by the timing of investments and/or divestments and
contracting of newbuildings. If we are unable able to identify the optimal timing of such investments, divestments or
contracting of newbuildings in relation to the shipping value cycle due to capital restraints, this could have a material adverse
effect on our competitive position, future performance, results of operations, cash flows and financial position.
Volatility in economic conditions throughout the world could have an adverse impact on our results of operations and
financial condition.
Our business and profitability are affected by the overall level of demand for our vessels, which in turn is affected
by trends in global economic conditions. There has historically been a strong link between the development of the world
economy and demand for energy, including oil and gas. In the past, declines in global economic activity significantly reduced
the level of demand for our vessels. The world economy continues to face a number of challenges and an extended period of
deterioration in the outlook for the world economy could reduce the overall demand for oil and gas and for our services.
Since the beginning of calendar year 2020, the COVID-19 pandemic has resulted in numerous actions by governments and
governmental agencies in an attempt to mitigate the spread or any resurgence of the virus, including travel bans, quarantines,
and other emergency public health measures, including lockdown measures. While many of these measures have since been
relaxed, we cannot predict whether and to what degree such measures will be reinstituted in the event of any resurgence in
the COVID-19 virus or any variants thereof. These measures have resulted in a significant reduction in global economic
activity and extreme volatility in the global financial markets which has reduced the global demand for oil and refined
petroleum products. These negative impacts could continue or worsen, even after the pandemic itself diminishes or ends. We
expect that the impact of the COVID-19 virus and the uncertainty in the supply of oil will continue to cause volatility in the
commodity markets. The scale and duration of the impact of these factors remain unknown but could have a material impact
on our earnings, cash flow and financial condition for 2023 or beyond.
Also, as a result of concerns about the stability of financial markets generally, and the solvency of counterparties
specifically, the availability and cost of obtaining money from the public and private equity and debt markets has become
more difficult. Many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing
debt at all or on terms similar to current debt, and reduced, and in some cases ceased, to provide funding to borrowers and
other market participants, including equity and debt investors, and some have been unwilling to invest on attractive terms or
even at all. Due to these factors, we cannot be certain that financing will be available if needed and to the extent required, or
that we will be able to refinance our existing and future credit facilities, on acceptable terms or at all. If financing or
refinancing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our
obligations as they come due or we may be unable to enhance our existing business, complete additional vessel acquisitions
or otherwise take advantage of business opportunities as they arise. These risks factors, overall, may have a material adverse
effect on our results of operations and financial condition and may cause the price of our common shares to decline.
Continued economic slowdown in the Asia Pacific region may exacerbate the effect on us of the recent slowdown in
the rest of the world. For example, following the emergence of the COVID-19 pandemic, China experienced reduced
industrial activity with temporary closures of factories and other facilities, labor shortages and restrictions on travel. The
International Monetary Fund has warned that continuing geopolitical tensions between the United States and China could
derail recovery from the impacts of COVID-19. Although the United States and China signed a trade agreement in early
2020, there is no assurance that the Chinese economy will not experience a significant contraction in the future. As such, our
financial condition and results of operations, as well as our future prospects, would likely be impeded by a continuing or
worsening economic downturn in any of these countries.
In addition, President Xi Jinping committed his country to achieving carbon neutrality by 2060 at the UN General
Assembly despite that carbon emissions are currently a prominent part of China’s economic and industrial structure as it
relies heavily on nonrenewable energy sources, generally lacks energy efficiency, and has a rapidly growing energy demand.
The method by which China attempts to achieve carbon neutrality by 2060, and any attendant reduction in the demand for oil,
petroleum and related products, could have a material adverse effect on our business, cash flows and results of operations.
8
Volatility of LIBOR, SOFR, and potential changes of the use of LIBOR as a benchmark could affect our profitability,
earnings and cash flow.
As certain of our current financing agreements have, and our future financing arrangements may have, floating
interest rates, typically based on LIBOR, movements in interest rates could negatively affect our financial performance. The
publication of U.S. Dollar LIBOR for the one-week and two-month U.S. Dollar LIBOR tenors ceased on December 31, 2021,
and the ICE Benchmark Administration (“IBA”), the administrator of LIBOR, with the support of the United States Federal
Reserve and the United Kingdom’s Financial Conduct Authority, announced the publication of all other U.S. Dollar LIBOR
tenors will cease on June 30, 2023. The United States Federal Reserve concurrently issued a statement advising banks to
cease issuing U.S. Dollar LIBOR instruments after 2021. As such, any new loan agreements we enter into will not use
LIBOR as an interest rate, and we will need to transition our existing loan agreements from U.S. Dollar LIBOR to an
alternative reference rate prior to June 2023.
In order to manage our exposure to interest rate fluctuations under LIBOR, the Secured Overnight Financing Rate,
or “SOFR”, or any other alternative rate, we have and may from time to time use interest rate derivatives to effectively fix
some of our floating rate debt obligations. No assurance can however be given that the use of these derivative instruments, if
any, may effectively protect us from adverse interest rate movements. The use of interest rate derivatives may affect our
results through mark to market valuation of these derivatives. Also, adverse movements in interest rate derivatives may
require us to post cash as collateral, which may impact our free cash position. Interest rate derivatives may also be impacted
by the transition from LIBOR to SOFR or other alternative rates.
Our financing agreements contain a provision requiring or permitting us to enter into negotiations with our
lenders to agree to an alternative interest rate or an alternative basis for determining the interest rate in anticipation of the
cessation of LIBOR (where applicable). These clauses present significant uncertainties as to how alternative reference
rates or alternative bases for determination of rates would be agreed upon, as well as the potential for disputes or litigation
with our lenders regarding the appropriateness or comparability to LIBOR of any substitute indices, such as SOFR, and
any credit adjustment spread between the two benchmarks. In the absence of an agreement between us and our lenders,
most of our financing agreements provide that LIBOR would be replaced with some variation of the lenders’ cost-of-funds
rate. The discontinuation of LIBOR presents a number of risks to our business, including volatility in applicable interest
rates among our financing agreements, potential increased borrowing costs for future financing agreements or
unavailability of or difficulty in attaining financing, which could in turn have an adverse effect on our profitability,
earnings and cash flow.
If we, including the Scorpio Pools, cannot meet our customers’ quality and compliance requirements we may not be
able to operate our vessels profitably which could have an adverse effect on our future performance, results of
operations, cash flows and financial position.
Customers, in particular those in the oil industry, have an increasingly high focus on quality and compliance
standards with their suppliers across the entire value chain, including the shipping and transportation segment. Our, and the
Scorpio Pools’, continuous compliance with these standards and quality requirements is vital for our operations. Related risks
could materialize in multiple ways, including a sudden and unexpected breach in quality and/or compliance concerning one
or more vessels, or a continuous decrease in the quality concerning one or more vessels occurring over time. Moreover,
continuous increasing requirements from oil industry constituents can further complicate our ability to meet the standards.
Any noncompliance by us, or the Scorpio Pools, either suddenly or over a period of time, on one or more vessels, or an
increase in requirements by oil operators above and beyond what we deliver, may have a material adverse effect on our future
performance, results of operations, cash flows and financial position.
We are required to make significant investments in ballast water management which may have a material adverse
effect on our future performance, results of operations, and financial position.
The International Convention for the Control and Management of Vessels’ Ballast Water and Sediments, or the
BWM Convention, aims to prevent the spread of harmful aquatic organisms from one region to another, by establishing
standards and procedures for the management and control of ships’ ballast water and sediments. The BWM Convention’s
implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in
time with mandatory concentration limits, and require all ships to carry a ballast water record book and an international
ballast water management certificate. The BWM Convention was ratified in September 2016 and entered into force in
September 2017. The IMO has imposed updated guidelines for ballast water management systems specifying the maximum
amount of viable organisms allowed to be discharged from a vessel’s ballast water. Depending on the date of the
International Oil Pollution Prevention, or IOPP, renewal survey, existing vessels constructed before September 8, 2017, must
comply with the updated D-2 standard on or after September 8, 2019. Ships constructed on or after September 8, 2017 are to
9
comply with the D-2 standards on or after September 8, 2017. For most vessels, compliance with the D-2 standard involves
installing on-board systems to treat ballast water and eliminate unwanted organisms. The cost of such systems, including
installation, is estimated to be between $1.0 million and $1.5 million per vessel.
109 of the 113 vessels in our owned, lease financed or bareboat chartered-in fleet currently have ballast water
treatment systems installed. The remaining vessels are required to have ballast water treatment systems installed by the third
quarter of 2023. We cannot be assured that the systems which we have installed will be approved by the regulatory bodies of
every jurisdiction in which we may wish to conduct our business. Accordingly, we may have to make additional investments
in these vessels and substantial investments in the remaining vessels in our fleet that do not carry any such equipment. The
investment in ballast water treatment systems could have an adverse material impact on our business, financial condition, and
results of operations depending on the ability to install effective ballast water treatment systems and the extent to which
existing vessels must be modified to accommodate such systems.
Furthermore, United States regulations are currently changing. Although the 2013 Vessel General Permit (“VGP”)
program and U.S. National Invasive Species Act (“NISA”) are currently in effect to regulate ballast discharge, exchange and
installation, the Vessel Incidental Discharge Act (“VIDA”), which was signed into law on December 4, 2018, requires that
the EPA develop national standards of performance for approximately 30 discharges, similar to those found in the VGP
within two years. On October 26, 2020, the EPA published a Notice of Proposed Rulemaking for Vessel Incidental Discharge
National Standards of Performance under VIDA. Within two years after the EPA publishes its final Vessel Incidental
Discharge National Standards of Performance, the U.S. Coast Guard must develop corresponding implementation,
compliance, and enforcement regulations regarding ballast water. The new regulations could require the installation of new
equipment, which may cause us to incur substantial costs.
Sulfur regulations to reduce air pollution from ships are likely to require retrofitting of vessels and may cause us to
incur significant costs.
Effective January 1, 2020, the International Maritime Organization, the United Nations agency for maritime safety
and the prevention of pollution by vessels requires vessels to comply with its low sulfur fuel oil requirement, which cuts
sulfur levels from 3.5% to 0.5%. The interpretation of “fuel oil used on board” includes use in main engines, auxiliary
engines and boilers. Shipowners may comply with this regulation by (i) using 0.5% sulfur fuels on board, which is available
around the world but at a higher cost due to increased market demand; (ii) installing exhaust gas cleaning systems, known as
scrubbers, for cleaning of the exhaust gas; or (iii) by retrofitting vessels to be powered by liquefied natural gas, which may
not be a viable option for shipowners due to the lack of supply network and high costs involved in this process. Costs of
compliance with these regulatory changes may be significant and may have a material adverse effect on our future
performance, results of operations, cash flows and financial position.
We have entered into agreements with third parties to purchase and install Exhaust Gas Cleaning Systems, known as
“scrubbers”, on 98 vessels in our fleet for an estimated cost of $2.5 to $3.0 million per vessel, which we have financed and
plan to continue to finance through new loan facilities, increases in current loan facilities, and working capital. As of
March 23, 2023, we have successfully installed scrubbers on 85 of the vessels in our fleet (16 of which were sold in 2022).
For our vessels that have not yet been retrofitted with scrubbers, we are complying with current IMO standards by using
compliant bunkers and fuels with no more than 0.5% sulfur content.
We are subject to complex laws and regulations, including environmental laws and regulations that can increase our
liability and 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. 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 comply with other existing and
future regulatory obligations, including, but not limited to, costs relating to air emissions including greenhouse gases, the
management of ballast and bilge waters, maintenance and inspection, elimination of tin-based paint, development and
implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address
pollution incidents.
A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal
sanctions or the suspension or termination of our operations. Environmental requirements can also affect the resale value or
useful lives of our vessels, could require a reduction in cargo capacity, ship modifications or operational changes or
restrictions, could lead to decreased availability of insurance coverage for environmental matters or could result in the denial
of access to certain jurisdictional waters or ports or detention in certain ports. Under local, national and foreign laws, as well
10
as international treaties and conventions, we could incur material liabilities, including clean-up obligations and natural
resource damages liability, in the event that there is a release of hazardous materials from our vessels or otherwise in
connection with 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 negligent or at fault. We
could also become subject to personal injury or property damage claims relating to the release of hazardous substances
associated with our existing or historic operations. Violations of, or liabilities under, environmental requirements can result in
substantial penalties, fines and other sanctions, including, in certain instances, seizure or detention of our vessels, and could
harm our reputation with current or potential charterers of our tankers.
In addition, many environmental requirements are designed to reduce the risk of pollution, such as from oil spills,
and our compliance with these requirements could be costly. To comply with these and other regulations, including: (i) the
sulfur emission requirements of Annex VI of the International Convention for the Prevention of Marine Pollution from Ships,
or MARPOL, which instituted a global 0.5% (lowered from 3.5% as of January 1, 2020) sulfur cap on marine fuel consumed
by a vessel, unless the vessel is equipped with a scrubber, and (ii) the International Convention for the Control and
Management of Ships’ Ballast Water and Sediments of the International Maritime Organization, or the IMO, which requires
vessels to install expensive ballast water treatment systems, we may be required to incur additional costs to meet new
maintenance and inspection requirements, develop contingency plans for potential spills, and obtain insurance coverage. The
increased demand for low sulfur fuels may increase the costs of fuel for our vessels that do not have scrubbers. Additional
conventions, laws and regulations may be adopted that could limit our ability to do business or increase the cost of doing
business and which may materially and adversely affect our operations. Further, we are required to satisfy insurance and
financial responsibility requirements for potential oil (including marine fuel) spills and other pollution 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.
Please see “Item 4. Information on the Company—B. Business Overview—Environmental and Other Regulations in
the Shipping Industry” for a discussion of the environmental and other regulations applicable to us.
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 for Pollution Prevention, or the ISM Code, promulgated by the IMO and the International
Convention for the Safety of Life at Sea of 1974, or SOLAS Convention. The ISM Code requires the party with operational
control of a vessel to develop and maintain 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 safe operation and
describing procedures for dealing with emergencies. Failure to comply with the ISM code may subject us to increased
liability and may invalidate existing insurance or decrease available insurance coverage for our affected vessels and such
failure may result in a denial of access to, or detention in, certain ports. The U.S. Coast Guard and European Union
authorities enforce compliance with the ISM and International Ship and Port Facility Security Code, or the ISPS Code, and
prohibit non-compliant vessels from trading in U.S. and European Union ports. This could have a material adverse effect on
our future performance, results of operations, cash flows and financial position. Given that 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.
Because such conventions, laws, and regulations are often revised, we cannot predict the ultimate cost of complying
with such conventions, laws and regulations or the impact thereof on the resale prices or useful lives of our vessels. Additional
conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing
business and which may materially adversely affect our operations. We are required by various governmental and
quasigovernmental agencies to obtain certain permits, licenses, certificates, and financial assurances with respect to our
operations.
Recent action by the IMO’s Maritime Safety Committee and United States agencies indicate that cybersecurity
regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat
cybersecurity threats. By IMO resolution, administrations are encouraged to ensure that cyber-risk management systems are
incorporated by ship-owners and managers by their first annual Document of Compliance audit after January 1, 2021. In
February 2021, the U.S. Coast Guard published guidance on addressing cyber risks in a vessel’s safety management system.
This might cause companies to cultivate additional procedures for monitoring cybersecurity, which could require additional
expenses and/or capital expenditures.
11
Please see “Item 4. Information on the Company—B. Business Overview—Environmental and Other Regulations in
the Shipping Industry” for a discussion of the environmental and other regulations applicable to us.
Developments in safety and environmental requirements relating to the recycling of vessels may result in escalated
and unexpected costs.
The 2009 Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, or the
Hong Kong Convention, aims to ensure ships being recycled once they reach the end of their operational lives, do not pose
any unnecessary risks to the environment, human health and safety. The Hong Kong Convention has yet to be ratified by the
required number of countries to enter into force. Upon the Hong Kong Convention’s entry into force, each ship sent for
recycling will have to carry an inventory of its hazardous materials. The hazardous materials, whose use or installation are
prohibited in certain circumstances, are listed in an appendix to the Hong Kong Convention. Ships will be required to have
surveys to verify their inventory of hazardous materials initially, throughout their lives and prior to the ship being recycled.
The Hong Kong Convention, which is currently open for accession by IMO member states, will enter into force 24 months
after the date on which 15 IMO member states, representing at least 40% of world merchant shipping by gross tonnage, have
ratified or approved accession. As of the date of this annual report, 17 countries have ratified or approved accession of the
Hong Kong Convention but the requirement of 40% of world merchant shipping by gross tonnage has not yet been satisfied.
On November 20, 2013, the European Parliament and the Council of the EU adopted the Ship Recycling Regulation,
which retains the requirements of the Hong Kong Convention and requires that certain commercial seagoing vessels flying
the flag of an EU member state may be recycled only in facilities included on the European list of permitted ship recycling
facilities.
Apart from that, any vessel, including ours, is required to set up and maintain an Inventory of Hazardous Materials
from December 31, 2018 for EU flagged new ships and from December 31, 2020 for EU flagged existing ships and Non-EU
flagged ships calling at a port or anchorage of an EU member state. Such a system includes information on the hazardous
materials with a quantity above the threshold values specified in relevant EU Resolution and that are identified in ship’s
structure and equipment. This inventory should be properly maintained and updated, especially after repairs, conversions or
unscheduled maintenance on board the ship.
These regulatory requirements may lead to cost escalation by shipyards, repair yards and recycling yards. This may
then result in a decrease in the residual recycling value of a vessel, which could potentially not cover the cost to comply with
the latest requirements, which may have an adverse effect on our future performance, results of operations, cash flows and
financial position.
We operate tankers worldwide, and as a result, we are exposed to inherent operational and international risks, which
may adversely affect our business and financial condition.
The operation of an ocean-going vessel carries inherent risks. Our vessels and their cargoes will be at risk of being
damaged or lost because of events such as marine disasters, bad weather, and other acts of God, business interruptions caused
by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and other
circumstances or events. 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, terrorism, labor strikes
and boycotts. For example, the conflict in Ukraine has recently resulted in missile attacks on commercial vessels in the Black
Sea. These hazards may result in death or injury to persons, loss of revenues or property, payment of ransoms, environmental
damage, higher insurance rates, damage to our customer relationships, market disruptions, and interference with shipping
routes (such as delay or rerouting), any of which may reduce our revenue or increase our expenses and also subject us to
litigation. Epidemics and other public health incidents may also lead to crew member illness, which can disrupt the
operations of our vessels, or to public health measures, which may prevent our vessels from calling on ports or discharging
cargo in the affected areas or in other locations after having visited the affected areas. 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 terrorist 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
unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover in full. The
loss of revenues 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 suitable drydocking facility or our
12
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 reputation 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.
Increased inspection procedures could increase costs and disrupt our business.
International shipping is subject to various security and customs inspection and related procedures in countries of
origin and destination and trans-shipment points. Inspection procedures can result in the seizure of the cargo and/or our
vessels, delays in loading, offloading or delivery and the levying of customs duties, fines or other penalties against us. Under
the U.S. Maritime Transportation Security Act of 2002, 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 and at
certain ports and facilities. These security procedures can result in delays in the loading, offloading or trans-shipment and the
levying of customs duties, fines or other penalties against exporters or importers and, in some cases, carriers.
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 customers 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 business, results of operations, cash flows, financial condition and
available cash.
The continuing effects of the COVID-19 pandemic and other outbreaks of epidemic and pandemic diseases and
governmental responses thereto could materially and adversely affect our business, financial condition, and results of
operations.
Since the beginning of calendar year 2020, the outbreak of COVID-19 that originated in China in late 2019 and that
has spread to most nations around the globe has resulted in numerous actions taken by governments and governmental
agencies in an attempt to mitigate the spread of the virus, including travel bans, quarantines, and other emergency public
health measures, and a number of countries implemented lockdown measures. These measures resulted in a significant
reduction in global economic activity and extreme volatility in the global financial markets, the effects of which continued
throughout 2022. While many of these measures have since been relaxed, we cannot predict whether and to what degree such
measures will be reinstituted in the event of any resurgence in the COVID-19 virus or any variants thereof. If the COVID-19
pandemic continues on a prolonged basis or becomes more severe, the adverse impact on the global economy and the rate
environment for tanker vessels may deteriorate and our operations and cash flows may be negatively impacted. Relatively
weak global economic conditions during periods of volatility have and may continue to have a number of adverse
consequences for tanker and other shipping sectors, including, among other things:
•
•
•
•
•
low charter rates, particularly for vessels employed on short-term time charters or in the spot market;
decreases in the market value of tanker vessels and limited second-hand market for the sale of vessels;
limited financing for vessels;
loan covenant defaults; and
declaration of bankruptcy by certain vessel operators, vessel owners, shipyards and charterers.
The COVID-19 pandemic and measures to contain its spread have negatively impacted regional and global
economies and trade patterns in markets in which we operate, the way we operate our business, and the businesses of our
charterers and suppliers. These negative impacts could continue or worsen, even after the pandemic itself diminishes or ends
Measures against COVID-19 in a number of countries have previously restricted crew rotations on our vessels,
which may continue or become more severe. We have experienced, and may continue to experience, disruptions to our
normal vessel operations caused by increased deviation time associated with positioning our vessels to countries in which we
can undertake a crew rotation in compliance with such measures. We have had, and may continue to have, increased
expenses due to days in which our vessels are unable to earn revenue in order to deviate to certain ports on which we would
ordinarily not call during a typical voyage. We have incurred, and may continue to incur, additional expenses associated with
testing, personal protective equipment, quarantines, and travel expenses such as airfare costs in order to perform crew
rotations in the current environment. Delays in crew rotations have also caused us to incur additional costs related to crew
bonuses paid to retain the existing crew members on board and may continue to do so.
13
Our operations outside the United States expose us to global risks, such as political instability, terrorist or other
attacks, war and international hostilities which may affect the tanker industry and adversely affect our business.
We are an international company and primarily conduct of our operations outside of the United States, and our
business, results of operations, cash flows, financial condition and ability to pay dividends, if any, may be adversely affected
by changing economic, political and government conditions in the countries and regions where our vessels are employed or
registered. Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political
conflicts, including the current political instability in the Middle East and the South China Sea region and other geographic
countries and areas, geopolitical events such as terrorist or other attacks, war (or threatened war) or international hostilities,
such as those between the United States and North Korea, and Russia and Ukraine. Terrorist attacks, as well as the frequent
incidents of terrorism in the Middle East, and the continuing response of the United States and others to these attacks, as well
as the threat of future terrorist attacks around the world, continue to cause uncertainty in the world’s financial markets and
may affect our business, operating results and financial condition. Continuing conflicts and recent developments in Ukraine
and the Middle East may lead to additional acts of terrorism and armed conflict around the world, which may contribute to
further economic instability in the global financial markets.
The military conflict in Ukraine has had a significant direct and indirect impact on the trade of refined petroleum
products. This conflict has resulted in the United States, United Kingdom, and the European Union, among other countries,
implementing sanctions and executive orders against citizens, entities, and activities connected to Russia. Some of these
sanctions and executive orders target the Russian oil sector, including a prohibition on the import of oil and refined petroleum
products from Russia to the United States, United Kingdom or the European Union. We cannot foresee what other sanctions
or executive orders may arise that affect the trade of petroleum products. Furthermore, the conflict and ensuing international
response has disrupted the supply of Russian oil to the global market, and as a result, the price of oil and petroleum products
has risen significantly. We cannot predict what effect the higher price of oil and petroleum products will have on demand,
and it is possible that the current conflict in Ukraine could adversely affect our financial condition, results of operations, cash
flows, financial position and future performance.
As a result of the above, insurers have increased premiums and reduced or restricted coverage for losses caused by
terrorist acts generally. These uncertainties could also adversely affect our ability to obtain additional financing on terms
acceptable to us or at all. Any of these occurrences could have a material adverse impact on our operating results, revenues
and costs. Additionally, Brexit, or similar events in other jurisdictions, could impact global markets, including foreign
exchange and securities markets; any resulting changes in currency exchange rates, tariffs, treaties and other regulatory
matters could in turn adversely impact our business and operations.
Further, governments may turn and have turned to trade barriers to protect their domestic industries against foreign
imports, thereby depressing shipping demand. In particular, in recent years, leaders in the United States and China have
implemented certain increasingly protective trade measures, including tariffs, which have been somewhat mitigated by the
recent trade deal (first phase trade agreement) between the United States and China in early 2020, which, among other things,
requires China to purchase over $50 billion of energy products including crude oil. Protectionist developments, or the
perception that they may occur, may have a material adverse effect on global economic conditions, and may significantly
reduce global trade. Moreover, increasing trade protectionism may cause an increase in (a) the cost of goods exported from
regions globally, (b) the length of time required to transport goods and (c) the risks associated with exporting goods. Such
increases may significantly affect the quantity of goods to be shipped, shipping time schedules, voyage costs and other
associated costs, which could have an adverse impact on our charterers’ business, operating results and financial condition
and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of
their time charters with us. This could have a material adverse effect on our business, results of operations or financial
condition.
In the past, political instability has also resulted in attacks on vessels, mining of waterways and other efforts to
disrupt international shipping, particularly in the Arabian Gulf region and most recently in the Black Sea in connection with
the conflict between Russia and Ukraine. Acts of terrorism and piracy have also affected vessels trading in regions such as
the South China Sea, the Gulf of Guinea off the coast of West Africa and the Gulf of Aden off the coast of Somalia.
In February of 2022, President Biden and several European leaders also announced various economic sanctions
against Russia in connection with the aforementioned conflicts in the Ukraine region, which have continued to expand over
the past year and may adversely impact our business, given Russia’s role as a major global exporter of crude oil and natural
gas. The Russian Foreign Harmful Activities Sanctions program includes prohibitions on the import of certain Russian
energy products into the United States, including crude oil, petroleum, petroleum fuels, oils, liquefied natural gas and coal, as
well as prohibitions on all new investments in Russia by U.S. persons, among other restrictions. Furthermore, the United
14
States has also prohibited a variety of specified services related to the maritime transport of Russian Federation origin crude
oil and petroleum products, including trading/commodities brokering, financing, shipping, insurance (including reinsurance
and protection and indemnity), flagging, and customs brokering. These prohibitions took effect on December 5, 2022 with
respect to the maritime transport of crude oil and on February 5, 2023 with respect to the maritime transport of other
petroleum products. An exception exists to permit such services when the price of the seaborne Russian oil does not exceed
the relevant price cap; but implementation of this price exception relies on a recordkeeping and attestation process that allows
each party in the supply chain of seaborne Russian oil to demonstrate or confirm that oil has been purchased at or below the
price cap. Violations of the price cap policy or the risk that information, documentation, or attestations provided by parties in
the supply chain are later determined to be false may pose additional risks adversely affecting our business. Our business
could also be adversely impacted by trade tariffs, trade embargoes or other economic sanctions that limit trading activities by
the United States or other countries against countries in the Middle East, Asia or elsewhere as a result of terrorist attacks,
hostilities or diplomatic or political pressures, which may, among other things, impair or prevent certain of our counterparties
from performing their obligations under contracts with us or with the pools in which our vessels operate.
Any of these occurrences could have a material adverse impact on our future performance, results of operations,
cash flows, financial position and our ability to pay any cash distributions to our stockholders.
If our vessels call on ports located in countries or territories that are subject to sanctions or embargoes imposed by the
U.S. government, the European Union, the United Nations, or other governments, it could result in monetary fines or
other penalties imposed on us and may adversely affect our reputation and the market for our securities.
Although no vessels owned or operated by us called on ports located in countries or territories subject to country-wide or
territory-wide sanctions and/or embargoes imposed by the U.S. government or other authorities (“Sanctioned Jurisdictions”) during
2022 in violation of applicable sanctions laws, and we intend to maintain compliance with all applicable sanctions and embargo
laws and regulations, our vessels may call on ports in Sanctioned Jurisdictions in the future on charterers’ instructions and without
our consent. If such activities result in a sanctions violation, we could be subject to monetary fines, penalties, or other sanctions, and
our reputation and the market for our ordinary shares could be adversely affected. Although we endeavor to take precautions
reasonably designed to mitigate such activities, including relevant provisions in charter agreements forbidding the use of our vessels
in trade that would violate economic sanctions, there can be no assurance that we will maintain such compliance, particularly as the
scope of certain laws may be unclear and may be subject to changing interpretations.
The laws and regulations of these different jurisdictions vary in their application and do not all apply to the same
covered persons or proscribe the same activities. In addition, the sanctions and embargo laws and regulations of each
jurisdiction may be amended or strengthened over time to increase or reduce the restrictions they impose over time, and the
lists of persons and entities designated under these laws and regulations are amended frequently. Moreover, most sanctions
regimes provide that entities owned or controlled by the persons or entities designated in such lists are also subject to
sanctions. The U.S. and EU have enacted new sanctions programs in recent years. Additional countries or territories, as well
as additional persons or entities within or affiliated with those countries or territories, have been, and in the future, the target
of sanctions. Further, the U.S. has increased its focus on sanctions enforcement with respect to the shipping sector. Current or
future counterparties of ours may be affiliated with persons or entities that are or may be in the future the subject of sanctions
imposed by the U.S. administration, the EU, and/or other international bodies. In particular, the ongoing conflict in Ukraine
could result in the imposition of further economic sanctions by the United States and the European Union against Russia. If
we determine that such sanctions require us to terminate existing or future contracts to which we or our subsidiaries are party
or if we are found to be in violation of such applicable sanctions, our results of operations may be adversely affected or we
may suffer reputational harm. Currently, to the best of our knowledge, we do not believe that any of our existing
counterparties are affiliated with persons or entities that are subject to such sanctions.
As a result of Russia’s actions in Ukraine, the U.S., EU and United Kingdom, together with numerous other countries,
have imposed significant sanctions on persons and entities associated with Russia and Belarus, as well as comprehensive
sanctions on certain areas within the Donbas region of Ukraine, and such sanctions apply to entities owned or controlled by such
designated persons or entities. These sanctions adversely affect our ability to operate in the region and also restrict parties whose
cargo we may carry. Sanctions against Russia have also placed significant prohibitions on the maritime transportation of
seaborne Russian oil, the importation of certain Russian energy products and other goods, and new investments in the Russian
Federation. These sanctions further limit the scope of permissible operations and cargo we may carry.
Although we believe that we have been in compliance with all applicable sanctions and embargo laws and
regulations in 2022, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the
future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any future
violation of applicable sanctions and embargo laws and regulations could result in fines, penalties or other sanctions that
15
could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors
deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional investors may have
investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries
identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to
divest from, our securities may adversely affect the price at which our securities trade. 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 or territories. 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. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain
other activities, such as entering into charters with individuals or entities in countries or territories subject to U.S. sanctions
and embargo laws that are not controlled by the governments of those countries or territories, or engaging in operations
associated with those countries or territories pursuant to contracts with third parties that are unrelated to those countries or
territories or entities controlled by their governments. Investor perception of the value of our securities 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 or attach our vessels, which would have a negative effect on our cash flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo, lenders, 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 arresting 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 “associated” 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
business, financial condition, results of operations and available cash.
A government could requisition one or more of our vessels for title or hire. Requisition for title occurs when a
government takes control of a vessel and becomes the owner. Also, a government could requisition our vessels for hire.
Requisition for hire occurs when a government 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 efficiency, 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 operations. We may face competition from companies with more modern vessels
with more fuel efficient designs than our vessels, and if new tankers are built that are more efficient or more flexible or have
longer physical lives than the current generation vessels, competition from the current vessels and any more technologically
advanced vessels could adversely affect the amount of charterhire payments we receive for our vessels and the resale value of
our vessels could significantly decrease. Similarly, technologically advanced vessels are needed to comply with
environmental laws the investment in which along with the foregoing could have a material adverse effect on our results of
operations, charter hire payments and resale value of vessels. As a result, our available cash could be adversely affected.
Breakdowns in our information technology, including as a result of cyberattacks, may negatively impact our business,
including our ability to service customers, and may have a material adverse effect on our future performance, results
of operations, cash flows and financial position.
Our ability to operate our business and service our customers is dependent on the continued operation of our
information technology, or IT, systems, including our IT systems that relate to, among other things, the location, operation,
maintenance and employment of our vessels. Our IT systems may be compromised by a malicious third party, man-made or
natural events, or the intentional or inadvertent actions or inactions by our employees or third-party service providers. If our
16
IT systems experience a breakdown, including as a result of cyberattacks, our business information may be lost, destroyed,
disclosed, misappropriated, altered or accessed without consent, and our IT systems, or those of our service providers, may
be disrupted.
Cybercrime attacks could cause disclosure and destruction of business databases and could expose the Company to
extortion by making business data temporarily unreadable. As cyberattacks become increasingly sophisticated, and as tools
and resources become more readily available to malicious third parties, there can be no guarantee that our actions, security
measures and controls designed to prevent, detect or respond to intrusion, to limit access to data, to prevent destruction or
alteration of data or to limit the negative impact from such attacks, can provide absolute security against compromise.
Any breakdown in our IT systems, including breaches or other compromises of information security, whether or not
involving a cyberattack, may lead to lost revenues resulting from a loss in competitive advantage due to the unauthorized
disclosure, alteration, destruction or use of proprietary information, including intellectual property, the failure to retain or
attract customers, the disruption of critical business processes or information technology systems and the diversion of
management’s attention and resources. In addition, such breakdown could result in significant remediation costs, including
repairing system damage, engaging third-party experts, deploying additional personnel, training employees and compensation
or incentives offered to third parties whose data has been compromised. We may also be subject to legal claims or legal
proceedings, including regulatory investigations and actions, and the attendant legal fees as well as potential settlements,
judgments and fines.
Moreover, cyber-attacks against the Ukrainian government and other countries in the region have been reported in
connection with the recent conflict between Russia and Ukraine. To the extent such attacks have collateral effects on global
critical infrastructure or financial institutions, such developments could adversely affect our business, operating results and
financial condition. At this time, it is difficult to assess the likelihood of such threat and any potential impact on our business.
Even without actual breaches of information security, protection against increasingly sophisticated and prevalent
cyberattacks may result in significant future prevention, detection, response and management costs, or other costs, including
the deployment of additional cybersecurity technologies, engaging third-party experts, deploying additional personnel and
training employees. Further, as cyberthreats are continually evolving, our controls and procedures may become inadequate,
and we may be required to devote additional resources to modify or enhance our systems in the future. Such expenses could
have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Increasing scrutiny and changing expectations from investors, lenders and other market participants with respect to
our Environmental, Social and Governance (“ESG”) policies may impose additional costs on us or expose us to
additional risks.
Companies across all industries are facing increasing scrutiny relating to their ESG policies. Investor advocacy
groups, certain institutional investors, investment funds, lenders and other market participants are increasingly focused on
ESG practices especially as they relate to the environment health and safety, diversity, labor conditions and human rights in
recent years, and have focused on the implications and social cost of their investments.
In February 2021, the Acting Chair of the SEC issued a statement directing the Division of Corporation Finance to
enhance its focus on climate-related disclosure in public company filings and in March 2021 the SEC announced the creation
of a Climate and ESG Task Force in the Division of Enforcement (the “Task Force”). The Task Force’s goal is to develop
initiatives to proactively identify ESG-related misconduct consistent with increased investor reliance on climate and ESG-
related disclosure and investment. To implement the Task Force’s purpose, the SEC has taken several enforcement actions,
with the first enforcement action taking place in May 2022, and promulgated new rules. On March 21, 2022, the SEC
proposed that all public companies are to include extensive climate-related information in their SEC filings. On May 25,
2022, SEC proposed a second set of rules aiming to curb the practice of “greenwashing” (i.e., making unfounded claims
about one’s ESG efforts) and would add proposed amendments to rules and reporting forms that apply to registered
investment companies and advisers, advisers exempt from registration, and business development companies.
MEPC 75 introduced draft amendments to Annex VI which impose new regulations to reduce greenhouse gas
emissions from ships. These amendments introduce requirements to assess and measure the energy efficiency of all ships and
set the required attainment values, with the goal of reducing the carbon intensity of international shipping. To achieve a 40%
reduction in carbon emissions by 2023 compared to 2008, shipping companies are required to include: (i) a technical
requirement to reduce carbon intensity based on a new Energy Efficiency Existing Ship Index (“EEXI”), and (ii) operational
carbon intensity reduction requirements, based on a new operational carbon intensity indicator (“CII”). The EEXI is required
to be calculated for ships of 400 gross tonnage and above. The IMO and MEPC will calculated “required” EEXI levels based
on the vessel’s technical design, such as vessel type, date of creation, size and baseline. Additionally, an “attained” EEXI will
17
be calculated to determine the actual energy efficiency of the vessel. A vessel’s attained EEXI must be less than the vessel’s
required EEXI. Non-compliant vessels will have to upgrade their engine to continue to travel. With respect to the CII, the
draft amendments would require ships of 5,000 gross tonnage to document and verify their actual annual operational CII
achieved against a determined required annual operational CII. The vessel’s attained CII must be lower than its required CII.
Vessels that continually receive subpar CII ratings will be required to submit corrective action plans to ensure compliance.
MEPC 79 also adopted amendments to MARPOL Annex VI, Appendix IX to include the attained and required CII values,
the CII rating and attained EEXI for existing ships in the required information to be submitted to the IMO Ship Fuel Oil
Consumption Database. The amendments will enter into force on May 1, 2024.
Additionally, MEPC 75 proposed draft amendments requiring that, on or before January 1, 2023, all ships above 400
gross tonnage must have an approved Ship Energy Efficiency Management Plan, or SEEMP, on board. For ships above 5,000
gross tonnage, the SEEMP would need to include certain mandatory content. MEPC 75 also approved draft amendments to
MARPOL Annex I to prohibit the use and carriage for use as fuel of heavy fuel oil by ships in Arctic waters on and after July
1, 2024. The draft amendments introduced at MEPC 75 were adopted at the MEPC 76 session held on June 2021, entered
into force on November 1, 2022 and became effective on January 1, 2023.
The increased attention and activism related to ESG and similar matters may hinder access to capital, as investors
and lenders may decide to reallocate capital or to not commit capital as a result of their assessment of a company’s ESG
practices. Failure to adapt to or comply with evolving investor, lender or other industry shareholder expectations and
standards, or the perception of not responding appropriately to the growing concern for ESG issues, regardless of whether
there is a legal requirement to do so, may damage such a company’s reputation or stock price, resulting in direct or indirect
material and adverse effects on the company’s business and financial condition.
The increase in shareholder proposals submitted on environmental matters and, in particular, climate-related
proposals in recent years indicates that we may face increasing pressures from investors, lenders and other market
participants, who are increasingly focused on climate change, to prioritize sustainable energy practices, reduce our carbon
footprint and promote sustainability. As a result, we may be required to implement more stringent ESG procedures or
standards so that our existing and future investors and lenders remain invested in us and make further investments in us,
especially given the highly focused and specific trade of crude oil transportation in which we are engaged. If we do not meet
these standards, our business and/or our ability to access capital could be harmed.
Additionally, certain investors and lenders may exclude oil transport companies, such as us, from their investing
portfolios altogether due to ESG factors. These limitations in both the debt and equity capital markets may affect our ability
to grow as our plans for growth may include accessing the equity and debt capital markets. If those markets are unavailable,
or if we are unable to access alternative means of financing on acceptable terms, or at all, we may be unable to implement our
business strategy, which would have a material adverse effect on our financial condition and results of operations and impair
our ability to service our indebtedness. Further, it is likely that we will incur additional costs and require additional resources
to monitor, report and comply with wide ranging ESG requirements. Members of the investment community are also
increasing their focus on ESG disclosures, including disclosures related to greenhouse gases and climate change in the energy
industry in particular, and diversity and inclusion initiatives and governance standards among companies more generally. As
a result, we may face increasing pressure regarding our ESG disclosures. The occurrence of any of the foregoing could have a
material adverse effect on our business and financial condition.
Moreover, from time to time, in alignment with our sustainability priorities, we may establish and publicly announce
goals and commitments in respect of certain ESG items, such as shipping decarbonisation. While we may create and publish
voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures are
based on hypothetical expectations and assumptions that may or may not be representative of current or actual risks or events
or forecasts of expected risks or events, including the costs associated therewith. Such expectations and assumptions are
necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack
of an established single approach to identifying, measuring and reporting on many ESG matters. If we fail to achieve or
improperly report on our progress toward achieving our environmental goals and commitments, the resulting negative
publicity could adversely affect our reputation and/or our access to capital.
Finally, organizations that provide information to investors on corporate governance and related matters have
developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some
investors to inform their investment and voting decisions. Unfavorable ESG ratings and recent activism directed at shifting
funding away from companies with fossil fuel-related assets could lead to increased negative investor sentiment toward us
and our industry and to the diversion of investment to other, non-fossil fuel markets, which could have a negative impact on
our access to and costs of capital.
18
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 Scorpio Ship Management S.A.M., or SSM, our technical manager, 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 COMPANY
We may not realize all of the anticipated benefits of our investment in exhaust gas cleaning systems, or ‘scrubbers.’
We have retrofitted or expect to retrofit a substantial majority of our vessels with exhaust gas cleaning systems, or
scrubbers. The scrubbers enable our ships to use high sulfur fuel oil, which is less expensive than low sulfur fuel oil, in
certain parts of the world. As of March 23, 2023, we have installed scrubbers on 85 vessels (16 of which have recently been
sold), with an additional 12 vessels expected to be retrofitted with scrubbers. The total estimated investment for these
systems, including estimated installation costs is expected to be between $2.5 million and $3.0 million per vessel, which we
have partially financed or are financing through new loan facilities, increases in current loan facilities, and working capital.
While we have generated positive returns on these investments thus far, there is a risk that some or all of the future
expected benefits of our investment in scrubbers may fail to materialize. The realization of such benefits may be affected by a
number of factors, many of which are beyond our control, including but not limited to the pricing differential between high
and low sulfur fuel oil, the availability of low sulfur fuel oil in the ports in which we operate and the impact of changes in the
laws and regulations regulating the discharge and disposal of wash water.
Failure to secure financing, or to realize the anticipated benefits of our investment in scrubbers, could have a
material adverse impact on our business, results of operations, cash flows, financial condition and available cash.
We cannot assure you that our internal controls and procedures over financial reporting will be sufficient.
We are 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, or Sarbanes-Oxley. Section
404 of Sarbanes-Oxley requires that we evaluate and determine the effectiveness of our internal controls over financial
reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate. We dedicate a significant amount of time and resources to ensure compliance with these regulatory requirements.
We work with our legal, accounting and financial advisors to identify any areas in which changes should be made to our
financial and management control systems to manage our growth and our obligations as a public company. We will continue
to evaluate areas such as corporate governance, corporate control, internal audit, disclosure controls and procedures and
financial reporting and accounting systems. We will make changes in any of these and other areas, including our internal
control over financial reporting, which we believe are necessary. However, these and other measures we may take may not be
sufficient to allow us to satisfy our obligations as a public company on a timely and reliable basis. In addition, compliance
with reporting and other requirements applicable to public companies do create additional costs for us and will require the
time and attention of management. We may not be able to 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.
We may have difficulty managing our planned growth properly.
We have and may continue to grow by expanding our operations and adding to our fleet. Any future growth will
primarily depend upon a number of factors, some of which may not be within our control, including our ability to effectively
identify, purchase, finance, develop and integrate any tankers or businesses. Furthermore, the number of employees that
perform services for us and our current operating and financial systems may not be adequate if we expand the size of our
fleet, and we may not be able to effectively hire more employees or adequately improve those systems. Finally, acquisitions
may require additional equity issuances or debt issuances (with amortization payments), or entry into other financing
arrangements which could, among other things, reduce our available cash. If any such events occur, our business, financial
condition and results of operations may be adversely affected and the amount of cash available for distribution as dividends
to our shareholders may be reduced.
19
Growing any business by acquisition presents numerous risks such as undisclosed liabilities and obligations,
difficulty in obtaining 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 management 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 our future growth.
We operate secondhand vessels, which exposes us to increased operating costs which could adversely affect our
earnings and, as our fleet ages, the risks associated with older vessels could adversely affect our ability to obtain
profitable charters.
We have acquired and may continue to acquire secondhand vessels. While we rigorously inspect previously owned
or secondhand vessels prior to purchase, this does not normally provide us with the same knowledge about their condition
and cost of any required (or anticipated) repairs that we would have had if these vessels had been built for and operated
exclusively by us. Generally, we do not receive the benefit of warranties from the builders for the secondhand vessels that we
acquire. A secondhand vessel may also have conditions or defects that we were not aware of when we bought the vessel and
which may require us to incur costly repairs to the vessel. These repairs may require us to put a vessel into drydock, which
would reduce our fleet utilization and increase our operating costs. The market prices of secondhand vessels also tend to
fluctuate with changes in charter rates and the cost of new build vessels, and if we sell the vessels, the sales prices may not
equal and could be less than their carrying values at that time.
In general, the costs to maintain a vessel in good operating condition 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 desirable to charterers. Governmental
regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations, or the
addition of new equipment, to our vessels and may restrict the type of activities in which the vessels may engage. We cannot
assure you that, as our vessels age, market conditions will justify those expenditures or enable us to operate our vessels
profitably during the remainder of their useful lives. As a result, regulations and standards could have a material adverse
effect on our business, financial condition, results of operations, cash flows and ability to pay dividends.
An increase in operating costs would decrease earnings and available cash.
Under time charter agreements, the charterer is responsible for voyage costs and the owner is responsible for the
vessel operating costs. We currently have 14 vessels on long-term time charter-out agreements (with initial terms of one year
or greater). We have 21 vessels operating under bareboat charter-in agreements and the remaining vessels in our fleet are
either owned or financed through sale and leaseback arrangements. When our owned, lease financed vessels, or bareboat
chartered-in vessels are employed in one of the Scorpio Pools, the pool is responsible for voyage expenses and we are
responsible for vessel costs. As of March 23, 2023, 99 out of 113 of our owned, lease financed vessels and bareboat
chartered-in vessels were employed through the Scorpio Pools. When our vessels operate directly in the spot market, we are
responsible for both voyage expenses and vessel operating costs. Our vessel operating costs include the costs of crew, fuel
(for spot chartered vessels), provisions, deck and engine stores, insurance and maintenance and repairs, which depend on a
variety of factors, many of which are beyond our control. Further, if our vessels suffer damage, they may need to be repaired
at a 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. Please see “We will be required to make additional capital
expenditures should we determine to expand the number of vessels in our fleet and to maintain all our vessels.”
We will be required to make additional capital expenditures should we determine to expand the number of vessels in
our fleet and to maintain all our vessels.
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 any current or 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 have already made under such contracts, and we may be sued for, among other things, any outstanding balances we are
obligated to pay and other damages.
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 shipyard, and vessels are typically drydocked
every 30 - 60 months thereafter, not including any unexpected repairs. We estimate the cost to drydock a vessel to be between
$1 million and $2 million, excluding costs relating to compliance with applicable ballast water treatment requirements and
costs related to the installation of scrubbers, depending on the size and condition of the vessel and the location of drydocking.
20
If we do not generate or reserve enough cash flow from operations to pay for our capital expenditures, we may need
to incur additional indebtedness or enter into alternative financing arrangements, which may be on terms that are unfavorable
to us. If we are unable to fund our obligations or to secure financing, it would have a material adverse effect on our results of
operations.
Please also see “We are required to make significant investments in ballast water management which may have a
material adverse effect on our future performance, results of operations, and financial position”, “We may not realize all of
the anticipated benefits of our investment in exhaust gas cleaning systems, or ‘scrubbers’“ and “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 conditions, and our available cash.”
Declines in charter rates and other market deterioration may 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 indicate that the carrying amount of the assets might not be recovered. 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.
In accordance with IFRS, 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 market prices of
secondhand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. We did not record an
impairment charge during the years ended December 31, 2022 and 2021, though we did record an aggregate net loss of $66.5
million as a result of the sales of 18 vessels during the year ended December 31, 2022. Please see Notes 1 and 7 of our
Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F.
We cannot assure you that we will not recognize additional impairment losses in future years. Any 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 securities.
Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future, and as a result,
investors in our common stock could incur substantial losses.
Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future. Our stock
prices may experience rapid and substantial decreases or increases in the foreseeable future that are unrelated to our operating
performance or prospects. In addition, the COVID-19 pandemic has caused broad stock market and industry fluctuations. The
stock market in general and the market for shipping companies in particular have experienced extreme volatility that has
often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may
experience substantial losses on their investment in our common stock. The market price for our common stock may be
influenced by many factors, including the following:
•
•
•
•
•
•
•
•
•
investor reaction to our business strategy;
our continued compliance with the listing standards of the NYSE;
regulatory or legal developments in the United States and other countries, especially changes in laws or regulations
applicable to our industry;
variations in our financial results or those of companies that are perceived to be similar to us;
our ability or inability to raise additional capital and the terms on which we raise it;
declines in the market prices of stocks generally;
trading volume of our common stock;
sales of our common stock by us or our stockholders;
general economic, industry and market conditions; and
21
•
other events or factors, including those resulting from such events, or the prospect of such events, including war,
terrorism and other international conflicts, public health issues including health epidemics or pandemics, such as the
ongoing COVID-19 pandemic, adverse weather and climate conditions could disrupt our operations or result in
political or economic instability.
These broad market and industry factors may seriously harm the market price of our common stock, regardless of our
operating performance, and may be inconsistent with any improvements in actual or expected operating performance,
financial condition or other indicators of value. Since the stock price of our common stock has fluctuated in the past, has been
recently volatile and may be volatile in the future, investors in our common stock could incur substantial losses. In the past,
following periods of volatility in the market, securities class-action litigation has often been instituted against companies.
Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and
resources, which could materially and adversely affect our business, financial condition, results of operations and growth
prospects. There can be no guarantee that our stock price will remain at current prices.
Additionally, recently, securities of certain companies have experienced significant and extreme volatility in stock price
due short sellers of shares of common stock, known as a “short squeeze”. These short squeezes have caused extreme
volatility in those companies and in the market and have led to the price per share of those companies to trade at a
significantly inflated rate that is disconnected from the underlying value of the company. Many investors who have
purchased shares in those companies at an inflated rate face the risk of losing a significant portion of their original investment
as the price per share has declined steadily as interest in those stocks have abated. While we have no reason to believe our
shares would be the target of a short squeeze, there can be no assurance that we will not be in the future, and you may lose a
significant portion or all of your investment if you purchase our shares at a rate that is significantly disconnected from our
underlying value.
We are thus unable to predict when such instances of trading volatility will occur or how long such dynamics may last.
Therefore, we cannot assure you that you will be able to sell any of our common shares you may have purchased at a price
greater than or equal to its original purchase price, or that you will be able to sell our common shares at all.
The market values of our vessels may decrease, which could limit the amount of funds that we can borrow or trigger
certain financial covenants under our current or future debt facilities and we may incur a loss if we sell vessels
following a decline in their market value.
The fair market values of our vessels have generally experienced high volatility. The fair market values for tankers
declined significantly from historically high levels reached in 2008 and remained at relatively low levels through 2021 and
significantly improved in 2022. Such prices may fluctuate depending on a number of factors including, but not limited to, the
prevailing level of charter rates and day rates, general economic and market conditions affecting the international shipping
industry, types, sizes and ages of vessels, supply and demand for vessels, availability of or developments in other modes of
transportation, competition from other tanker companies, cost of newbuildings, applicable governmental or other regulations
and technological advances. In addition, as vessels grow older, they generally decline in value. If the fair market values of
our vessels decline, we may not be in compliance with certain covenants contained in our secured credit facilities, which may
result in an event of default. In such circumstances, we may not be able to refinance our debt, obtain additional financing or
make distributions to our shareholders and our subsidiaries may not be able to make distributions to us. The prepayment of
certain debt facilities may be necessary to cause us to maintain compliance with certain covenants in the event that the value
of the vessels falls below certain levels. If we are not able to comply with the covenants in our secured credit facilities, and
are unable to remedy the relevant breach, our lenders could accelerate our debt and foreclose on our fleet.
Additionally, if we sell one or more of our vessels at a time when vessel prices have fallen, the sale price may be
less than the vessel’s carrying value on our consolidated financial statements, resulting in a loss on sale or an impairment loss
being recognized, ultimately leading to a reduction in earnings. Furthermore, if vessel values fall significantly, this could
indicate a decrease in the recoverable amount for the vessel which may result in an impairment adjustment in our financial
statements, which could adversely affect our financial results and condition. Conversely, if vessel values are elevated at a
time when we wish to acquire additional vessels, the cost of acquisition may increase and this could adversely affect our
business, results of operations, cash flow and financial condition.
For further information, please see “Item 5. Operating and Financial Review and Prospects.”
22
If we are unable to operate our vessels profitably, we may be unsuccessful in competing in the highly competitive
international 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. Demand for transportation of oil and oil products has declined, and
could continue to decline, 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 charterers. We will have to compete with other tanker
owners, including 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 geographic 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 us.
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
condition, and available cash.
If we do not set aside funds or are unable to borrow or raise funds, including through equity issuances, for vessel
replacement, we will be unable to replace the vessels in our fleet upon the expiration of their remaining useful lives, which
we expect to occur between 2037 and 2045, depending on the vessel. Our cash flows and income are dependent on the
revenues 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 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 additional 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 operations and our ability to implement our business strategy.
We cannot guarantee that our Board of Directors will declare dividends.
Our Board of Directors may, in its sole discretion, from time to time, declare and pay cash dividends in accordance
with our organizational documents and applicable law. Our Board of Directors makes determinations regarding the payment
of dividends in its sole discretion, and there is no guarantee that we will continue to pay dividends in the future. The timing
and amount of any dividends declared will depend on, among other things, our earnings, financial condition and cash
requirements and availability, our ability to obtain debt and equity financing on acceptable terms as contemplated by our
growth strategy. In addition, other external factors, such as our lenders imposing restrictions on our ability to pay dividends
under the terms of future loan facilities we may enter into, may limit our ability to pay dividends.
In addition, the markets in which we operate our vessels are volatile and we cannot predict with certainty the amount
of cash, if any, that will be available for distribution as dividends in any period. We may also incur expenses or liabilities or
be subject to other circumstances in the future that reduce or eliminate the amount of cash that we have available for
distribution as dividends, including as a result of the risks described herein. If additional financing is not available to us on
acceptable terms or at all, our Board of Directors may determine to finance or refinance asset acquisitions with cash from
operations, which would reduce the amount of any cash available for the payment of dividends. Please see “Item 8. Financial
Information - A. Consolidated Statements and Other Financial Information - Dividend Policy.”
United States tax authorities could treat us as a “passive foreign 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 investment company,” or PFIC, for United States federal
income tax purposes 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
23
types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, and gains from the sale
or exchange of investment property 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 constitute “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 distributions
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 or
voyage 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 connection
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, consisting 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 taxable 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 “Item 10. Additional
Information - E. Taxation - Passive Foreign Investment Company Status and Significant Tax Consequences” for a more
comprehensive discussion 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 corporation 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 promulgated 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 circumstances 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 common 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 do not exist sufficient 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 subsidiaries could be subject for such year to an effective 2% United States federal income tax on the shipping income
we or they derive during such year which is attributable to the transport of cargoes to or from the United States. The
imposition of this tax would have a negative effect on our business and would decrease our earnings available for distribution
to our shareholders.
24
We are subject to certain risks with respect to our counterparties on contracts, including our vessel employment
arrangements, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively
impact our results of operations and cash flows.
We have entered into, and may enter into in the future, various contracts that are material to the operation of our
business, including, without limitation, charter and pooling agreements relating to the employment of our vessels,
newbuilding contracts, debt and lease financing facilities, and other agreements. Such agreements subject us to counterparty
risks. The ability and willingness of each of our counterparties 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 or political
conditions, the condition of the maritime and offshore industries, and the overall financial condition of the counterparty.
Should a counterparty fail to honor its obligations under any such contract or attempt to renegotiate our agreements, we could
sustain significant losses which could have a material adverse effect on our business, financial condition, results of
operations, cash flows, ability to pay dividends to holders of our common shares in the amounts anticipated or at all and
compliance with covenants in our secured loan agreements.
In addition, with respect to our charter arrangements, in depressed market conditions, our charterers may no longer
need a vessel that is then under charter or may be able to obtain a comparable vessel at lower rates. As a result, charterers
may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts.
Furthermore, it is possible that parties with whom we have charter contracts may be impacted by events in Russia and
Ukraine or the resulting sanctions. If our charterers fail to meet their obligations to us or attempt to renegotiate our charter
agreements, 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. As a result, we could sustain 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 on our common shares and interest on our debt securities and comply with covenants in our credit facilities.
Although we assess the creditworthiness of our counterparties, a prolonged period of difficult industry conditions
could lead to changes in a counterparty’s liquidity and increase our exposure to credit risk and bad debts. In addition, we may
offer extended payment terms to our customers in order to secure contracts., which may lead to more frequent collection
issues and adversely affect our financial results and liquidity.
Our insurance may not be adequate to cover our losses that may result from our operations due to the inherent
operational 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 includes 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 material adverse effect on us. Additionally, our insurers may refuse to 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 regulatory organizations. Any significant uninsured or under-insured loss or liability
could have a material adverse effect on our business, results of operations, cash flows and financial condition and our
available cash. In addition, we may not be able to obtain adequate insurance coverage at reasonable rates in the future during
adverse insurance market conditions.
Changes in the insurance markets attributable to terrorist attacks may also make certain types of insurance more
difficult for us to obtain due to increased premiums or reduced or restricted coverage for losses caused by terrorist acts
generally.
Because we obtain some of our insurance through protection and indemnity associations, which result in significant
expenses to us, we may be required to make additional premium 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, available cash and ability to pay dividends.
25
Failure to comply with the U.S. Foreign Corrupt Practices Act could result in fines, criminal penalties, contract
terminations and an adverse effect on our business.
We may operate in a number of countries throughout the world, including countries known to have a reputation for
corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code
of conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or as
amended (the “FCPA”). We are subject, however, to the risk that we, our affiliated entities or our or their respective officers,
directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the
FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties and curtailment of
operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In
addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting,
investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our
senior management. Though we have implemented monitoring procedures and required policies, guidelines, contractual
terms and audits, these measures may not prevent or detect failures by our agents or intermediaries regarding compliance.
We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate
law and, as a result, shareholders may have fewer rights and protections under Marshall Islands law than under a
typical jurisdiction in the United States.
Our corporate affairs are governed by our articles of incorporation and bylaws and by the Marshall Islands Business
Corporations Act, or the BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in
the United States. However, there have been few judicial cases in the Republic of the Marshall Islands interpreting the BCA. The
rights and fiduciary responsibilities of directors under the law of the Republic of the Marshall Islands are not as clearly
established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain
United States jurisdictions. Shareholder rights may differ as well. While the BCA does specifically incorporate the non-statutory
law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, our public
shareholders may have more difficulty in protecting their interests in the face of actions by management, directors or controlling
shareholders than would shareholders of a corporation incorporated in a United States jurisdiction.
As a Marshall Islands corporation with our headquarters in Monaco, and with a majority of our subsidiaries being
Marshall Islands entities and also having subsidiaries in other offshore jurisdictions, our operations may be subject to
economic substance requirements, which could impact our business.
We are a Marshall Islands corporation with our headquarters in Monaco. A majority of our subsidiaries are Marshall
Islands entities. These jurisdictions have enacted economic substance laws and regulations with which we may be obligated
to comply. We believe that we and our subsidiaries are compliant with Marshall Islands economic substance requirements.
However, if there were a change in the requirements or interpretation thereof, or if there were an unexpected change to our
operations, any such change could result in noncompliance with the economic substance legislation and related fines or other
penalties, increased monitoring and audits, and dissolution of the non-compliant entity, which could have an adverse effect
on our business, financial condition or operating results.
EU Finance ministers rate jurisdictions for tax rates and tax transparency, governance and real economic activity.
Countries that are viewed by such finance ministers as not adequately cooperating, including by not implementing sufficient
standards in respect of the foregoing, may be put on a “grey list” or a “blacklist”. As of December 31, 2022, Monaco and the
Marshall Islands remained “white-listed” by the EU. However, on February 14, 2023, the Marshall Islands was placed by the
EU on its list of non-cooperative jurisdictions for tax purposes, with the EU listing the Marshall Islands, among others, as
“facilitat[ing] offshore structures and arrangements aimed at attracting profits without real economic substance.” At present,
the impact of being included on the list of non-cooperative jurisdictions for tax purposes is unclear. Although we understand
that the Marshall Islands is committed to full cooperation with the EU and expects to be moved back to the “white list” in
October 2023, subject to review by the EU Council, there is no assurance that such a reclassification will occur.
If the Marshall Islands is not removed from the list and sanctions or other financial, tax or regulatory measures were
applied by European Member States to countries on the list or further economic substance requirements were imposed by the
Marshall Islands, our business could be harmed.
EU member states have agreed upon a set of measures, which they can choose to apply against grey- or blacklisted
countries, including increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse
provisions. The European Commission has stated it will continue to support member states’ efforts to develop a more
coordinated approach to sanctions for the listed countries. EU legislation prohibits EU funds from being channeled or
transited through entities in countries on the blacklist. Other jurisdictions in which we operate could be put on the blacklist in
the future.
26
It may be difficult to serve process on or enforce a United States judgment against us, our officers and our directors
because we are a foreign corporation.
We are a corporation formed in the Republic of the Marshall Islands, and some of our directors and officers and
certain of the experts named in this report are located outside the United States. In addition, a substantial portion of our assets
and the assets of our directors, officers and experts are located outside of the United States. As a result, you may have
difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty
enforcing, both in and outside the United States, judgments you may obtain in U.S. courts against us or any of these persons
in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. Furthermore,
there is substantial doubt that the courts of the Republic of the Marshall Islands or of the non-U.S. jurisdictions in which our
offices are located would enter judgments in original actions brought in those courts predicated on U.S. federal or state
securities laws.
The international nature of our operations may make the outcome of any bankruptcy proceedings difficult to predict.
We are incorporated under the laws of the Republic of the Marshall Islands and we conduct operations in countries
around the world. Consequently, in the event of any bankruptcy, insolvency, liquidation, dissolution, reorganization or
similar proceeding involving us or any of our subsidiaries, bankruptcy laws other than those of the United States could apply.
If we become a debtor under U.S. bankruptcy law, bankruptcy courts in the United States may seek to assert jurisdiction over
all of our assets, wherever located, including property situated in other countries. There can be no assurance, however, that
we would become a debtor in the United States, or that a U.S. bankruptcy court would be entitled to, or accept, jurisdiction
over such a bankruptcy case, or that courts in other countries that have jurisdiction over us and our operations would
recognize a U.S. bankruptcy court’s jurisdiction if any other bankruptcy court would determine it had jurisdiction.
RISKS RELATED TO OUR RELATIONSHIP WITH SCORPIO AND ITS AFFILIATES
We are dependent on our managers and their ability to hire and retain key personnel, and there may be conflicts of
interest between us and our managers that may not be resolved in our favor.
Our success depends to a significant extent upon the abilities and efforts of our technical manager, SSM, our
commercial manager, Scorpio Commercial Management S.A.M., or 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.
In addition, difficulty in hiring and retaining personnel could adversely affect our results of operations. We do not
maintain “key man” life insurance on any of our officers.
Our technical and commercial managers are members of Scorpio, which is owned and controlled by the Lolli-Ghetti
family, of which our founder, Chairman and Chief Executive Officer, Mr. Emanuele Lauro, and our Vice President, Mr.
Filippo Lauro, are members. In addition, all of our executive officers serve in similar management positions in certain other
companies within Scorpio. These relationships may create conflicts of interest in matters involving or affecting us and our
customers, including in the chartering, purchase, sale and operation of the vessels in our fleet versus vessels managed by
other members of Scorpio. Conflicts of interest may arise between us, on the one hand, and our commercial and technical
managers, on the other hand. As a result of these conflicts, our commercial and technical managers, who have limited
contractual duties, may favor their own or other owner’s interests over our interests. These conflicts may have unfavorable
results for us.
Our founder, Chairman and Chief Executive Officer, and Vice President have affiliations with our administrator and
commercial and technical managers which may create conflicts of interest.
Emanuele Lauro, our founder, Chairman and Chief Executive Officer, and Filippo Lauro, our Vice President, are
members of the Lolli-Ghetti family which owns and controls Scorpio. Annalisa Lolli-Ghetti is the majority owner of Scorpio
(of which our administrator and commercial and technical managers are members) and beneficially owns approximately
6.3% of our outstanding common shares. These responsibilities and relationships could create conflicts of interest between
us, on the one hand, and our administrator and/or 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 technical 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 the date of this
annual report, our commercial and technical managers provide commercial and technical management services to
27
approximately 63 and 34 vessels respectively, other than the vessels in our fleet, that are owned, operated or managed by
entities affiliated with Messrs. Lauro, and such entities may operate or acquire additional vessels that will compete with our
vessels in the future. Such conflicts may have an adverse effect on our results of operations. In addition, certain members of
Scorpio may benefit from economies of scale all of which may not be passed along to us.
Certain of our officers do not devote all of their time to our business, which may hinder our ability to operate
successfully.
Our Chief Executive Officer, President, Chief Operating Officer, Vice President and Chief Financial Officer
participate in business activities not associated with us, some of whom serve as members of the management teams of Eneti
Inc. (NYSE: NETI) (formerly Scorpio Bulkers Inc.), or Eneti, and as a result, they may devote less time to us than if they
were not engaged in other business activities and may owe fiduciary duties to the shareholders of both us as well as
shareholders of other companies with which they may be affiliated, including Eneti and other companies within Scorpio. This
may create conflicts of interest in matters involving or affecting us and our customers and it is not certain that any of these
conflicts of interest will be resolved in our favor. 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 manager. 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 privately 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 or no 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.
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.
As of December 31, 2022, we had approximately $2.0 billion in interest-bearing debt or obligations due under
leasing arrangements. Borrowings under our debt facilities and lease financing arrangements require us to dedicate a part of
our cash flow from operations to the payment of interest and principal on our debt. These payments limit funds available for
working capital, capital expenditures and other purposes, including further equity or debt financing in the future. Amounts
borrowed under our secured debt facilities and certain of our lease financing arrangements bear interest at variable rates. As
described in Item 11 - Quantitative and Qualitative Disclosures About Market Risk, 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 debt facilities, our lenders
could elect to declare that debt, together with accrued interest and fees, to be immediately 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 debt facilities.
Our debt and lease financing agreements contain restrictive and financial covenants which may limit our ability to
conduct certain activities, and further, we may be unable to comply with such covenants, which could result in a
default under the terms of such agreements.
Our debt and lease financing agreements impose operating and financial restrictions on us. These restrictions may
limit our ability, or the ability of our subsidiaries party thereto, to, among other things:
•
pay dividends and make capital expenditures if we do not repay amounts drawn under our debt facilities or if there is
another default under our debt facilities;
28
•
•
•
incur additional indebtedness, including the issuance of guarantees;
create liens on our assets;
change the flag, class or management of our vessels or terminate 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 our shareholders if we determine to do so in the future, finance our future operations
or capital requirements, make acquisitions or pursue business opportunities.
In addition, the terms and conditions of certain of our borrowings require us to maintain specified financial ratios
and satisfy financial covenants, including ratios and covenants based on the market value of the vessels in our fleet. Should
our charter rates or vessel values materially decline in the future, we may seek to obtain waivers or amendments from our
lenders with respect to such financial ratios and covenants, or we may be required to take action to reduce our debt or to act
in a manner contrary to our business objectives to meet any such financial ratios and satisfy any such financial covenants.
Events beyond our control, including changes in the economic and business conditions in the shipping markets in which we
operate, may affect our ability to comply with these covenants. We cannot assure you that we will meet these ratios or satisfy
these covenants or that our lenders will waive any failure to do so or amend these requirements. A breach of any of the
covenants in, or our inability to maintain the required financial ratios under, our credit facilities would prevent us from
borrowing additional money under our credit facilities or lease financing arrangements and could result in a default under our
credit facilities. If a default occurs under our credit facilities or lease financing arrangements, the counterparties could elect to
declare the outstanding debt, together with accrued interest and other fees, to be immediately due and payable and foreclose
on the collateral securing that debt, which could constitute all or substantially all of our assets. Moreover, in connection with
any waivers or amendments to our credit facilities or lease financing arrangements that we may obtain, our lenders may
impose additional operating and financial restrictions on us or modify the terms of our existing credit facilities or lease
financing arrangements. These restrictions may further restrict our ability to, among other things, pay dividends, repurchase
our common shares, make capital expenditures, or incur additional indebtedness.
Furthermore, our debt and lease financing agreements contain cross-default provisions that may be triggered if we
default under the terms of any one of our financing agreements. In the event of default by us under one of our debt agreements,
the lenders under our other debt or lease financing agreements could determine that we are in default under such other financing
agreements. Such cross defaults could result in the acceleration of the maturity of such indebtedness under these agreements and
the lenders thereunder may foreclose upon any collateral securing that indebtedness, including our vessels, even if we were to
subsequently cure such default. In addition, our credit facilities and lease financing arrangements contain subjective acceleration
clauses under which the debt could become due and payable in the event of a material adverse change in our business. In the
event of such acceleration or foreclosure, we might not have sufficient funds or other assets to satisfy all of our obligations,
which would have a material adverse effect on our business, results of operations and financial condition.
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 BCA on July 1, 2009.
We provide seaborne transportation of refined petroleum products worldwide. We began our operations in October 2009 with
three vessels. In April 2010, we completed our initial public offering, and our common stock commenced trading on the New
York Stock Exchange, or NYSE, under the symbol “STNG.” We have since expanded, and as of March 23, 2023, our fleet
consisted of 113 wholly owned, leased financed or bareboat chartered-in tankers (39 LR2, 60 MR and 14 Handymax) with a
weighted average age of approximately 7.2 years.
Our principal executive offices are located at 9, Boulevard Charles III, Monaco 98000 and our telephone number at
that address is +377-9798-5716. The SEC maintains an Internet site that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC. The address of the SEC’s Internet site is
http://www.sec.gov. The address of the Company’s Internet site is http://www.scorpiotankers.com. None of the information
contained on these websites is incorporated into or forms a part of this annual report.
29
Fleet Development
For information regarding the development of our fleet, including vessel acquisitions and newbuilding deliveries,
please see “Item 5. Operating and Financial Review and Prospects-B. Liquidity and Capital Resources-Capital Expenditures-
Vessel acquisitions and payments for vessels under construction.”
Recent Developments
Time charter-out
In March 2023, we entered into a time charter-out agreement on an LR2 tanker, STI Jermyn, for three years at an
average rate of $40,000 per day. This charter is expected to commence in April 2023.
Declaration of dividend
On February 15, 2023, our Board of Directors declared a quarterly cash dividend of $0.20 per common share, which
will be paid on March 31, 2023 to all shareholders of record as of March 7, 2023.
Securities repurchase program
From January 1, 2023 through the February 15, 2023 we repurchased an aggregate of 1,891,303 of our common
shares in the open market at an average price of $50.27 per share.
On February 15, 2023, our Board of Directors authorized a new securities repurchase program (the “2023 Securities
Repurchase Program”) to purchase up to an aggregate of $250 million of our securities which, in addition to our common
shares also currently consist of our Senior Unsecured Notes Due 2025. The aforementioned repurchases of common stock
were executed under the previous securities repurchase program, which was terminated and any future repurchases of our
securities will be made under the 2023 Securities Repurchase Program.
From February 16 through the date of this report, we have repurchased an aggregate of 332,659 of our common
shares in the open market at an average price of $53.49 per share under the 2023 Securities Repurchase Program.
As of the date of this report, there is $232.2 million available under the 2023 Securities Repurchase Program.
AVIC Lease Financing
In January 2023, we exercised the purchase options on STI Brooklyn, STI Rambla, STI Rose and STI Ville on the
AVIC Lease Financing and repaid the aggregate outstanding lease obligation of $77.8 million as part of these transactions.
2021 CSSC Lease Financing
In March 2023, we gave notices to exercise the purchase options on STI Grace and STI Jermyn which are financed
on the 2021 CSSC Lease Financing. These purchases are expected to occur in May 2023 and the aggregate outstanding
indebtedness on these vessels is expected to be $46.9 million at the date of purchase.
Ocean Yield Lease Financing
In March 2023, we exercised the purchase option on STI Sanctity on the Ocean Yield Lease Financing for a
purchase option price $27.8 million.
IFRS 16 - Leases - $670.0 Million
In March 2023, we gave notices to exercise the purchase options on STI Lavender, STI Magnetic, STI Marshall and
STI Miracle which are financed on the IFRS 16 - Leases - $670.0 Million lease financing. These purchases are expected to
occur in May 2023 and the aggregate outstanding indebtedness on these vessels is expected to be $102.9 million at the date of
purchase.
2023 $225.0 Million Credit Facility
In January 2023, we executed a senior secured credit facility for up to $225.0 million with a group of European
financial institutions (the “2023 $225.0 Million Credit Facility”). In February 2023, we drew down $184.9 million from this
facility and 11 product tankers (10 MRs and one LR2) were collateralized under this facility as part of the initial drawdown.
The remaining amount available is expected to finance two product tankers (one MR and one LR2) and is expected to be
drawn before the end of the first quarter of 2023.
30
The credit facility has a final maturity of five years from the signing date and bears interest at SOFR plus a margin
of 1.975% per annum. The borrowings for the MRs are expected to be repaid in equal quarterly installments of $0.63 million
per vessel for the first two years, and $0.33 million per vessel for the remaining term of the loan. The borrowings for the
LR2s are expected to be repaid in equal quarterly installments of $0.8 million per vessel for the first two years, and $0.45
million per vessel for the remaining term of the loan.
Our 2023 $225.0 Million Credit Facility includes financial covenants that require us to maintain:
• The ratio of net debt to total capitalization no greater than 0.65 to 1.00.
• Consolidated tangible net worth of no less than $1.5 billion.
• Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and
$250,000 per each time chartered-in vessel.
• The aggregate of the fair market value of the vessels provided as collateral under the facility shall at all times be
no less than 140% of the then aggregate outstanding principal amount of the loans outstanding
2023 $49.1 Million Credit Facility
In February 2023, we executed a senior secured credit facility for up to $49.1 million with a North American
financial institution (the “2023 $49.1 Million Credit Facility”). In March 2023, we drew down $49.1 million from this facility
to finance two LR2 product tankers, (STI Rose and STI Rambla). The credit facility has a final maturity of five years from the
drawdown date and bears interest at SOFR plus a margin of 1.90% per annum. The borrowing is expected to be repaid in 20
equal quarterly installments of $1.2 million, in aggregate, and a balloon payment upon maturity.
Our 2023 $49.1 Million Credit Facility includes financial covenants that require us to maintain:
• The ratio of net debt to total capitalization no greater than 0.65 to 1.00.
• Consolidated tangible net worth of no less than $1.6 billion plus (i) 25% of the cumulative positive net income
(on a consolidated basis) for each fiscal quarter commencing on or after October 1, 2022 and (ii) 50% of the net
proceeds of new equity issues occurring after December 31, 2022.
• Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and
$250,000 per each time chartered-in vessel.
• The aggregate of the fair market value of the vessels provided as collateral under the facility shall at all times be
no less than 150% of the then aggregate outstanding principal amount of the loans outstanding
B. Business Overview
We provide seaborne transportation of refined petroleum products worldwide. As of March 23, 2023, our fleet
consisted of 113 wholly owned, leased financed or bareboat chartered-in product tankers (39 LR2, 60 MR and 14 Handymax)
with a weighted average age of approximately 7.2 years, which we refer to collectively as our Operating Fleet.
The following table sets forth certain information regarding our Operating Fleet as of March 23, 2023:
31
Vessel Name
Owned, sale leaseback or
bareboat chartered-in vessels
STI Brixton
STI Comandante
STI Pimlico
STI Hackney
STI Acton
STI Fulham
STI Camden
STI Battersea
STI Wembley
STI Finchley
STI Clapham
STI Poplar
STI Hammersmith
STI Rotherhithe
STI Amber
STI Topaz
STI Ruby
STI Garnet
STI Onyx
STI Ville
STI Duchessa
STI Opera
STI Texas City
STI Meraux
STI San Antonio
STI Venere
STI Virtus
STI Aqua
STI Dama
STI Regina
STI St. Charles
STI Mayfair
STI Yorkville
STI Milwaukee
STI Battery
STI Soho
STI Memphis
STI Tribeca
STI Gramercy
STI Bronx
STI Pontiac
STI Manhattan
STI Queens
STI Osceola
STI Notting Hill
STI Seneca
STI Westminster
STI Brooklyn
STI Black Hawk
STI Galata
STI Bosphorus
STI Leblon
STI La Boca
STI San Telmo
STI Donald C Trauscht
STI Esles II
STI Jardins
STI Magic
STI Mystery
STI Marvel
STI Magnetic
STI Millennia
STI Magister
STI Mythic
STI Marshall
STI Modest
STI Maverick
STI Miracle
STI Maestro
STI Mighty
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
Year Built
DWT
Ice class
Employment
Vessel type
Scrubber
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2015
2015
2012
2012
2012
2012
2012
2013
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2017
2017
2017
2017
2017
2017
2018
2018
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2020
2020
2020
1A
1A
1A
1A
1A
1A
1A
1A
1A
1A
1A
1A
1A
1A
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1B
—
1B
—
—
—
—
—
—
1B
1B
1B
1B
—
—
—
—
—
—
—
—
—
—
—
—
—
38,734
38,734
38,734
38,734
38,734
38,734
38,734
38,734
38,734
38,734
38,734
38,734
38,734
38,734
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,687
49,990
49,687
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
49,990
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
32
SHTP(1)
SHTP(1)
SHTP(1)
SHTP(1)
SHTP(1)
SHTP(1)
SHTP(1)
SHTP(1)
SHTP(1)
SHTP(1)
SHTP(1)
SHTP(1)
SHTP(1)
SHTP(1)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
Time Charter(4)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
Time Charter(5)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
SMRP(2)
Time Charter(6)
SMRP(2)
SMRP(2)
SMRP(2)
Time Charter(7)
SMRP(2)
SMRP(2)
Time Charter(8)
SMRP(2)
SMRP(2)
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
Handymax
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Yes
Yes
Not Yet Installed
Yes
Yes
Not Yet Installed
Not Yet Installed
Not Yet Installed
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Not Yet Installed
Yes
Yes
Not Yet Installed
Not Yet Installed
Not Yet Installed
Not Yet Installed
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
Vessel Name
STI Maximus
STI Elysees
STI Madison
STI Park
STI Orchard
STI Sloane
STI Broadway
STI Condotti
STI Rose
STI Veneto
STI Alexis
STI Winnie
STI Oxford
STI Lauren
STI Connaught
STI Spiga
STI Kingsway
STI Solidarity
STI Lombard
STI Grace
STI Jermyn
STI Sanctity
STI Solace
STI Stability
STI Steadfast
STI Supreme
STI Symphony
STI Gallantry
STI Goal
STI Guard
STI Guide
STI Selatar
STI Rambla
STI Gauntlet
STI Gladiator
STI Gratitude
STI Lobelia
STI Lotus
STI Lily
STI Lavender
STI Beryl
STI Le Rocher
STI Larvotto
Total owned, sale leaseback and
bareboat charter-in fleet DWT
Year Built
2020
2014
2014
2014
2014
2014
2014
2014
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2017
2017
2017
2017
2017
2019
2019
2019
2019
2013
2013
2013
DWT
50,000
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
109,999
113,000
113,000
113,000
113,000
109,999
109,999
113,000
113,000
113,000
110,000
110,000
110,000
110,000
49,990
49,990
49,990
7,852,182
Ice class
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Employment
SMRP(2)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
Time Charter(9)
Time Charter(10)
SLR2P(3)(17)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
SLR2P(3)
Time Charter(11)
Time Charter(12)
Time Charter(13)
SLR2P(3)
SLR2P(3)
Time Charter(14)
Time Charter(13)
Time Charter(15)
SLR2P(3)
SLR2P(3)
SLR2P(3)
Time Charter(16)
SMRP(2)
SMRP(2)
SMRP(2)
Vessel type
MR
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
MR
MR
MR
Scrubber
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Not Yet Installed
Not Yet Installed
Not Yet Installed
(1) This vessel operates in, or is expected to operate in, the Scorpio Handymax Tanker Pool, or SHTP. SHTP is a Scorpio Pool and is operated by Scorpio
Commercial Management S.A.M. (SCM). SHTP and SCM are related parties to the Company.
(2) This vessel operates in, or is expected to operate in, the Scorpio MR Pool, or SMRP. SMRP is a Scorpio Pool and is operated by SCM. SMRP and SCM
are related parties to the Company.
(3) This vessel operates in, or is expected to operate in, the Scorpio LR2 Pool, or SLR2P. SLR2P is a Scorpio Pool and is operated by SCM. SLR2P and
SCM are related parties to the Company.
(4) This vessel commenced a time charter in October 2022 for three years at an average rate of $25,000 per day.
(5) This vessel commenced a time charter in June 2022 for three years at an average rate of $21,000 per day. The daily rate is the average rate over the three
year period, which is payable during the first six months at $30,000 per day, the next 6 months are payable at $20,000 per day, and years two and three
are payable at $19,000 per day. The charterers have the option to extend the term of this agreement for an additional year at $22,500 per day. If this
option is declared, the charterers have the option to further extend the term of this agreement for an additional year at $24,000 per day.
(6) This vessel commenced a time charter in July 2022 for three years at an average rate of $23,000 per day. The daily rate is the average rate over the three
year period, which is payable in years one, two, and three at $30,000 per day, $20,000 per day, and $19,000 per day, respectively. The charterers have
the option to extend the term of this agreement for an additional year at $24,500 per day. If this option is declared, the charterers have the option to
further extend the term of this agreement for an additional year at $26,000 per day.
(7) This vessel commenced a time charter in July 2022 for three years at a rate of $23,000 per day. The charterers have the option to extend the term of this
agreement for an additional year at $24,000 per day. If this option is declared, the charterers have the option to further extend the term of this agreement
for an additional year at $25,000 per day. If this second option is declared, the charterers have the option to further extend the term of this agreement for
an additional year at $26,000 per day.
33
(8) This vessel commenced a time charter in August 2022 for three years at a rate of $21,000 per day. The daily rate is the average rate over the three year
period, which is payable during the first six months at $30,000 per day, the next 6 months are payable at $20,000 per day, and years two and three are
payable at $19,000 per day. The charterers have the option to extend the term of this agreement for an additional year at $22,500 per day. If this option is
declared, the charterers have the option to further extend the term of this agreement for an additional year at $24,000 per day.
(9) This vessel commenced a time charter in September 2022 for three years at an average rate of $32,750 per day. The charterer has the option to extend
the term of this agreement for an additional year at $34,750 per day. If this option is declared, the charterer has the option to further extend the term of
this agreement for an additional year at $36,750 per day.
(10) This vessel commenced a time charter in December 2022 for three years at an average rate of $37,500 per day. The daily rate is the average rate over the
three year period, which is payable during the first six months at $47,000 per day, the next 6 months are payable at $28,000 per day, and years two and
three are payable at $37,500 per day.
(11) This vessel commenced a time charter in August 2022 for three years at a rate of $30,000 per day. The charterers have the option to extend the term of
this agreement for an additional year at $32,000 per day. If this option is declared, the charterers have the option to further extend the term of this
agreement for an additional year at $34,000 per day.
(12) This vessel commenced a time charter in July 2022 for five years at a rate of $28,000 per day. The charterers have the option to convert the term of this
agreement to three years at $30,000 per day, which must be declared within 30 months after the delivery date.
(13) This vessel commenced a time charter in July 2022 for three years at an average rate of $28,000 per day. The charterers have the option to extend the
term of this agreement for an additional year at $31,000 per day. If this option is declared, the charterers have the option to further extend the term of
this agreement for an additional year at $33,000 per day.
(14) This vessel commenced a time charter in November 2022 for three years at an average rate of $32,750 per day.
(15) This vessel commenced a time charter in May 2022 for three years at an average rate of $28,000 per day. The charterers have the option to extend the
term of this agreement for an additional year at $31,000 per day. If this option is declared, the charterers have the option to further extend the term of
this agreement for an additional year at $33,000 per day.
(16) This vessel commenced a time charter in December 2022 for three years at an average rate of $35,000 per day.
(17) This vessel entered into a time charter-out agreement for three years at an average rate of $40,000 per day. This charter is expected to commence in
April 2023.
Chartering Strategy
Generally, we operate our vessels in commercial pools operated by related entities, on time charters or in the spot
market. The overall mix of how our vessels are employed varies from time to time based on many factors including our view
of the future market conditions.
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 customers 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 management is performed by each shipowner. Pools negotiate charters with customers primarily in
the spot market, but may also arrange time charter agreements. 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. As of March 23, 2023, 99 of the
vessels in our Operating Fleet operate in one of the Scorpio Pools.
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. During the
year ended December 31, 2022, we entered into time charter-out agreements on 14 vessels (nine LR2s and five MRs). In the
future, we may opportunistically look to enter more of our vessels into time charter contracts. We may also enter into time
charter contracts with profit sharing agreements, which enable us to benefit if the spot market increases.
Spot Market
A spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for
an agreed freight per ton of cargo or a specified total amount. Under spot market voyage charters, we pay voyage expenses
such as port, canal and bunker costs. Spot charter rates are volatile and fluctuate on a seasonal and year-to-year basis.
Fluctuations derive from imbalances in the availability of cargoes for shipment and the number of vessels available at any
given time to transport these cargoes. Vessels operating in the spot market generate revenue that is less predictable but may
enable us to capture increased profit margins during periods of improvements in tanker rates. We also consider short-term
time charters (with initial terms of less than one year) as spot market voyages.
34
Management of our Fleet
Commercial and Technical Management
Our vessels are commercially managed by SCM and technically managed by SSM pursuant to the terms and
conditions set forth under a revised master agreement which was effective as from January 1, 2018 (the “Revised Master
Agreement”). The Revised Master Agreement may be terminated by either party upon 24 months’ notice, unless terminated
earlier in accordance with the provisions of the Revised Master Agreement. In the event of the sale of one or more vessels, a
notice period of three months and a payment equal to three months of management fees will apply, provided that the
termination does not amount to a change in control, including a sale of all or substantially all of our vessels, in which case a
payment equal to 24 months of management fees will apply. SCM and SSM are related parties of ours. We expect that
additional vessels that we may acquire in the future will also be managed under the Revised Master Agreement or on
substantially similar terms.
SCM’s services include securing employment, in the spot market and on time charters, for our vessels. SCM also
manages the Scorpio Pools. When our vessels are operating in one of the Scorpio Pools, SCM, the pool manager, charges
fees of $300 per vessel per day with respect to our LR1 vessels, $250 per vessel per day with respect to our LR2 vessels, and
$325 per vessel per day with respect to each of our Handymax and MR vessels, plus a 1.50% commission on gross revenues
per charter fixture. These are the same fees that SCM charges other vessel owners in these pools, including third-party owned
vessels. For commercial management of our vessels that are not operating in any of the Scorpio Pools, we pay SCM a fee of
$250 per vessel per day for each LR1 and LR2 vessel and $300 per vessel per day for each Handymax and MR vessel, plus
1.25% commission on gross revenues per charter fixture.
SSM’s services include day-to-day vessel operations, performing general maintenance, monitoring regulatory and
classification society compliance, 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 providing technical
support. We pay SSM an annual fee of $175,000 plus additional amounts for certain itemized services per vessel to provide
technical management services for each of our owned vessels.
Amended Administrative Services Agreement
We have an Amended Administrative Services Agreement with Scorpio Services Holding Limited (“SSH”), or our
Administrator, for the provision of administrative staff and office space, and administrative services, including accounting,
legal compliance, financial and information technology services. SSH is a related party to us. We reimburse our
Administrator for the reasonable direct or indirect expenses it incurs in providing us with the administrative services
described above. The services provided to us by our Administrator may be sub-contracted to other entities within Scorpio.
Further, pursuant to our Amended Administrative Services Agreement, our Administrator, on behalf of itself and
other members of Scorpio, has agreed that it will not directly own product or crude tankers ranging in size from 35,000 dwt
to 200,000 dwt.
Our Amended Administrative Services Agreement may be terminated by us upon two years’ notice.
The International Oil Tanker Shipping Industry
All the information and data presented in this section, including the analysis of the oil tanker shipping industry, has
been provided by Drewry. The statistical and graphical information contained herein is drawn from Drewry’s database and
other sources. According to Drewry: (i) certain information in Drewry’s database is derived from estimates or subjective
judgments; (ii) the information in the databases of other maritime data collection agencies may differ from the information in
Drewry’s database; and (iii) 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.
35
Oil Tanker Demand
In broad terms, demand for oil products traded by sea is primarily affected by global and regional economic
conditions, as well as other factors such as changes in the location of productive capacity, and variations in regional prices.
Demand for shipping capacity is a product of the physical quantity of the cargo (measured, depending on the cargo in terms
of tons or cubic metrics), together with the distance the cargo is carried. Demand cycles move broadly in line with
developments in the global economy, with the growth rate of demand for products slowing significantly and becoming
negative in some years in the period immediately after the onset of the global economic downturn in late 2008, before
recovering gradually from 2011 with general improvement in the global macro-economic environment. Low crude prices
between 2015 and 2017 induced greater consumption, which led to increased seaborne trade of crude oil as well as refined
products. Growth in seaborne trade slowed in 2018 because of inventory drawdown in crude as well as refined products. In
2019, a decline in seaborne trade was on account of lower refinery runs and weaker economic growth.
The outbreak of Covid severely affected the demand for crude oil and refined petroleum products as several major
economies enforced lockdowns to contain the spread of the virus and mitigate the damage caused by the pandemic.
Accordingly, the world seaborne tanker trade, including crude oil, oil products and chemicals fell 8.6% to 3,105 million tons
in 2020. The decline in trade from 3,397 million tons in 2019 was mainly led by a plunge of 8.5% and 10.1% in both crude
oil and oil products trade to a total of 1,885 million tons and 931 million tons, respectively.
However, world seaborne tanker trade grew slightly to 3,168 million tons in 2021 mainly due to a sharp recovery in
global oil demand. Global oil demand increased 5.4 mbpd in 2021 fueled by robust economic growth, rising vaccination rates
and higher mobility levels. Several countries authorized the emergency use of various Covid vaccines and a widespread
availability of these vaccines has played a key role in containing the pandemic, which will support the seaborne trade and
tanker demand. The global economic recovery coupled with the energy crisis, which started in October 2021, provided a
further boost to oil demand in 2022 whereby global oil demand grew by 2.3 mbpd in 2022.
The Russia-Ukraine conflict which started in February 2022 has led to a change in trade patterns for both crude oil
and products with trades shifting from Russia-Europe to Asia-Europe, and Middle East-Europe and US Gulf-Europe. This
has led to increased tonne-mile demand. The tanker market has also benefited from the recovery in demand as economies
started emerging from the impact of COVID-19. Overall, world seaborne tanker trade volumes grew 2.6% in 2022. The
seaborne trade of chemicals/vegetable oils declined in 2022 because of the weakness in organics and vegetable oil markets.
While the demand for organics declined due to prolonged lockdowns which lowered demand and hence imports in China, the
vegetable oil market suffered from the war between the top producers of sunflower oil coupled with production losses of
soybean oil in Argentina.
Meanwhile, a shift in trade patterns because of the EU sanctions and G7 price cap on Russia’s refined products
should continue to boost tonne-mile demand. Europe is likely to replace short-haul Russian refined products with supply
from the Middle East and South Asia. The demand for Russia’s refined products is likely to decline because of the recent
price cap, which may force the country to lower refinery runs.
36
In 2022, 3,249 million tons of crude oil, products and vegetable oils/chemicals were moved by sea. Of this, crude
shipments constituted 1,927 million tons of cargo, products 1,015 million tons, with the balance made up of other bulk
liquids, including vegetable oils, chemicals and associated products.
Crude Oil
Refined Products
Veg Oils/
Chemicals
Total
World Seaborne Tanker Trade
Mill T
% Y-o-Y
Mill T
% Y-o-Y
% Y-o-Y
Year
2002 ..................................
2003 ..................................
2004 ..................................
2005 ..................................
2006 ..................................
2007 ..................................
2008 ..................................
2009 ..................................
2010 ..................................
2011 ..................................
2012 ..................................
2013 ..................................
2014 ..................................
2015 ..................................
2016 ..................................
2017 ..................................
2018 ..................................
2019 ..................................
2020 ..................................
2021 ..................................
2022* ................................
CAGR (2017-2022) .........
CAGR (2012-2022) .........
1,756
1,860
1,963
1,994
1,996
2,008
2,014
1,928
1,997
1,941
1,988
1,920
1,904
1,974
2,050
2,109
2,096
2,061
1,885
1,858
1,927
0.3 %
5.9 %
5.6 %
1.6 %
0.1 %
0.6 %
0.3 %
(4.2)%
3.6 %
(2.8)%
2.4 %
(3.4)%
(0.9)%
3.7 %
3.9 %
2.9 %
(0.6)%
(1.7)%
(8.5)%
(1.4)%
3.7 %
519
550
599
646
677
723
765
777
810
860
859
904
914
963
999
1,043
1,055
1,036
931
999
1,015
0.3 %
6.0 %
8.8 %
8.0 %
4.7 %
6.8 %
5.8 %
1.6 %
4.3 %
6.3 %
(0.2)%
5.3 %
1.1 %
5.3 %
3.8 %
4.4 %
1.2 %
(1.8)%
(10.1)%
7.3 %
1.6 %
Mill T
122
129
141
156
166
176
179
202
217
228
240
252
252
266
267
283
293
300
289
311
308
1.7%
2.5%
Mill T
7.0 % 2,397
5.9 % 2,539
9.5 % 2,703
10.5 % 2,796
6.5 % 2,839
5.9 % 2,907
1.8 % 2,958
12.9 % 2,907
7.4 % 3,024
5.1 % 3,029
5.3 % 3,087
5.1 % 3,076
(0.1 )% 3,070
5.4 % 3,203
0.5 % 3,316
6.0 % 3,435
3.5 % 3,444
2.4 % 3,397
(3.7 )% 3,105
7.6 % 3,168
(1.1 )% 3,250
% Y-o-Y
0.6 %
5.9 %
6.5 %
3.5 %
1.5 %
2.4 %
1.7 %
(1.7)%
4.0 %
0.2 %
1.9 %
(0.3)%
(0.2)%
4.3 %
3.6 %
3.6 %
0.3 %
(1.4)%
(8.6)%
2.0 %
2.6 %
(1.1 )%
0.5 %
(1.8 )%
(0.3 )%
(0.5)%
1.7 %
* Provisional estimate
Source: GTIS, Drewry
The volume of oil moved by sea was affected by the economic recession in 2008 and 2009, but since then, renewed
growth in the world economy and in oil demand has had a positive impact on seaborne trade. Oil demand has benefited from
economic growth in Asia, especially in China, where oil consumption increased by a compound average growth rate (CAGR)
of 4.3% between 2013 and 2022 to touch 15.0 million barrels per day (mbpd). Low per capita oil consumption in developing
countries, such as China and India, compared with the developed world provides scope for higher oil consumption in these
economies. Conversely, oil consumption in developed OECD economies has been in decline for much of the last decade, but
in 2015, this trend was reversed for the United States (U.S.) and some European countries primarily due to the positive
impact of lower oil prices on demand for products such as gasoline. Oil demand in OECD economies declined at a CAGR of
0.7% from 47.7 mbpd in 2017 to 46.0 mbpd in 2022.
37
World Oil Consumption: 1992-2022*
(Million bpd)
* Provisional estimate
Source: IEA, Drewry
Global oil demand grew at a CAGR of 0.9% during 2012-2022. Global oil demand plunged 9.1% to 90.9 mbpd in
2020 on account of demand destruction due to Covid. However, the easing of mobility restrictions and resumption of
economic activities coupled with the launch of several Covid vaccines, have supported the global oil demand in 2021 and
2022. The global oil demand increased from 90.9 mbpd in 2020 to 96.5 mbpd in 2021. Global economic recovery coupled
with the energy crisis, which started in October 2021, provided a further boost to oil demand in 2022 and it grew by 2.3 mbpd
in 2022.
Oil Product Exports & Imports
Products trades have received a boost in the last decade as a result of developments in E&P activity in the U.S. As a
result of the development of shale oil deposits, domestic crude oil production increased at a CAGR of 5.3% between 2013
and 2022 to 11.9 mbpd. Horizontal drilling and hydraulic fracturing have triggered a shale oil revolution and rising crude oil
production has also ensured the availability of cheaper feedstocks to local refineries. As a result, the U.S. has become a major
net exporter of products.
Oil Product Exports - Major Growth Regions
(Million bpd)
Source: JODI, Drewry
38
In a short span of time, the U.S. has become the largest exporter of refined products in the world, with supplies from
U.S. Gulf Coast terminals heading to most parts of the globe. By way of illustration, U.S. product exports have grown 1.9x
between 2013 and 2022 to 5.5 mbpd. A significant proportion of these exports were carried by MR product tankers, which
constitute about 55% of global product tanker fleet capacity and have been the mainstay of seaborne trade in refined
petroleum products. However, lower crude oil prices in 2015 and 2016 adversely impacted U.S. shale oil producers, and
accordingly, crude production in the region was on the decline from May 2015 to September 2016. Nevertheless, the
production cut by OPEC members from January 2017 came as a relief for domestic producers and U.S. crude production
again began to increase following the OPEC cuts at the time, resulting in the U.S. becoming the largest crude producer in the
world in September 2018. U.S. crude production increased at a CAGR of 6.7% during 2015-19 to 12.2 mbpd. U.S. crude oil
production declined 8.1% yoy in 2020 to 11.3 mbpd following the sharp decline in crude oil prices amid weak global oil
demand due to the pandemic. In 2021, U.S. crude oil production declined 1.4% to 11.2 mbpd as companies contained output
due to lower demand. US crude oil production grew 6.2% yoy to 11.9 mbpd in 2022 on account of higher oil demand.
The shift in the location of global oil production is also being accompanied by a shift in the location of global
refinery capacity and throughput. In short, capacity and throughput are moving from the developed to the developing world.
Between 2012 and 2022, the total OECD refining throughput declined at 5.8% CAGR to 34.3 mbpd, largely because of
cutbacks in OECD Europe and OECD Americas. Refinery throughput of OECD countries declined 13.1% yoy to 33.1 mbpd
in 2020 mainly because of the pandemic which hit global oil demand and higher inventory levels. In 2020, refining
throughput of OECD countries accounted for 44.5% of global refinery throughput. After a record drop in 2020, OECD
refinery runs gathered steam in 2021 with improvements in oil demand, but high crude oil prices led to drawdowns in the
inventory of refined products, limiting the gains in refinery runs to some extent. OECD refinery throughput increased in 2022
driven by higher demand.
Asia (excluding China) and the Middle East added about 2.94 mbpd refinery capacity during 2018-2022, a
substantial part of which is destined for international markets. Nearly 340 kbpd of new refining capacity in the Middle East
and another 650 kbpd in Asia (590 kbpd in China) came online in 2022 with nearly 410 kbpd of existing refinery capacity in
North America, Europe, and Asia Oceania were phased out during the same year. As a result of these developments,
countries such as India, China and Saudi Arabia have consolidated their positions as major exporters of products. Export-
oriented refineries in India and the Middle East, coupled with the closure of refining capacity in the developed world, have
promoted long-haul shipments to cater to the demand for products.
Oil Product Imports - Major Growth Regions
(Million bpd)
Source: JODI, Drewry
39
Current Tanker Fleet
Crude oil is transported in uncoated vessels, which range upwards in size from 55,000 dwt. Products are carried
predominantly in coated ships and include commodities such as gas oil, gasoline, jet fuel, kerosene and naphtha (often
referred to as ‘clean products’), and fuel oil and vacuum gas oil (often referred to as ‘dirty products’). In addition, some
product tankers are also able to carry bulk liquid chemicals and edible oils and fats if they have the appropriate International
Maritime Organization (IMO) certification. These vessels are classified as product/chemical tankers, and as such, they
represent a swing element in supply, having the ability to move between trades depending on market conditions. Clean
petroleum products are therefore carried by non-IMO product tankers and IMO certified product/chemical tankers. IMO
tankers will also carry, depending on their tank coatings, a range of other products including organic and inorganic bulk
liquid chemicals, vegetable oils and animal fats and special products such as molasses.
The global tanker fleet expanded 3.7% yoy (based on capacity) in 2022 mainly due to lower demolitions compared
to 2021. High freight rates in 2022 curbed demolition, which had reached a five year high in 2021. As of February 28, 2023,
the total oil tanker fleet (crude, products, and product/chemical tankers) consisted of 5,541 ships with a combined capacity of
636.2 mdwt.
The Oil Tanker Fleet - February 28, 2023
Deadweight Tons
(Dwt)
Number of
Vessels
% of
Fleet
Capacity
(m Dwt)
% of
Fleet
Vessel Type
Crude Tankers(1)
VLCC/ULCC ....................................................................
Suezmax ...........................................................................
Aframax ............................................................................
Panamax ...........................................................................
Handymax.........................................................................
Handy ...............................................................................
Handy ...............................................................................
Total Fleet........................................................................
Product Tankers
Long Range 3 (LR3) ........................................................
Long Range 2 (LR2) ........................................................
Long Range 1 (LR1) ........................................................
Medium Range 2 (MR2) ..................................................
Medium Range 1 (MR1) ..................................................
Handy ...............................................................................
Total Fleet........................................................................
Product/Chemical Tankers(2)
Long Range 3 (LR3) ........................................................
Long Range 2 (LR2) ........................................................
Long Range 1 (LR1) ........................................................
Medium Range 2 (MR2) ..................................................
Medium Range 1 (MR1) ..................................................
Handy ...............................................................................
Total Fleet........................................................................
Product & Product/Chemical Fleet
Long Range 3 (LR3) ........................................................
Long Range 2 (LR2) ........................................................
Long Range 1 (LR1) ........................................................
Medium Range 2 (MR2) ..................................................
Medium Range 1 (MR1) ..................................................
Handy ...............................................................................
Total Fleet........................................................................
Crude, Product and Product/Chemical Tanker Fleet
VLCC/ULCC ....................................................................
Suezmax/LR3 ...................................................................
Aframax/LR2 ....................................................................
Panamax/LR1 ...................................................................
Handy/Medium Range .....................................................
Handy/Medium Range .....................................................
Handy/Handymax .............................................................
Total Fleet........................................................................
(1)
(2)
Included shuttle tankers and tankers on storage duties
Excludes pure chemical tankers
894
646
678
72
5
6
45
2,346
19
417
347
429
101
202
1,515
—
2
31
1,321
297
29
1,680
19
419
378
1,750
398
231
3,195
894
665
1,097
450
1,755
404
276
5,541
38.1
27.5
28.9
3.1
0.2
0.3
1.9
100.0
1.3
27.5
22.9
28.3
6.7
13.3
100.0
—
0.1
1.8
78.6
17.7
1.7
100.0
0.6
13.1
11.8
54.8
12.5
7.2
100.0
16.1
12.0
19.8
8.1
31.7
7.3
5.0
100.0
275.5
100.9
74.4
5.0
0.2
0.2
0.7
456.9
3.0
46.0
25.5
20.2
3.4
2.9
101
—
0.2
2.3
64.2
11.1
0.4
78.2
3.0
46.2
27.8
84.4
14.5
3.3
179.2
275.5
103.9
120.6
32.8
84.7
14.7
4.0
636.2
60.3
22.1
16.3
1.1
—
—
0.2
100.0
3.0
45.5
25.3
20.0
3.4
2.8
100.0
—
0.3
2.9
82.1
14.2
0.6
100.0
1.7
25.8
15.5
47.1
8.1
1.8
100.0
43.3
16.3
19.0
5.2
13.3
2.3
0.6
100.0
200,000+
120-199,999
80-119,999
55-79,999
40-54,999
25-39,999
10-24,999
120-199,999
80-119,999
55-79,999
40-54,999
25-39,999
10-24,999
120-199,999
80-119,999
55-79,999
40-54,999
25-39,999
10-24,999
120-199,999
80-119,999
55-79,999
40-54,999
25-39,999
10-24,999
200,000+
120-199,999
80-119,999
55-79,999
40-54,999
25-39,999
10-54,999
Source: Drewry
40
The world product tanker fleet as of February 28, 2023, consisted of 3,195 vessels with a combined capacity of
179.3 mdwt. The breakdown of the fleet by type (crude, product and product/chemical) and by size, together with the
orderbook for newbuilding tankers as of February 28, 2023, is illustrated in the table below.
The World Tanker Orderbook(1) - February 28, 2023
Orderbook %
Orderbook
Fleet
2023
2024
2025+
No
m Dwt
No
Dwt
No
m Dwt
No
m Dwt
No
m Dwt
Deadweight
(Dwt)
Vessel Type
Crude Tankers(1)
VLCC/ULCC ............................... 200,000+
Suezmax ...................................... 120-199,999
Aframax ....................................... 80-119,999
Panamax ...................................... 55-79,999
Handymax.................................... 40-54,999
Handy .......................................... 25-39,999
Handy .......................................... 10-24,999
Total Fleet...................................
Product Tankers
Long Range 3 (LR3) ................... 120-199,999
Long Range 2 (LR2) ................... 80-119,999
Long Range 1 (LR1) ................... 55-79,999
Medium Range 2 (MR2) ............. 40-54,999
Medium Range 1 (MR1) ............. 25-39,999
Handy .......................................... 10-24,999
Total Fleet...................................
Product/Chemical Tankers(2)
Long Range 3 (LR3) ................... 120-199,999
Long Range 2 (LR2) ................... 80-119,999
Long Range 1 (LR1) ................... 55-79,999
Medium Range 2 (MR2) ............. 40-54,999
Medium Range 1 (MR1) ............. 25-39,999
Handy .......................................... 10-24,999
Total Fleet...................................
17.0
27.0
35.0
—
1.0
—
—
80.0
—
50.0
—
5.0
—
4.0
59.0
—
—
—
95.0
3.0
—
98.0
Product & Product/Chemical Fleet
Long Range 3 (LR3) ................... 120-199,999
Long Range 2 (LR2) ................... 80-119,999
Long Range 1 (LR1) ................... 55-79,999
Medium Range 2 (MR2) ............. 40-54,999
Medium Range 1 (MR1) ............. 25-39,999
Handy .......................................... 10-24,999
Total Fleet...................................
—
50.0
—
100.0
3.0
4.0
157.0
Crude, Product and Product/Chemical Tanker Fleet
VLCC/ULCC ............................... 200,000+
Suezmax/LR3 .............................. 120-199,999
Aframax/LR2 ............................... 80-119,999
Panamax/LR1 .............................. 55-79,999
Handy/Medium Range ................ 40-54,999
Handy/Medium Range ................ 25-39,999
Handy/Handymax ........................ 10-54,999
Total Fleet...................................
17.0
27.0
85.0
—
101.0
3.0
4.0
237.0
(1)
(2)
Included shuttle tankers and tankers on storage duties
Excludes pure chemical tankers
4.6
1.1
2.3
—
0.1
—
—
8.1
—
2.2
—
0.2
—
0.1
2.5
—
—
—
1.1
0.1
—
1.2
—
2.2
—
1.3
0.1
0.1
3.7
4.6
1.1
4.5
—
1.4
0.1
0.1
11.8
—
9.0
12.0
—
—
—
—
21
—
13.0
—
1.0
—
1.0
15.0
—
—
—
32.0
—
—
32.0
—
13.0
—
33.0
—
1.0
47.0
—
9.0
25.0
—
33.0
—
1
68.0
—
1.3
1.4
—
—
—
—
2.7
—
1.5
—
0.1
—
—
1.6
—
—
—
1.6
—
—
1.6
—
1.5
—
1.7
—
—
3.2
—
1.3
2.9
—
1.7
—
—
5.9
2.0
11.0
3.0
—
—
—
—
16
—
17.0
—
—
—
—
17.0
—
—
—
41.0
—
—
41.0
—
17.0
—
41.0
—
—
58.0
2.0
11.0
20.0
—
41.0
—
0
74.0
0.6
1.5
0.3
—
—
—
—
2.4
—
1.8
—
—
—
—
1.8
—
—
—
2.1
—
—
2.1
—
1.8
—
2.1
—
—
3.9
0.6
1.5
2.2
—
2.1
—
—
6.4
5.2
4.0
4.0
—
0.1
—
—
13.3
—
5.5
—
0.3
—
0.1
5.9
—
—
—
4.7
0.1
—
4.8
—
5.5
—
5.0
0.1
0.1
10.7
5.2
4.0
9.5
—
5.1
0.1
0.1
24.0
1.9
4.2
5.2
—
20.0
—
—
3.4
—
12.0
—
1.2
—
2.0
3.9
—
—
—
7.2
1.0
—
5.8
—
11.9
—
5.7
0.8
1.7
4.9
1.9
4.1
7.7
—
5.8
0.7
1.4
4.3
1.9
3.9
5.4
—
32.1
—
—
2.9
—
12.0
—
1.2
—
2.7
5.8
—
—
—
7.4
0.9
—
6.2
—
12.0
—
5.9
0.7
2.4
6.0
1.9
3.8
7.9
—
6.0
0.7
1.9
3.8
15.0
7.0
20.0
—
1.0
—
—
43
—
20.0
—
4.0
—
3.0
27.0
—
—
—
22.0
3.0
—
25.0
—
20.0
—
26.0
3.0
3.0
52.0
15.0
7.0
40.0
—
27.0
3.0
3
95.0
Source: Drewry
As of February 28, 2023, the orderbook for product and product/chemical tankers of above 10,000 dwt comprised
157 vessels with a combined capacity of 10.7 mdwt, equivalent to 6.0% of the existing fleet in capacity terms. Based on the
total orderbook and scheduled deliveries, nearly 3.7 mdwt is expected to be delivered in the remaining months of 2023,
followed by 3.2 mdwt in 2024 and the remaining 3.9 mdwt in 2025 and beyond. In recent years however, the orderbook has
been affected by the non-delivery of vessels (sometimes referred to as ‘slippage’). Some of this slippage resulted from delays,
either through mutual agreement or through shipyard problems, while others were due to vessel cancellations. Slippage is
likely to remain an issue going forward, and as such, it will have a moderating effect on growth in the product tanker fleet
over the next three years. After lackluster deliveries due to the closure of shipyards in 2020 on account of the pandemic,
deliveries increased in 2021 and 2022.
41
Ballast Water Management Convention
All deep-sea vessels engaged in international trade are required to have ballast water treatment system before 8
September 8, 2024. For a VLCC tanker, the retrofit cost could be as much as USD 2.0 million per vessel, including labor.
Expenditure of this kind has become another factor impacting the decision to scrap older vessels after the Ballast Water
Management Convention came into force in 2019.
IMO 2020 regulation on low sulfur fuel
The second regulation, which came into force on January 1, 2020, and impacted vessel supply, particularly in 2020,
is the drive to introduce low sulfur fuels. For many years, high sulfur fuel oil (“HSFO”) has been the main fuel of the
shipping industry. It is relatively inexpensive and widely available, but it is ‘dirty’ from an environmental point of view. The
sulfur content of HSFO is extremely high and is the reason that maritime shipping accounted for 8% of global emissions of
sulfur dioxide (“SO2”), a significant source for acid rain as well as respiratory diseases. According to the IMO, sulfur oxide
emissions have declined 77 % (annual reduction of about 8.5 million metric tonnes) since the implementation of the IMO
2020 regulations.
The IMO, the governing body of international shipping, has made a decisive effort to shift the industry away from
HSFO to cleaner fuels with less harmful effects on the environment and human health. Effective in 2015, ships operating
within the Emission Control Areas (“ECAs”) covering the Economic Exclusive Zone of North America, the Baltic Sea, the
North Sea, and the English Channel, are required to use marine gas oil with allowable sulfur content up to 1,000 parts per
million (“ppm”). In the lead-up to 2020, when the shipping industry started to prepare for a new low sulfur norm, two factors
were closely considered: 1) the spread between (expensive) very low-sulfur fuel and (cheaper) high-sulfur fuel, and 2)
scrubber retrofitting activity. Starting in 2020, high and low sulfur fuel demand from the marine sector reported significant
variation. The HSFO and LSFO price spread largely oscillated between US$300 and US$350 per metric tonne during the
initial days and hovered around US$190-200 per tonne in February 2020. Despite the initial speculation, the shipping
industry did not see any systemic shortage of the new low sulfur fuel oil. The premium commanded by low sulfur fuel
reduced to around US$60 per tonne by December 2020 as the availability of compliant fuel was not an issue due to reduced
demand and increased supply across major bunkering ports. Overall, installation of scrubbers and new fuel regulations turned
out to be a non-event in the backdrop of COVID-19 and low bunker prices. However, the recent increase in crude oil prices
since June 2021 and corresponding widening in the spread, improves the economic rationale for a scrubber investment.
IMO GHG Strategy
The IMO has been devising strategies to reduce greenhouse gases (“GHG”) and carbon emissions from ships.
According to the announcement in 2018, the IMO plans to initiate measures to reduce CO2 emissions intensity at least 40%
by 2030 and 70% by 2050 from the levels in 2008. It also plans to introduce measures to reduce GHG emissions 50% by
2050 from the 2008 levels. The GHG strategy of IMO is likely to be revised in 2023. These are likely to be achieved by
setting energy efficiency requirements, energy saving technologies, and encouraging shipowners to use alternative fuels such
as biofuels, and electro-/synthetic fuels such as hydrogen or ammonia. It may also include limiting the speed of the ships.
Currently, there is uncertainty regarding the exact measures that the IMO will undertake to achieve these targets. IMO-related
uncertainty is a key factor preventing ship owners from placing new orders, as the vessels with conventional propulsion
systems may have a high environmental compliance cost and possible faster depreciation in asset values in the future. Some
shipowners have decided to manage this risk by ordering LNG/methanol fueled ships in order to comply with stricter
regulations that may be announced in future.
In June 2021, the IMO adopted amendments to the International Convention for the Prevention of Pollution from
ships that will require vessels to reduce their greenhouse gas emissions. These amendments are a combination of technical
and operational measures and came into force on November 1, 2022, with the requirements for EEXI and CII certification,
effective January 1, 2023. These will be monitored by the flag administration and corrective actions will be required in the
event of constant non-compliance. A review clause requires the IMO to review the effectiveness of the implementation of the
CII and EEXI requirements, by January 1, 2026, at the latest. EEXI is a technical measure and would apply to ships above
400 GT. It indicates the energy efficiency of the ship compared to a baseline and is based on a required reduction factor
(expressed as a percentage relative to the Energy Efficiency Design Index (“EEDI”) baseline).
On the other hand, CII is an operational measure which specifies carbon intensity reduction requirements for vessels with
5,000 GT and above. The CII determines the annual reduction factor needed to ensure continuous improvement of the ship’s
operational carbon intensity within a specific rating level. The operational carbon intensity rating would be given on a scale of A, B,
C, D, or E indicating a major superior, minor superior, moderate, minor inferior, or inferior performance level, respectively. The
performance level would be recorded in the ship’s Ship Energy Efficiency Management Plan (“SEEMP”). A ship rated D for three
consecutive years, or E, would have to submit a corrective action plan, to show how the required index (C or above) would be
42
achieved. To reduce carbon intensity, shipowners can switch from oil to alternative fuels such as LNG or methanol. Some marine
fuels such as ammonia and hydrogen have zero-carbon content. In the long term, ammonia may emerge as a cost-effective
alternative fuel but in the short term, it seems unviable. Other options to improve energy efficiency include propeller
upgrading/polishing, hull cleaning/coating and retrofitting vessels with the wind-assisted propulsion systems. Reducing ship speeds
also helps in complying with the regulations as it lowers fuel consumption, and it is easy to implement.
In addition to the IMO regulation, the EU has proposed a set of proposals including the EU Emissions Trading
System and Fuel EU Maritime Initiative. Shipping will be included in EU ETS from 2024. It will be phased in gradually and
will cover 40% of in-scope emissions in 2024, 75% in 2025 and 100% in 2026. All ships will be (as per the definition)
required to acquire and surrender emission allowances. 100% of emissions are included on voyages and port calls within the
EU while 50% of emissions are covered for voyages between an EU port and a non-EU country. Methane (CH4), Nitrous
oxide (N2O) will be included from 2026. The EU ETS lays down rules regarding GHG intensity of energy used on-board all
ships arriving in the EU. It aims to reduce GHG emission 26% by 2040 and 75% by 2050 compared to 2020 level. It also
makes it obligatory for ships to use on-shore power supply or zero-emission technology in ports in the EU. All shipowners
trading in European waters will need to comply with these regulations.
Ships will be required to undertake a combination of initiatives in order to comply with the upcoming environmental
regulations. These may range from switching to low/zero carbon alternative fuels, paying carbon taxes, retrofitting energy-
saving devices, propulsion improvement devices as well as voyage optimization techniques. The emission control regulations
are likely to slow the speed of the vessels in the next few years. Consequently, this will lead to a reduction in the supply of
ships and therefore, in the short- to medium-term, will benefit shipowners with younger fleets as charter rates should
potentially increase with lower supply of ships.
Besides the IMO regulations, the decarbonization of shipping is being propelled by various state and non-state
stakeholders of the shipping industry. In recent years, there have been several developments such as the Sea Cargo Charter,
Poseidon Principles for ship finance banks and Poseidon Principles for Marine Insurance. In addition, there have been several
industry led initiatives to facilitate movement towards low/zero-carbon shipping such as Getting to Zero Coalition, The
Castor Initiative for Ammonia, Global Centre for Maritime Decarbonization, and the Mærsk Mc-Kinney Møller Center for
Zero Carbon Shipping.
Alternative fuels for shipping
The IMO has a target to reduce GHG emissions by 50% in 2050. This can’t be achieved with low sulfur fuel and so
has encouraged innovation in alternative fuels. The IMO has also been planning other technical and operational measures in
order to meet emission targets. Alternative fuels like LPG and methanol are mainly used on vessels carrying these as cargo
while LNG is used as a fuel in LNG vessels and also in other vessels. Hydrogen and ammonia are in the initial stages of
development as a marine fuel. LNG is expected to remain a preferred alternative fuel in the near to medium term due to its
availability. However, LNG is still a fossil fuel and is unable to meet the IMO 2050 decarbonization target. Another
drawback is that LNG propulsion requires an LNG capable engine which would require additional capex and increased fuel
storage space. Biofuel is another potential alternative fuel because it requires no major modification of engine, and therefore,
no significant additional capital expenditure is required.
Energy Transition
Traditionally, fossil fuel-based energy sources such as oil, natural gas and coal have propelled the global economy,
but their share has been declining over the past few years from 86.9% in 2011 to 82.3%% in 2021 with the share of oil
declining from about 33% in 2011 to 31% in 2021. However, the energy transition from fossil fuel-based energy to
renewable sources of energy is currently underway which has received a boost from the accelerated sales of electric vehicles
(“EVs”), even though their share in total sales was a meager 2.5% in 2019. As the cost of EVs becomes competitive against
internal combustion engine vehicles, and charging infrastructure is developed across the world, sales of EVs are expected to
gain momentum, reducing the demand for gasoline and diesel in the long run. Increasing focus on decarbonization will
impact global oil demand going forward but the demand for naphtha and jet fuel is likely to remain robust and will be a key
driver of global trade in crude and refined petroleum products.
The Oil Tanker Freight Market
Tanker charter hire rates and vessel values for all tankers are influenced by the supply-demand dynamics of the
tanker market. Also, in general terms, time charter rates are less volatile than spot rates as 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 trend in spot rates since 2002 for the main vessel classes is shown in
the table below.
43
Crude Tanker - Spot (TCE) Rates: 2002-2023*
(US$/Day)
Caribs
USAC
40-70,000 DWT
16,567
28,833
42,158
34,933
28,792
30,100
36,992
13,450
17,950
8,817
12,408
13,475
21,383
23,725
13,133
8,942
7,892
17,892
19,300
10,458
45,367
67,000
NW Europe
NW Europe
70-100,000 DWT
22,800
41,883
55,408
57,517
47,067
41,975
56,408
19,883
27,825
10,500
9,100
11,427
23,360
37,509
24,333
7,643
9,181
23,041
17,661
491
44,769
59,541
West Africa
Caribs/USES
150-160,000 DWT
19,325
37,367
64,792
40,883
40,142
35,392
52,650
20,242
19,658
12,758
14,275
13,308
23,567
38,350
21,592
11,255
11,075
24,350
23,058
2,967
25,483
53,000
AG
Japan
280-300,000 DWT
21,667
49,342
95,258
59,125
51,142
45,475
89,300
29,483
40,408
8,700
12,275
12,325
24,625
67,928
42,183
22,617
20,825
41,667
56,308
(75)
23,267
22,300
Year
2002 .....................................
2003 .....................................
2004 .....................................
2005 .....................................
2006 .....................................
2007 .....................................
2008 .....................................
2009 .....................................
2010 .....................................
2011 .....................................
2012 .....................................
2013 .....................................
2014 .....................................
2015 .....................................
2016 .....................................
2017 .....................................
2018 .....................................
2019 .....................................
2020 .....................................
2021 .....................................
2022 .....................................
Jan-23 ..................................
*Up to January 2023
Source: Drewry, Note - These rates do not account for vessel triangulation
Product Tanker - Spot (TCE) Rates: 2011-2023*
(US$/Day)
Year
2011 ................................................
2012 ................................................
2013 ................................................
2014 ................................................
2015 ................................................
2016 ................................................
2017 ................................................
2018 ................................................
2019 ................................................
2020 ................................................
2021 ................................................
2022 ................................................
Jan-23 .............................................
Baltic
UK Continent
25-39,999 DWT
NA
NA
NA
NA
NA
NA
8,966
8,367
11,777
12,690
5,189
41,649
25,560
UKC
USAC
40-54,999 DWT
9,720
8,064
9,474
9,435
18,769
8,508
7,442
6,196
10,739
13,117
4,507
23,050
19,300
Arabian Gulf
Japan
55-79,999 DWT
3,723
6,379
7,576
10,523
23,685
12,290
7,225
8,002
14,242
19,949
6,218
31,203
36,902
Arabian Gulf
Japan
80-119,000 DWT
7,528
8,106
8,505
14,163
28,783
15,006
7,936
9,411
18,698
27,777
5,923
33,819
39,523
*Up to January 2023, NA implies not available
Source: Baltic, Drewry, Note - These rates do not account for vessel triangulation
44
Freight rates remained firm throughout 2015 and in the first half of 2016, leading to greater revenue and improved
profitability for ship-owners. However, in the second half of 2016, tanker freight rates declined sharply as a result of the
increased tanker supply outweighing the demand for tankers. A spate of newbuilding deliveries in 2017 aggravated the
situation further for ship-owners and the average one-year spot charter rate declined further. The situation worsened further
and TCE rates were below breakeven rates on key routes for the first nine months of 2018. However, towards end-2018, the
vessel earnings began to improve as supply growth was moderating in the wake of record high demolitions and reduced new
vessel ordering. Increase in product tanker freight rates in 2019 was driven by slow fleet growth and a spike in diesel trade
before IMO 2020 regulations came into effect on 1 January 2020. Product tanker freight rates surged to multi-year highs on
trickle-down effect from crude tanker market in October 2019 as well as US sanctions on Cosco Shipping Tanker (Dalian)
Co, geopolitical tensions and tight supply resulted.
However, in 2020 the tanker market underwent an unprecedented turbulence due to the outbreak of Covid. The
sudden demand destruction due to lockdown measures and limited availability of onshore storage led to a surge in demand
for tankers for floating storage of crude oil as well as refined products. Accordingly, TCE rates of oil tankers rallied across
vessel classes in March and April 2020; for instance, average spot TCE rates for MR tankers shot up 131% from
US$19,289/day in February 2020 to US$44,618/day in April 2020. However, reduced crude oil production and refinery runs
since May 2020 and gradual recovery in demand led to continuous decline in vessel earnings in the latter half of the year as
several vessels locked in floating storage rejoined the trading fleet. On a yearly basis though, TCE rates for MR vessels
increased 74.1% yoy on average in 2020, while for LR vessels it declined 15% yoy during the same period. In 2021, freight
rates declined due to inventory de-stocking and more vessels joining the supply from floating storage. Freight rates surged in
2022 as the short-haul trade between Europe and Russia was replaced by the long-haul trade between Europe and the Middle
East/US following the Russia-Ukraine crisis.
With the virus spreading globally, the weak demand for refinery products led to an increase in both onshore and
offshore stocking activity in early 2020 as the increasing use of product tankers as storage facilities coupled with global port
congestions resulted in a surge in product tanker rates in March and April. However, offshore storage declined significantly
in 2021, driving the freight rates lower. At the end of February 2023, 2.17 mdwt of non-IMO coated tankers comprising
nearly 2.1% of the product tanker fleet was used for offshore storage. This figure was lower than the 6 mdwt (about 6.2% of
the product tanker fleet) of non-IMO coated tankers deployed for floating storage at the peak of the contango opportunities in
the oil market in April 2020, indicating a declining trend in on-the-water storage of crude oil. Product tankers coming out
from floating storage increase vessel supply and have an adverse impact of spot rates.
Oil Tanker Newbuilding Prices
Newbuilding prices increased significantly between 2003 and 2007 primarily as a result of increased tanker demand
and limited shipbuilding capacity. Thereafter, prices weakened in the face of a poor freight market and lower levels of new
ordering. In late 2013, prices started to recover and they continued to edge up slowly during 2014 before falling marginally in
late 2015. Moreover, newbuilding prices fell further in 2016 because of excess capacity available at shipyards, accompanied
with low steel prices. New orders declined on account of diminishing earnings potential of oil tankers, and mandatory
compliance to Tier III emission for ships ordered on or after January 1, 2016, as well as owners’ limited access to cost-
effective capital.
Newbuild prices remained stable throughout 2017. However, asset values of newbuilds increased 3-13% in 2019 as
they benefited from high charter rates across vessel classes. Newbuild prices declined in 2020 due to lower orders and weak
market prospects. An increase in newbuild prices in 2021 despite weak vessel earnings was fueled by the increased
bargaining power of shipyards that have emerged as price setters with yards flushed with excess ordering, albeit from other
shipping sectors. Newbuilding prices increased in 2022 due to the higher cost of raw materials and limited shipyard slots.
45
Oil Tankers: Newbuilding Prices: 2002-2023*
(In millions of U.S. Dollars)
Year End
2002 ...............
2003 ...............
2004 ...............
2005 ...............
2006 ...............
2007 ...............
2008 ...............
2009 ...............
2010 ...............
2011 ...............
2012 ...............
2013 ...............
2014 ...............
2015 ...............
2016 ...............
2017 ...............
2018 ...............
2019 ...............
2020 ...............
2021 ...............
2022 ...............
Jan-23 ...........
Long-term
average ..........
37,000(1)
50,000(1)
DWT
DWT
75,000(1)
DWT
110,000(1)
75,000(2)
110,000(2)
160,000(2)
DWT
DWT
DWT
DWT
300,000(2)
DWT
24.5
28.5
34.0
37.5
40.5
46.0
40.0
31.0
33.0
31.5
30.0
31.0
33.0
32.0
30.0
31.0
31.4
32.0
31.4
33.0
38.5
39.5
32.9
26.5
30.5
39.0
42.0
47.5
54.0
46.5
36.0
36.0
36.0
33.0
35.0
37.0
35.5
32.0
33.0
35.3
36.0
34.8
37.3
42.5
43.5
36.9
33.0
36.5
43.0
45.0
52.0
66.0
59.0
44.5
48.0
46.0
44.0
45.0
47.5
47.0
41.0
41.0
41.4
45.0
44.2
46.0
56.5
58.0
45.8
38.0
42.0
59.0
61.0
67.0
80.0
73.5
54.0
59.0
54.8
50.0
53.5
56.0
53.5
47.0
46.0
48.8
51.0
50.2
55.2
64.0
65.0
54.7
31.0
34.5
41.0
43.0
50.0
64.0
57.0
42.5
44.6
44.6
42.4
42.1
44.9
45.0
39.0
38.2
40.8
43.0
42.2
44.0
50.0
51.0
43.5
36.0
40.0
57.0
59.0
65.0
78.0
71.5
52.0
57.0
52.8
48.0
51.5
54.0
51.5
45.0
44.0
46.8
49.0
48.2
53.2
61.0
62.0
52.7
44.0
52.0
68.0
71.0
78.0
90.0
87.0
62.0
67.0
61.7
56.5
59.0
65.0
63.0
54.0
55.0
58.7
61.0
58.6
66.5
79.0
80.0
63.8
66.0
73.0
105.0
120.0
128.0
146.0
142.0
101.0
105.0
99.0
92.0
93.5
97.0
94.0
83.0
81.0
88.0
92.7
88.8
98.4
117.5
120.0
99.2
(1) Coated tankers
(2) Uncoated tankers
* Up to January 2023
Second-hand Prices
Source: Drewry
Second-hand values primarily, albeit with a lag, reflect prevailing and expected charter rates. During extended
periods of high charter rates, vessel values tend to appreciate and vice versa. However, vessel values are also influenced by
other factors, including the age and shipyard of the vessel. Prices for young vessels, those about up to five-years old, are also
influenced by newbuilding prices, while prices for old vessels, near the end of their useful economic life, those around at or
in excess of 25 years, are influenced by the value of scrap steel.
The table below illustrates the movements of prices for second-hand oil tankers from 2002 to February 2023. In late
2013, prices for all modern tankers increased as a result of improvement in freight rates and positive market sentiment, and
further gains were recorded in 2014 and 2015. However, in 2016, second-hand prices saw a double-digit decline on account
of weakening freight rates. For illustration, the second-hand price of a five-year old LR vessel of 95,000 dwt capacity fell
35% from US$46 million in 2015 to US$30 million in 2016. However, the market saw increased demand for modern second-
hand vessels in 2017 and 2018, in anticipation of a recovery in the freight market and buyers trying to take advantage of
historically low asset prices. As such, second-hand modern product tanker prices increased in the range of 3-10% in 2018.
Second-hand prices of crude and product tankers increased steeply in 2019 in tandem with a surge in charter rates. With the
surge in product tanker and crude tanker freight rates due to higher demand for floating storage driven by the pandemic,
second-hand prices of product and crude tankers increased between 5.4% and 14.7% in April 2020 compared to the average
second-hand prices in full-year 2019. However, second-hand asset prices declined in the remainder of 2020 on account of the
steep decline in freight rates. The uptrend in newbuild tanker prices coupled with higher demolition prices pushed up second-
hand vessel prices in 2021. An upswing in vessel values in 2022 is as a result of muted fleet expansion and higher freight
rates.
46
Oil Tanker Second-hand Prices for 5 year old vessels: 2002-2023*
(In millions of U.S. Dollars)
37,000(1)
DWT
45,000(1)
DWT
75,000(1)
DWT
95,000(1)
DWT
75,000(2)
DWT
95,000(2)
150,000(2)
DWT
DWT
300,000(2)
DWT
15.5
24.5
36.0
40.0
40.0
40.0
36.0
21.0
21.5
24.0
21.0
25.0
23.0
26.0
20.0
21.0
23.0
24.7
24.3
24.5
29.5
34.5
26.2
21.5
29.5
42.0
45.5
47.5
52.0
42.0
24.0
24.0
27.0
24.0
29.0
24.0
27.0
22.0
24.0
27.0
28.8
28.0
27.8
34.5
40.0
30.7
23.0
26.0
40.0
48.5
50.0
61.0
48.0
34.5
37.0
34.0
27.0
33.0
35.5
38.0
30.0
29.0
31.0
33.2
32.6
33.2
40.0
46.0
36.0
31.5
39.0
59.0
60.0
65.0
70.5
57.0
40.0
44.0
35.5
29.5
35.0
44.0
48.0
32.0
32.0
34.0
39.5
40.0
40.3
52.5
59.5
43.9
21.0
24.0
38.0
46.5
48.0
59.0
46.0
32.5
35.0
32.0
25.0
31.0
33.5
36.0
28.0
27.0
29.0
31.2
30.6
31.3
38.0
46.5
34.0
29.5
37.0
57.0
58.0
63.0
68.5
55.0
38.0
42.0
33.5
27.5
33.0
42.0
46.0
30.0
30.0
32.0
37.5
38.0
38.3
50.5
59.0
41.9
39.0
47.0
73.0
75.0
77.0
87.0
77.0
53.0
58.0
45.5
40.0
42.0
57.0
60.0
42.0
40.0
44.0
49.7
49.2
46.8
55.0
67.0
54.5
55.0
70.0
112.0
110.0
115.0
130.0
110.0
77.5
85.5
58.0
57.0
60.0
76.0
80.0
60.0
62.0
64.0
70.8
70.4
69.0
80.0
98.0
78.9
Year End
2002 .................
2003 .................
2004 .................
2005 .................
2006 .................
2007 .................
2008 .................
2009 .................
2010 .................
2011 .................
2012 .................
2013 .................
2014 .................
2015 .................
2016 .................
2017 .................
2018 .................
2019 .................
2020 .................
2021 .................
2022 .................
Jan-23 .............
Long-term
average ............
(1) Coated tankers
(2) Uncoated tankers
* Up to January 2023
Sustainability Initiatives and Focus on ESG
Source: Drewry
We aim to uphold and advance a set of principles and practices regarding Environmental, Social and Governance
(“ESG”) matters and have developed, adopted, and implemented ESG initiatives within our operations and business culture.
In adopting these initiatives, our primary goals are to reduce the environmental impact of our operations, create a safe and
healthy work environment, both at sea and onshore, and engage in responsible corporate governance practices. Our Board of
Directors, which includes seven independent members, oversees our ESG strategy, evaluates and adopts ESG initiatives
including those relating to sustainability and climate change, assesses ESG risks and opportunities, and promotes responsible
ESG practices within our Company. In July 2022, we published our third comprehensive sustainability report, which was
prepared in accordance with the Sustainability Accounting Standards Board (“SASB”) Marine Transportation standard, and
which disclosed our ESG performance
is available on our website at
www.scorpiotankers.com. The information included on our website is not incorporated by reference into this annual report.
in 2021. The sustainability report
ESG initiatives we have undertaken include, among others:
•
Signing the Call to Action for Shipping Decarbonization, pledging to offer net zero emission shipping services by
2030, measure carbon intensity and assess climate alignment of our vessels on an annual basis, develop and improve
digital and other management tools to measure greenhouse gas emissions from the full supply chain to compare
activities and optimize operations.
• Our continuing membership in:
(cid:405) The International Seafarers’ Welfare and Assistance Network (ISWAN)
(cid:405) The Trident Alliance (Sulphur Enforcement)
(cid:405)
Intertanko ESG Working Group
(cid:405) Marine Anti-Corruption Network (MACN)
47
• Aligning our internal policies with certain UN Sustainable Development Goals relating to work and economic
growth, climate action, and life below water.
• Updating our Code of Ethics to be more focused on Diversity, Equity, and Inclusion (DEI).
•
Supporting the principles of the Sea Cargo Charter.
• Creating a direct reporting line from our environmental compliance audit and training team (SECAT) to our Board
of Directors.
•
Signing the Neptune Declaration on Seafarer Wellbeing and Crew Change.
• Committing to responsible ship recycling in accordance with the Hong Kong Convention and conducted in
compliance with the IMO Convention for the Safe and Environmentally Sound Recycling of Ships.
• Equipping all vessels with appropriate ballast water treatment systems.
Environmental and Other Regulations in the Shipping Industry
Government regulation and laws significantly affect the ownership and operation of our fleet. We are subject to
international conventions and treaties, national, state and local laws and regulations in force in the countries in which our
vessels may operate or are registered relating to safety and health and environmental protection including the storage,
handling, emission, transportation and discharge of hazardous and non-hazardous materials and the remediation of
contamination and liability for damage to natural resources. Compliance with such laws, regulations and other requirements
entails significant expense, including vessel modifications and implementation of certain operating procedures.
A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections.
These entities include the local port authorities (applicable national authorities such as the United States Coast Guard
(“USCG”), harbor master or equivalent), classification societies, flag state administrations (countries of registry) and
charterers, particularly terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and other
authorizations for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur
substantial costs or result in the temporary suspension of the operation of one or more of our vessels.
Increasing environmental concerns have created a demand for vessels 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 United States and international regulations.
We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations
and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our
operations. However, because such laws and regulations frequently change and may impose increasingly stricter
requirements, 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 vessels. In addition, a future serious marine incident that causes significant adverse
environmental impact could result in additional legislation or regulation that could negatively affect our profitability.
International Maritime Organization
The International Maritime Organization, or the IMO, the United Nations agency for maritime safety and the
prevention of pollution by vessels, has adopted the International Convention for the Prevention of Pollution from Ships,
1973, as modified by the Protocol of 1978 relating thereto, collectively referred to as MARPOL 73/78 and herein as
“MARPOL,” the SOLAS Convention, and the International Convention on Load Lines of 1966 (the “LL Convention”).
MARPOL establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air
emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms. MARPOL is
applicable to drybulk, tanker and LNG carriers, among other vessels, and is broken into six Annexes, each of which regulates
a different source of pollution. Annex I relates to oil leakage or spilling; Annexes II and III relate to noxious liquid
substances carried in bulk and harmful substances carried in packaged form, respectively; Annexes IV and V relate to sewage
and garbage management, respectively; and Annex VI, lastly, relates to air emissions. Annex VI was separately adopted by
the IMO in September of 1997; new emissions standards, titled IMO-2020, took effect on January 1, 2020.
48
In 2012, the IMO’s Marine Environmental Protection Committee, or the “MEPC,” adopted a resolution amending
the International Code for the Construction and Equipment of Ships Carrying Dangerous Chemicals in Bulk, or the “IBC
Code.” The provisions of the IBC Code are mandatory under MARPOL and the SOLAS Convention. These amendments,
which entered into force in June 2014 and took effect on January 1, 2021, pertain to revised international certificates of
fitness for the carriage of dangerous chemicals in bulk and identifying new products that fall under the IBC Code. All our
vessels complying have been issued new certificates accordingly.
Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Effective May
2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts and prohibits
“deliberate emissions” of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile
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, as
explained below. Emissions of “volatile organic compounds” from certain vessels, and the shipboard incineration (from
incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls, or PCBs) are also
prohibited. We believe that all our vessels are currently compliant in all material respects with these regulations.
The MEPC adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter
and ozone depleting substances, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air
pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used
on board ships. On October 27, 2016, at its 70th session, the MEPC agreed to implement a global 0.5% m/m sulfur oxide
emissions limit (reduced from 3.50%) starting from January 1, 2020. This limitation can be met by using low-sulfur
compliant fuel oil, alternative fuels, or certain exhaust gas cleaning systems. Ships are now required to obtain bunker delivery
notes and International Air Pollution Prevention (“IAPP”) Certificates from their flag states that specify sulfur content.
Additionally, at MEPC 73, amendments to Annex VI to prohibit the carriage of bunkers above 0.5% sulfur on ships were
adopted and took effect March 1, 2020, with the exception of vessels fitted with exhaust gas cleaning equipment
(“scrubbers”) which can carry fuel of higher sulfur content. These regulations subject ocean-going vessels to stringent
emissions controls and may cause us to incur substantial costs.
Sulfur content standards are even stricter within certain ECAs. As of January 1, 2015, ships operating within an
ECA were not permitted to use fuel with sulfur content in excess of 0.1% m/m. Amended Annex VI establishes procedures
for designating new ECAs. Currently, the IMO has designated four ECAs, including specified portions of the Baltic Sea area,
North Sea area, North American area and United States Caribbean area. Ocean-going vessels in these areas will be subject to
stringent emission controls and may cause us to incur additional costs. Other areas in China are subject to local regulations
that impose stricter emission controls. In December 2021, the member states of the Convention for the Protection of the
Mediterranean Sea Against Pollution (“Barcelona Convention”) agreed to support the designation of a new ECA in the
Mediterranean. On December 15, 2022, MEPC 79 adopted the designation of a new ECA in the Mediterranean, with an
effective date of May 1, 2025. If other ECAs are approved by the IMO, or other new or more stringent requirements relating
to emissions from marine diesel engines or port operations by vessels are adopted by the U.S. Environmental Protection
Agency (“EPA”) or the states where we operate, compliance with these regulations could entail significant capital
expenditures or otherwise increase the costs of our operations.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for marine diesel
engines, depending on their date of installation. At the MEPC meeting held from March to April 2014, amendments to Annex
VI were adopted which address the date on which Tier III Nitrogen Oxide (NOx) standards in ECAs will go into effect.
Under the amendments, Tier III NOx standards apply to ships that operate in the North American and U.S. Caribbean Sea
ECAs designed for the control of NOx produced by vessels with a marine diesel engine installed and constructed on or after
January 1, 2016. Tier III requirements could apply to areas that will be designated for Tier III NOx in the future. At MEPC
70 and MEPC 71, the MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxide for ships built on or after
January 1, 2021. The EPA promulgated equivalent (and in some senses stricter) emissions standards in 2010. As a result of
these designations or similar future designations, we may be required to incur additional operating or other costs.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI became effective as of March 1,
2018 and requires ships above 5,000 gross tonnage to collect and report annual data on fuel oil consumption to an IMO
database, with the first year of data collection having commenced on January 1, 2019. The IMO intends to use such data as
the first step in its roadmap (through 2023) for developing its strategy to reduce greenhouse gas emissions from ships, as
discussed further below.
49
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. All ships
are now required to develop and implement Ship Energy Efficiency Management Plans, (“SEEMP”), and new ships must be
designed in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy Efficiency Design
Index (“EEDI”). Under these measures, by 2025, all new ships built will be 30% more energy efficient than those built in
2014. MEPC 75 adopted amendments to MARPOL Annex VI which brings forward the effective date of the EEDI’s “phase
3” requirements from January 1, 2025 to April 1, 2022 for several ship types, including gas carriers, general cargo ships, and
LNG carriers.
As part of the wider push towards both the IMO’s 2030 and 2050 greenhouse gas targets, MEPC has agreed draft
regulations relating to the Energy Efficiency Existing Ship Index (“EEXI”), confirmed at MEPC 76 (June 2021). The
regulations entered into force from 1st January 2023. The requirements include: (1) a technical requirement to reduce carbon
intensity based on EEXI, and (2) operational carbon intensity reduction requirements, based on a new operational carbon
intensity indicator (“CII”). The attained EEXI is required to be calculated for ships of 400 gross tonnage and above, in
accordance with different values set for ship types and categories. With respect to the CII, the draft amendments would
require ships of 5,000 gross tonnage to document and verify their actual annual operational CII achieved against a determined
required annual operational CII. Additionally, MEPC 75 proposed draft amendments requiring that, on or before January 1,
2023, all ships above 400 gross tonnage must have an approved SEEMP on board. For ships above 5,000 gross tonnage, the
SEEMP would need to include certain mandatory content. MEPC 75 also approved draft amendments to MARPOL Annex I
to prohibit the use and carriage for use as fuel of heavy fuel oil (“HFO”) by ships in Arctic waters on and after July 1, 2024.
The draft amendments introduced at MEPC 75 were adopted at the MEPC 76 session on June 2021 and entered into force in
November 2022. Additionally, MEPC 77 adopted a non-binding resolution which urges Member States and ship operators to
voluntarily use distillate or other cleaner alternative fuels or methods of propulsion that are safe for ships and could
contribute to the reduction of Black Carbon emissions from ships when operating in or near the Arctic. MEPC 79 adopted
amendments to MARPOL Annex VI, Appendix IX to include the attained and required CII values, the CII rating and attained
EEXI for existing ships in the required information to be submitted to the IMO Ship Fuel Oil Consumption Database. The
amendments will enter into force on May 1, 2024.
Any vessels that will not meet these new requirements will need to adopt energy-saving/emission reducing
technology, through retrofits, to reach compliant levels. This creates a vast array of implications for the tanker industry going
forward. Recycling of older ships could accelerate as the investments to comply with regulations are not feasible. One of the
most efficient ways of reducing emissions is reducing power, this would in turn limit vessel speed and with that supply.
We may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations
may be adopted that could require the installation of expensive emission control systems and could adversely affect our
business, results of operations, cash flows and financial condition.
Safety Management System Requirements
The SOLAS Convention was amended to address the safe manning of vessels and emergency training drills. The
Convention of Limitation of Liability for Maritime Claims (“LLMC”) sets limitations of liability for a loss of life or personal
injury claim or a property claim against ship owners. We believe that our vessels are in substantial compliance with the
SOLAS Convention and LLMC standards.
Under Chapter IX of the SOLAS Convention, or the International Safety Management Code for the Safe Operation
of Ships and for Pollution Prevention (the “ISM Code”), our operations are also subject to environmental standards and
requirements. 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 management system that we and our technical management team have developed for compliance
with the ISM Code. The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party
to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access
to, or detention in, certain ports.
The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate.
This certificate evidences compliance by a vessel’s management with the ISM Code requirements for a safety management
system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of
compliance, issued by each flag state, under the ISM Code. We have obtained applicable documents of compliance for our
offices and safety management certificates for all of our vessels for which the certificates are required by the IMO. The
document of compliance and safety management certificates are renewed as required.
50
Regulation II-1/3-10 of the SOLAS Convention governs ship construction and stipulates that ships over 150 meters
in length must have adequate strength, integrity and stability to minimize risk of loss or pollution. Goal-based standards
amendments in SOLAS regulation II-1/3-10 entered into force in 2012, with July 1, 2016 set for application to new oil
tankers and bulk carriers. The SOLAS Convention regulation II-1/3-10 on goal-based ship construction standards for bulk
carriers and oil tankers, which entered into force on January 1, 2012, requires that all oil tankers and bulk carriers of 150
meters in length and above, for which the building contract is placed on or after July 1, 2016, satisfy applicable structural
requirements conforming to the functional requirements of the International Goal-based Ship Construction Standards for
Bulk Carriers and Oil Tankers (“GBS Standards”).
Amendments to the SOLAS Convention Chapter VII apply to vessels transporting dangerous goods and require
those vessels be in compliance with the International Maritime Dangerous Goods Code (“IMDG Code”). Effective January 1,
2018, the IMDG Code includes (1) updates to the provisions for radioactive material, reflecting the latest provisions from the
International Atomic Energy Agency, (2) new marking, packing and classification requirements for dangerous goods, and (3)
new mandatory training requirements. Amendments which took effect on January 1, 2020 also reflect the latest material from
the UN Recommendations on the Transport of Dangerous Goods, including (1) new provisions regarding IMO type 9 tank,
(2) new abbreviations for segregation groups, and (3) special provisions for carriage of lithium batteries and of vehicles
powered by flammable liquid or gas. Additional amendments, which came into force on June 1, 2022, include (1) addition of
a definition of dosage rate, (2) additions to the list of high consequence dangerous goods, (3) new provisions for
medical/clinical waste, (4) addition of various ISO standards for gas cylinders, (5) a new handling code, and (6) changes to
stowage and segregation provisions.
The IMO has also adopted the International Convention on Standards of Training, Certification and Watchkeeping
for Seafarers (“STCW”). As of February 2017, all seafarers are required to meet the STCW standards and be in possession of
a valid STCW certificate. Flag states that have ratified the SOLAS Convention and STCW generally employ the
classification societies, which have incorporated the SOLAS Convention and STCW requirements into their class rules, to
undertake surveys to confirm compliance.
The IMO’s Maritime Safety Committee and MEPC, respectively, each adopted relevant parts of the International
Code for Ships Operating in Polar Water (the “Polar Code”). The Polar Code, which entered into force on January 1, 2017,
covers design, construction, equipment, operational, training, search and rescue as well as environmental protection matters
relevant to ships operating in the waters surrounding the two poles. It also includes mandatory measures regarding safety and
pollution prevention as well as recommendatory provisions. The Polar Code applies to new ships constructed after January 1,
2017, and after January 1, 2018, ships constructed before January 1, 2017 are required to meet the relevant requirements by
the earlier of their first intermediate or renewal survey.
Furthermore, recent action by the IMO’s Maritime Safety Committee and United States agencies indicates that
cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to
combat cybersecurity threats. By IMO resolution, administrations are encouraged to ensure that cyber-risk management
systems are incorporated by ship-owners and managers by their first annual Document of Compliance audit after January 1,
2021. In February 2021, the U.S. Coast Guard published guidance on addressing cyber risks in a vessel’s safety management
system. This might cause companies to create additional procedures for monitoring cybersecurity, which could require
additional expenses and/or capital expenditures. The impact of such regulations is hard to predict at this time.
In June 2022, SOLAS also set out new amendments that will take effect January 1, 2024, which include new
requirements for: (1) the design for safe mooring operations, (2) the Global Maritime Distress and Safety System
(“GMDSS”), (3) watertight integrity, (4) watertight doors on cargo ships, (5) fault-isolation of fire detection systems, (6) life-
saving appliances, and (7) safety of ships using LNG as fuel. These new requirements may impact the cost of our operations.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose liability for pollution in international waters and the
territorial waters of the signatories to such conventions. For example, the IMO adopted the BWM Convention in 2004. The
BWM Convention entered into force on September 8, 2017. The BWM Convention requires ships to manage their ballast
water to remove, render harmless, or avoid the uptake or discharge of new or invasive aquatic organisms and pathogens
within ballast water and sediments. The BWM Convention’s implementing regulations call for a phased introduction of
mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits, and require all
ships to carry a ballast water record book and an international ballast water management certificate.
51
On December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM
Convention so that the dates are triggered by the entry into force date and not the dates originally in the BWM Convention.
This, in effect, makes all vessels delivered before the entry into force date “existing vessels” and allows for the installation of
ballast water management systems on such vessels at the first International Oil Pollution Prevention (“IOPP”) renewal survey
following entry into force of the convention. The MEPC adopted updated guidelines for approval of ballast water
management systems (G8) at MEPC 70. At MEPC 71, the schedule regarding the BWM Convention’s implementation dates
was also discussed and amendments were introduced to extend the date existing vessels are subject to certain ballast water
standards. Those changes were adopted at MEPC 72. Ships over 400 gross tons generally must comply with a “D-1
standard,” requiring the exchange of ballast water only in open seas and away from coastal waters. The “D-2 standard”
specifies the maximum amount of viable organisms allowed to be discharged, and compliance dates vary depending on the
IOPP renewal dates. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D-2 standard
on or after September 8, 2019. For most ships, compliance with the D-2 standard will involve installing on-board systems to
treat ballast water and eliminate unwanted organisms. Ballast water management systems, which include systems that make
use of chemicals, biocides, organisms or biological mechanisms, or which alter the chemical or physical characteristics of the
ballast water, must be approved in accordance with IMO Guidelines (Regulation D-3). As of October 13, 2019, MEPC 72’s
amendments to the BWM Convention took effect, making the Code for Approval of Ballast Water Management Systems,
which governs assessments of ballast water management systems, mandatory rather than permissive, and formalized an
implementation schedule for the D-2 standard. Under these amendments, all ships must meet the D-2 standard by September
8, 2024. Costs of compliance with these regulations may be substantial. Additionally, in November 2020, MEPC 75 adopted
amendments to the BWM Convention which would require a commissioning test of the ballast water management system for
the initial survey or when performing an additional survey for retrofits. This analysis will not apply to ships that already have
an installed BWM system certified under the BWM Convention. These amendments have entered into force on June 1, 2022.
In December 2022, MEPC 79 agreed that it should be permitted to use ballast tanks for temporary storage of treated sewage
and grey water. MEPC 79 also established that ships are expected to return to D-2 compliance after experiencing challenging
uptake water and bypassing a BWM system should only be used as a last resort. Guidance will be developed at MEPC 80 (in
July 2023) to set out appropriate actions and uniform procedures to ensure compliance with the BWM Convention.
Once mid-ocean exchange ballast water treatment requirements become mandatory under the BWM Convention, the
cost of compliance could increase for ocean carriers and may have a material effect on our operations. However, many
countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction
of invasive and harmful species via such discharges. The U.S., for example, requires vessels entering its waters from another
country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting
requirements.
The IMO adopted the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by
different Protocols in 1976, 1984, and 1992, and amended in 2000 (“CLC”). Under the CLC 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 may be strictly
liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to
certain exceptions. The 1992 Protocol changed certain limits on liability expressed using the International Monetary Fund
currency unit, the Special Drawing Rights. The limits on liability have since been amended so that the compensation limits
on liability were raised. 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 shipowner’s intentional or reckless act or omission
where the shipowner knew pollution damage would probably result. The CLC requires ships over 2,000 tons covered by it to
maintain insurance covering the liability of the owner in a sum equivalent to an owner’s liability for a single incident. We
have protection and indemnity insurance for environmental incidents. P&I Clubs in the International Group issue the required
Bunkers Convention “Blue Cards” to enable signatory states to issue certificates. All of our vessels are in possession of a
CLC State issued certificate attesting that the required insurance coverage is in force.
The IMO also adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage (the
“Bunker Convention”) to impose strict liability on ship owners (including the registered owner, bareboat charterer, manager
or operator) for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker
Convention requires registered owners of ships over 1,000 gross tons to maintain insurance 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 LLMC). With respect to non-ratifying states, liability for spills or releases of oil
carried as fuel in a ship’s bunkers typically is determined by the national or other domestic laws in the jurisdiction where the
events or damages occur.
52
Ships are required to maintain a certificate attesting that they maintain adequate insurance to cover an incident. In
jurisdictions, such as the United States where the CLC or the Bunker Convention have not been adopted, various legislative
schemes or common law govern, and liability is imposed either on the basis of fault or on a strict-liability basis.
Anti-Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti-fouling Systems on Ships, or
the “Anti-fouling Convention.” The Anti-fouling Convention, which entered into force on September 17, 2008, prohibits the
use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. Vessels
of over 400 gross tons engaged in international voyages will also be required to undergo an initial survey before the vessel is
put into service or before an International Anti-fouling System Certificate is issued for the first time; and subsequent surveys
when the anti-fouling systems are altered or replaced. Vessels of 24 meters in length or more but less than 400 gross tons
engaged in international voyages will have to carry a Declaration on Anti-fouling Systems signed by the owner or authorized
agent.
In November 2020, MEPC 75 approved draft amendments to the Anti-fouling Convention to prohibit anti-fouling
systems containing cybutryne, which would apply to ships from January 1, 2023, or, for ships already bearing such an anti-
fouling system, at the next scheduled renewal of the system after that date, but no later than 60 months following the last
application to the ship of such a system. In addition, the IAFS Certificate has been updated to address compliance options for
anti-fouling systems to address cybutryne. Ships which are affected by this ban on cybutryne must receive an updated IAFS
Certificate no later than two years after the entry into force of these amendments. Ships which are not affected (i.e. with anti-
fouling systems which do not contain cybutryne) must receive an updated IAFS Certificate at the next Anti-fouling
application to the vessel. These amendments were formally adopted at MEPC 76 in June 2021.
We have obtained Anti-fouling System Certificates for all of our vessels that are subject to the Anti-fouling
Convention.
Compliance Enforcement
Noncompliance with the ISM Code or other IMO regulations may subject the ship owner or bareboat charterer to
increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of
access to, or detention in, some ports. The USCG and European Union authorities have indicated that vessels not in
compliance with the ISM Code by applicable deadlines will be prohibited from trading in U.S. and European Union ports,
respectively. As of the date of this report, each of our vessels is ISM Code certified. However, there can be no assurance that
such certificates will be maintained in the future. 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.
United States Regulations
The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act
The U.S. Oil Pollution Act of 1990 (“OPA”) established an extensive regulatory and liability regime for the
protection and cleanup of the environment from oil spills. OPA affects all “owners and operators” whose vessels trade or
operate within the U.S., its territories and possessions or whose vessels operate in U.S. waters, which includes the U.S.’s
territorial sea and its 200 nautical mile exclusive economic zone around the U.S. The U.S. has also enacted the
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), which applies to the discharge of
hazardous substances other than oil, except in limited circumstances, whether on land or at sea. OPA and CERCLA both
define “owner and operator” in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Both
OPA and CERCLA impact our operations.
Under OPA, vessel owners and operators 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, including
bunkers (fuel). OPA defines these other damages broadly to include:
(i)
(ii)
injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;
injury to, or economic losses resulting from, the destruction of real and personal property;
53
(iii)
(iv)
(v)
(vi)
loss of subsistence use of natural resources that are injured, destroyed or lost;
net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real
or personal property, or natural resources;
lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property
or natural resources; and
net cost of increased or additional public services necessitated by removal activities following a discharge
of oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural
resources.
OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective
November 12, 2019, the USCG adjusted the limits of OPA liability for a tank vessel, other than a single-hull tank vessel, over
3,000 gross tons liability to the greater of $2,300 per gross ton or $19,943,400 (subject to periodic adjustment for inflation).
On December 23, 2022, the USCG issued a final rule to adjust the limitation of liability under the OPA. Effective March 23,
2022, the new adjusted limits of OPA liability for a tank vessel, other than a single-hull tank vessel, over 3,000 gross tons
liability to the greater of $2,500 per gross ton or $21,521,300 (subject to periodic adjustment for inflation). These limits of
liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction
or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual
relationship), or a responsible party’s gross negligence or willful misconduct. The limitation on liability similarly does not
apply if the responsible party fails or refuses to (i) report the incident as required by law where the responsible party knows
or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal
activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311
(c), (e)) or the Intervention on the High Seas Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal
and remedial costs, as well as damages for injury to, or destruction or loss of, natural resources, including the reasonable
costs associated with assessing the same, and health assessments or health effects studies. There is no liability if the discharge
of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability
under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as
cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the
responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous
substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable
safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible
person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities
where the vessel is subject to OPA.
OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law.
OPA and CERCLA both require owners and operators of vessels to establish and maintain with the USCG evidence of
financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be
subject. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance,
a surety bond, qualification as a self-insurer or a guarantee. We comply and plan to comply going forward with the USCG’s
financial responsibility regulations by providing applicable certificates of financial responsibility.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico resulted in additional regulatory initiatives or statutes,
including higher liability caps under OPA, new regulations regarding offshore oil and gas drilling, and a pilot inspection
program for offshore facilities. However, several of these initiatives and regulations have been or may be revised. For
example, the U.S. Bureau of Safety and Environmental Enforcement’s (“BSEE”) revised Production Safety Systems Rule
(“PSSR”), effective December 27, 2018, modified and relaxed certain environmental and safety protections under the 2016
PSSR. Additionally, the BSEE amended the Well Control Rule, effective July 15, 2019, which rolled back certain reforms
regarding the safety of drilling operations, and former U.S. President Trump had proposed leasing new sections of U.S.
waters to oil and gas companies for offshore drilling. In January 2021, current U.S. President Biden signed an executive order
temporarily blocking new leases for oil and gas drilling in federal waters. However, attorneys general from 13 states filed suit
in March 2021 to lift the executive order, and in June 2021, a federal judge in Louisiana granted a preliminary injunction
against the Biden administration, stating that the power to pause offshore oil and gas leases “lies solely with Congress.” In
August 2022, a federal judge in Louisiana sided with Texas Attorney General Ken Paxton, along with the other 12 plaintiff
states, by issuing a permanent injunction against the Biden Administration’s moratorium on oil and gas leasing on federal
public lands and offshore waters. With these rapid changes, compliance with any new requirements of OPA and future
legislation or regulations applicable to the operation of our vessels could impact the cost of our operations and adversely
affect our business.
54
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents
occurring within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA and
some states have enacted legislation providing for unlimited liability for oil spills. Many U.S. states that border a navigable
waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages
resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal
law. Moreover, some states have enacted legislation providing for unlimited liability for discharge of pollutants within their
waters, although in some cases, states which have enacted this type of legislation have not yet issued implementing
regulations defining vessel owners’ responsibilities under these laws. The Company intends to comply with all applicable
state regulations in the ports where the Company’s vessels call.
We currently maintain pollution 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 an adverse effect on
our business and results of operations.
Other United States Environmental Initiatives
The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) (“CAA”) requires the EPA to
promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are
subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and
conducting other operations in regulated port areas. The CAA also requires states to draft State Implementation Plans, or
SIPs, designed to attain national health-based air quality standards in each state. Although state-specific, SIPs may include
regulations concerning emissions resulting from vessel loading and unloading operations by requiring the installation of
vapor control equipment. Our vessels operating in such regulated port areas with restricted cargoes are equipped with vapor
recovery systems that satisfy these existing requirements.
The U.S. Clean Water Act (“CWA”) prohibits the discharge of oil, hazardous substances and ballast water 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, remediation and
damages and complements the remedies available under OPA and CERCLA. In 2015, the EPA expanded the definition of
“waters of the United States” (“WOTUS”), thereby expanding federal authority under the CWA. Following litigation on the
revised WOTUS rule, in December 2018, the EPA and Department of the Army proposed a revised, limited definition of
WOTUS. In 2019 and 2020, the agencies repealed the prior WOTUS Rule and promulgated the Navigable Waters Protection
Rule (“NWPR”) which significantly reduced the scope and oversight of EPA and the Department of the Army in traditionally
non-navigable waterways. On August 30, 2021, a federal district court in Arizona vacated the NWPR and directed the
agencies to replace the rule. On December 7, 2021, the EPA and the Department of the Army proposed a rule that would
reinstate the pre-2015 definition. On December 30, 2022, the EPA and the Department of Army announced the final WOTUS
rule that largely reinstated the pre-2015 definition.
The EPA and the USCG have also enacted rules relating to ballast water discharge, compliance with which requires
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 potentially substantial costs, and/or otherwise restrict our vessels from
entering U.S. waters. The EPA will regulate these ballast water discharges and other discharges incidental to the normal
operation of certain vessels within United States waters pursuant to the Vessel Incidental Discharge Act (“VIDA”), which
was signed into law on December 4, 2018 and replaces the 2013 Vessel General Permit (“VGP”) program (which authorizes
discharges incidental to operations of commercial vessels and contains numeric ballast water discharge limits for most
vessels to reduce the risk of invasive species in U.S. waters, stringent requirements for exhaust gas scrubbers, and
requirements for the use of environmentally acceptable lubricants) and current Coast Guard ballast water management
regulations adopted under the U.S. National Invasive Species Act (“NISA”), such as mid-ocean ballast exchange programs
and installation of approved USCG technology for all vessels equipped with ballast water tanks bound for U.S. ports or
entering U.S. waters. VIDA establishes a new framework for the regulation of vessel incidental discharges under the CWA,
requires the EPA to develop performance standards for those discharges within two years of enactment, and requires the U.S.
Coast Guard to develop implementation, compliance, and enforcement regulations within two years of EPA’s promulgation
of standards. Under VIDA, all provisions of the 2013 VGP and USCG regulations regarding ballast water treatment remain in
force and effect until the EPA and U.S. Coast Guard regulations are finalized. Non-military, non-recreational vessels greater
than 79 feet in length must continue to comply with the requirements of the VGP, including submission of a Notice of Intent
(“NOI”) or retention of a PARI form and submission of annual reports. We have submitted NOIs for our vessels where
required. Compliance with the EPA, U.S. Coast Guard and state regulations could require the installation of ballast water
treatment equipment on our vessels or the implementation of other port facility disposal procedures at potentially substantial
cost, or may otherwise restrict our vessels from entering U.S. waters.
55
European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source
discharges of polluting 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 quality of water. Aiding and
abetting the discharge of a polluting substance may also lead to criminal penalties. The directive applies to all types of
vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in
danger. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims.
Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015 (amending EU Directive
2009/16/EC) governs the monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and,
subject to some exclusions, requires companies with ships over 5,000 gross tonnage to monitor and report carbon dioxide
emissions annually, which may cause us to incur additional expenses.
The European Union has adopted several regulations and directives requiring, among other things, more frequent
inspections of high-risk ships, as determined by type, age, and flag as well as the number of times the ship has been detained.
The European Union also adopted and extended a ban on substandard ships and enacted a minimum ban period and a
definitive ban for repeated offenses. The regulation also provided the European Union with greater authority and control over
classification societies, by imposing more requirements on classification societies and providing for fines or penalty
payments for organizations that failed to comply. Furthermore, the EU has implemented regulations requiring vessels to use
reduced sulfur content fuel for their main and auxiliary engines. The EU Directive 2005/33/EC (amending Directive
1999/32/EC) introduced requirements parallel to those in Annex VI relating to the sulfur content of marine fuels. In addition,
the EU imposed a 0.1% maximum sulfur requirement for fuel used by ships at berth in the Baltic, the North Sea and the
English Channel (the so called “SOx-Emission Control Area”). As of January 2020, EU member states must also ensure that
ships in all EU waters, except SOx-Emission Control Area, use fuels with a 0.5% maximum sulfur content.
On September 15, 2020, the European Parliament voted to include greenhouse gas emissions from the maritime
sector in the European Union’s carbon market, the EU Trading System (“EU ETS”). On July 14, 2021, the European
Parliament formally proposed its plan, which would involve gradually including the maritime sector from 2023 and phasing
the sector in over a three-year period. This will require shipowners to buy permits to cover these emissions. The Environment
Council adopted a general approach on the proposal in June 2022. On December 18, 2022, the Environmental Council and
European Parliament agreed to include maritime shipping emissions within the scope of the EU ETS on a gradual
introduction of obligations for shipping companies to surrender allowances: 40% for verified emissions from 2024, 70% for
2025 and 100% for 2026. Most large vessels will be included in the scope of the EU ETS from the start. Big offshore vessels
of 5,000 gross tonnage and above will be included in the ‘MRV’ on the monitoring, reporting and verification of CO2
emissions from maritime transport regulation from 2025 and in the EU ETS from 2027. General cargo vessels and off-shore
vessels between 400-5,000 gross tonnage will be included in the MRV regulation from 2025 and their inclusion in EU ETS
will be reviewed in 2026.
International Labour Organization
The International Labour Organization (the “ILO”) is a specialized agency of the UN that has adopted the Maritime
Labour Convention 2006, (“MLC 2006”). A Maritime Labour Certificate and a Declaration of Maritime Labor Compliance is
required to ensure compliance with the MLC 2006 for all ships that are 500 gross tonnage or over and are either engaged in
international voyages or flying the flag of a Member and operating from a port, or between ports, in another country. We
believe that all our vessels are in substantial compliance with and are certified to meet MLC 2006.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the
United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting
countries have been required to implement national programs to reduce greenhouse gas emissions with targets extended
through 2020. International negotiations are continuing with respect to a successor to the Kyoto Protocol, and restrictions on
shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and
China, signed the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. The
2015 United Nations Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on
November 4, 2016 and does not directly limit greenhouse gas emissions from ships. The U.S. initially entered into the
agreement, but on June 1, 2017, former U.S. President Trump announced that the United States intends to withdraw from the
Paris Agreement, and that withdrawal became effective on November 4, 2020. On January 20, 2021, U.S. President Biden
signed an executive order to rejoin the Paris Agreement, which the U.S. officially rejoined on February 19, 2021.
56
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive
IMO strategy on reduction of greenhouse gas emissions from ships was approved. In accordance with this roadmap, in April
2018, nations at the MEPC 72 adopted an initial strategy to reduce greenhouse gas emissions from ships. The initial strategy
identifies “levels of ambition” to reducing greenhouse gas emissions, including (1) decreasing the carbon intensity from ships
through implementation of further phases of the EEDI for new ships; (2) reducing carbon dioxide emissions per transport
work, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared
to 2008 emission levels; and (3) reducing the total annual greenhouse emissions by at least 50% by 2050 compared to 2008
while pursuing efforts towards phasing them out entirely. The initial strategy notes that technological innovation, alternative
fuels and/or energy sources for international shipping will be integral to achieve the overall ambition. These regulations could
cause us to incur additional substantial expenses. At MEPC 77, the Member States agreed to initiate the revision of the Initial
IMO Strategy on Reduction of GHG emissions from ships, recognizing the need to strengthen the ambition during the
revision process. MEPC 79 revised the EEDI calculation guidelines to include a CO2 conversion factor for ethane, a
reference to the updated ITCC guidelines, and a clarification that in case of a ship with multiple load line certificates, the
maximum certified summer draft should be used when determining the deadweight. A final draft Revised IMO GHG Strategy
would be considered by MEPC 80 (scheduled to meet in July 2023), with a view to adoption. Compliance with these
regulations and other changes in laws, regulations and obligations relating to climate change affects the propulsion options in
subsequent vessel designs and could increase our costs related to acquiring new vessels, operating and maintaining our
existing vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas
emissions or administer and manage a greenhouse gas emissions program.
The EU made a unilateral commitment to reduce overall greenhouse gas emissions from its member states from 20%
of 1990 levels by 2020. The EU also committed to reduce its emissions by 20% under the Kyoto Protocol’s second period
from 2013 to 2020. Starting in January 2018, large ships over 5,000 gross tonnage calling at EU ports are required to collect
and publish data on carbon dioxide emissions and other information. As previously discussed, regulations relating to the
inclusion of greenhouse gas emissions from the maritime sector in the European Unions’ carbon market, EU ETS, are also
forthcoming.
In the United States, the EPA issued a finding that greenhouse gases endanger the public health and safety, adopted
regulations to limit greenhouse gas emissions from certain mobile sources, and proposed regulations to limit greenhouse gas
emissions from large stationary sources. However, in March 2017, former U.S. President Trump signed an executive order to
review and possibly eliminate the EPA’s plan to cut greenhouse gas emissions, and in August 2019, the Administration
announced plans to weaken regulations for methane emissions. On August 13, 2020, the EPA released rules rolling back
standards to control methane and volatile organic compound emissions from new oil and gas facilities. However, U.S.
President Biden recently directed the EPA to publish a proposed rule suspending, revising, or rescinding certain of these
rules. On November 2, 2021, the EPA issued a proposed rule under the CAA designed to reduce methane emissions from oil
and gas sources. The proposed rule would reduce 41 million tons of methane emissions between 2023 and 2035 and cut
methane emissions in the oil and gas sector by approximately 74 percent compared to emissions from this sector in 2005.
EPA also issued a supplemental proposed rule in November 2022 to include additional methane reduction measures
following public input and anticipates issuing a final rule in 2023. If these new regulations are finalized, they could affect our
operations.
Any passage of climate control legislation or other regulatory initiatives by the IMO, the EU, the U.S. or other
countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol or Paris
Agreement, that restricts emissions of greenhouse gases could require us to make significant financial expenditures which we
cannot predict with certainty at this time. Even in the absence of climate control legislation, our business may be indirectly
affected to the extent that climate change may result in sea level changes or certain weather events.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives
intended to enhance vessel security such as the U.S. Maritime Transportation Security Act of 2002 (“MTSA”). To implement
certain portions of the MTSA, the USCG issued regulations requiring the implementation of certain security requirements
aboard vessels operating in waters subject to the jurisdiction of the United States and at certain ports and facilities, some of
which are regulated by the EPA.
Similarly, Chapter XI-2 of the SOLAS Convention imposes detailed security obligations on vessels and port
authorities and mandates compliance with the International Ship and Port Facility Security Code (“the ISPS Code”). The
ISPS Code is designed to enhance the security of ports and ships against terrorism. To trade internationally, a vessel must
attain an International Ship Security Certificate (“ISSC”) from a recognized security organization approved by the vessel’s
57
flag state. Ships operating without a valid certificate may be detained, expelled from, or refused entry at port until they obtain
an ISSC. The various requirements, some of which are found in the SOLAS Convention, include, for example, 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, position,
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, 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 registered owner(s) and their registered
address; and compliance with flag state security certification requirements.
The USCG regulations, intended to align with international maritime security standards, exempt non-U.S. vessels
from MTSA vessel security measures, provided such vessels have on board a valid ISSC that attests to the vessel’s
compliance with the SOLAS Convention security requirements and the ISPS Code. Future security measures could have a
significant financial impact on us. We intend to comply with the various security measures addressed by MTSA, the SOLAS
Convention and the ISPS Code.
The cost of vessel security measures has also been affected by the escalation in the frequency of acts of piracy
against ships, notably off the coast of Somalia, including the Gulf of Aden and Arabian Sea area. Substantial loss of revenue
and other costs may be incurred as a result of detention of a vessel or additional security measures, and the risk of uninsured
losses could significantly affect our business. Costs are incurred in taking additional security measures in accordance with
Best Management Practices to Deter Piracy, notably those contained in the BMP5 industry standard.
Inspection by Classification Societies
The hull and machinery of every commercial vessel must be classed by a classification society authorized by its
country of registry. The classification society certifies that a vessel is safe and seaworthy in accordance with the applicable
rules and regulations of the country of registry of the vessel and SOLAS Convention. Most insurance underwriters make it a
condition for insurance coverage and lending that a vessel be certified “in class” by a classification society which is a
member of the International Association of Classification Societies, the IACS. The IACS has adopted harmonized Common
Structural Rules, or the Rules, which apply to oil tankers and bulk carriers contracted for construction on or after July 1,
2015. The Rules attempt to create a level of consistency between IACS Societies. All of our vessels are certified as being “in
class” by all the applicable Classification Societies (e.g., American Bureau of Shipping, Lloyd’s Register of Shipping).
A vessel must undergo annual surveys, intermediate surveys, drydockings and special surveys. In lieu of a special
survey, a vessel’s machinery may be on a continuous survey cycle, under which the machinery would be surveyed
periodically over a five-year period. Every vessel is also required to be drydocked every 30 to 36 months for inspection of the
underwater parts of the vessel. If any vessel does not maintain its class and/or fails any annual survey, intermediate survey,
drydocking or special survey, the vessel will be unable to carry cargo between ports and will be unemployable and
uninsurable which could cause us to be in violation of certain covenants in our loan agreements. Any such inability to carry
cargo or be employed, or any such violation of covenants, could have a material adverse impact on our financial condition
and results of operations.
Risk of Loss and Liability Insurance
General
The operation of any cargo vessel includes risks such as mechanical failure, physical damage, collision, property
loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, piracy incidents,
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 owning and operating vessels in international trade. OPA, which
imposes virtually unlimited liability upon shipowners, operators and bareboat charterers of any vessel trading in the exclusive
economic zone of the United States for certain oil pollution accidents in the United States, has made liability insurance more
expensive for shipowners and operators trading in the United States market. We carry insurance coverage as customary in the
shipping industry. However, not all risks can be insured, specific claims may be rejected, and we might not be always able to
obtain adequate insurance coverage at reasonable rates.
58
Hull and Machinery Insurance
We procure hull and machinery insurance, protection and indemnity insurance, which includes environmental
damage and pollution insurance and war risk insurance, including war loss of hire and freight, demurrage and defense
insurance for our fleet. We generally do not maintain insurance against loss of hire (except for certain charters for which we
consider it appropriate), which covers business interruptions that result in the loss of use of a vessel.
Protection and Indemnity Insurance
Protection and indemnity insurance provided by mutual protection and indemnity associations, or P&I Associations,
covers our third-party liabilities in connection with our shipping activities. This includes third-party liability and other related
expenses of 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 arising 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 protection and indemnity mutual associations, or “clubs.”
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The 13
P&I Associations that comprise the International Group insure approximately 90% of the world’s commercial tonnage and
have entered into a pooling agreement to reinsure each association’s liabilities. The International Group’s website states that
the Pool provides a mechanism for sharing all claims in excess of US$10 million up to, currently, approximately US$3.2
billion. In case of an ‘overspill’ claim, which would fall back on the collective membership and on the total limitation of the
liability of group membership, that amount may go up to approximately US$8.2 billion. As a member of a P&I Association,
which is a member of the International Group, we are subject to calls payable to the associations based on our claim records
as well as the claim records of all other members of the individual associations and members of the shipping pool of P&I
Associations comprising the International Group.
C. Organizational Structure
Please see Exhibit 8.1 to this annual report for a list of our current significant subsidiaries.
D. Property, Plants and Equipment
Our only material physical assets consist of our vessels which are owned through our separate, wholly-owned
subsidiaries. For a description of our fleet, see “Item 4. Information on the Company—B. Business Overview.”
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following presentation of management’s discussion and analysis of results of operations and financial condition
should be read in conjunction with our consolidated financial statements, accompanying notes thereto and other financial
information appearing in “Item 18. Financial Statements.” You should also carefully read the following discussion with the
sections of this annual report entitled “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—
B. Business Overview—The International Oil Tanker Shipping Industry,” and “Cautionary Statement Regarding Forward-
Looking Statements.” Our consolidated financial statements as of December 31, 2022 and 2021 and for the years ended
December 31, 2022, 2021, and 2020 have been prepared in accordance with IFRS as issued by the IASB. Our consolidated
financial statements are presented in U.S. dollars ($) 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 applicable period.
We generate revenues by charging customers for the transportation of their refined oil and other petroleum products
using our vessels. These services are generally 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.
•
Time or bareboat charters, which are vessels 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.
59
• Commercial Pools, whereby we participate with other shipowners to operate a large number of vessels as an
integrated transportation system, which offers customers greater flexibility and a higher level of service while
achieving scheduling efficiencies. Pools negotiate charters primarily in the spot market but may also arrange
time charter agreements. The size and scope of these pools enable them to enhance utilization rates for pool
vessels by securing backhaul voyages and COAs (described below), thus generating higher effective TCE
revenues than otherwise might be obtainable in the spot market.
For all types of vessels in contractual relationships, we are responsible for crewing and other vessel operating costs
for our owned, lease financed, or bareboat chartered-in vessels and the charterhire expense for vessels that we time or
bareboat charter-in.
The table below illustrates the primary distinctions among these different employment arrangements:
Typical contract length .....................
Hire rate basis(1) ............................
Voyage expenses(2) .......................
Vessel operating costs for owned,
lease financed, or bareboat
chartered-in vessels(3) ................
Charterhire expense for time
or bareboat chartered-in
vessels(3) ....................................
Off-hire(4) ......................................
Voyage
Charter
Single voyage
Varies
We pay
Time
Charter
One year or more
Daily
Customer pays
Bareboat
Charter
One year or more
Daily
Customer pays
Commercial
Pool
Varies
Varies
Pool pays
We pay
We pay
Customer pays
We pay
We pay
Customer does not pay
We pay
Customer does not pay
We pay
Customer pays
We pay
Pool does not pay
(1) “Hire rate” refers to the basic payment from the charterer for the use of the vessel.
(2) “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) “Vessel operating costs” and “Charterhire expense” are 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 drydockings. For time chartered-
in vessels, we do not pay the charterhire expense when the vessel is off-hire.
As of March 23, 2023, 99 of our wholly owned, lease financed or bareboat chartered-in vessels were operating in the
Scorpio Pools and 14 were operating on time charter-out agreements.
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. We pay all of the voyage expenses under
these charters.
Voyage expenses. Voyage expenses primarily include bunkers, port charges, canal tolls, cargo handling operations
and brokerage commissions paid by us under voyage charters. These expenses are subtracted from voyage charter revenues to
calculate TCE revenue, a non-IFRS measure, which is defined below.
Vessel operating costs. For our owned, lease financed, and bareboat chartered-in vessels, we are responsible for
vessel operating costs, which include crewing, repairs and maintenance, insurance, spares and stores, lubricating oils,
communication expenses, and technical management fees. The three largest components of our vessel operating costs are
crewing, spares and stores, 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 drydocking. Please read “Drydocking”
below. We expect these expenses to increase as our fleet matures and to the extent that it expands.
60
Additionally, these costs include technical management fees that we paid to SSM, which is controlled by the Lolli-
Ghetti family. Pursuant to our Revised Master Agreement, SSM provides us with technical services, and we provide them
with the ability to subcontract technical management of our vessels with our approval.
Charterhire expense. Charterhire is the amount we pay the owner for time or bareboat chartered-in vessels. The
amount is usually 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. Time or bareboat chartered-in vessels are accounted for pursuant to IFRS 16 -
Leases.
The responsibility for vessel operating expenses for the different types of charter agreements are as follows:
• Time chartered-in vessels. The vessel’s owner is responsible for the vessel operating costs.
• Bareboat chartered-in vessels. The charterer is responsible for the vessel operating costs.
Drydocking. We periodically drydock each of our owned or lease financed 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 to 60 months. We capitalize a substantial portion of the costs incurred during
drydocking and amortize those costs on a straight-line basis from the completion of a drydocking to the estimated completion
of the next drydocking. 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 drydockings undertaken in a given period and the
nature of the work performed determine the level of drydocking expenditures.
Depreciation. Depreciation expense typically consists of:
•
•
•
charges related to the depreciation of the historical cost of our owned, or lease financed vessels (less an
estimated residual value) over the estimated useful lives of the vessels;
charges related to the depreciation of our right of use assets (accounted for under IFRS 16) which is based upon
the straight-line depreciation of the right of use asset over the life of the lease or the useful life of the asset, if a
purchase obligation or a purchase option is reasonably certain to be exercised; and
charges related to the amortization of drydocking expenditures over the estimated number of years to the next
scheduled drydocking.
Time charter equivalent (TCE) revenue or rates. We report TCE revenues, a non-IFRS measure, because (i) we
believe it provides additional meaningful information in conjunction with voyage revenues and voyage expenses, the most
directly comparable IFRS measures, (ii) it assists our management in making decisions regarding the deployment and use of
our vessels and in evaluating their financial performance, (iii) it is a standard shipping industry performance measure used
primarily to compare period-to-period changes in a shipping company’s performance irrespective of changes in the mix of
charter types (i.e., spot charters, time charters and bareboat charters) under which the vessels may be employed between the
periods, and (iv) we believe that it presents useful information to investors. TCE revenue is vessel revenue less voyage
expenses, including bunkers and port charges. The TCE rate achieved on a given voyage is expressed in U.S. dollars/day and
is generally calculated by taking TCE revenue and dividing that figure by the number of revenue days in the period. For a
reconciliation of TCE revenue, deduct voyage expenses from revenue on our consolidated statements of income or loss.
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 represent the total number of days available for the vessel to earn revenue. 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 owned or lease financed vessels 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.
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 shipowner greater operating flexibility than with voyage charters alone. The charterer has the flexibility to
61
determine the individual voyage scheduling at a future date while the shipowner may use different vessels to perform these
individual voyages. As a result, COAs are mostly entered into by large fleet operators, such as pools or shipowners with large
fleets of the same vessel type. We pay the voyage expenses while the freight rate normally is agreed on a per cargo ton basis.
Commercial pools. To increase vessel utilization and revenues, we participate in commercial pools with other
shipowners and operators of similar modern, well-maintained vessels. By operating a large number of vessels as an integrated
transportation system, commercial 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 but may also arrange time charter agreements. 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 otherwise might be obtainable in the spot market while providing a higher
level of service offerings to customers.
Operating days. Operating days are the total number of available days in a period with respect to the owned, leased
financed, or bareboat chartered-in vessels, before deducting available days due to off-hire days and days in drydock.
Operating days is a measurement that is only applicable to our owned, lease financed, or bareboat chartered-in vessels, not
time chartered-in vessels.
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 cyclicity 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 vessels we trade in the
spot market or in spot market-oriented pools. We employ a chartering strategy to capture 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 industry 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 seaborne 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 northern hemisphere but weaker in the summer months as a
result of lower oil consumption in the northern hemisphere and refinery maintenance that is typically conducted in the
summer months. In addition, unpredictable weather patterns during the winter months in the northern hemisphere tend to
disrupt vessel routing and scheduling. 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 expenses were affected by the fees we pay SCM, SSM, and SSH for commercial management, technical
management and administrative services, respectively. SCM, SSM and SSH, companies controlled by the Lolli-Ghetti
family of which our founder, Chairman and Chief Executive Officer and our Vice President are members, provide
commercial, technical and administrative management services to us, respectively. We pay fees under our Revised Master
Agreement with SCM and SSM, for our vessels that operate both within and outside of the Scorpio Pools. The fees charged
to our vessels operating within the Scorpio Pools are identical to what SCM charges third-party owned vessels operating
within the Scorpio Pools. When our vessels are operating in one of the Scorpio Pools, SCM, the pool manager, charges fees
of $300 per vessel per day with respect to our LR1 vessels, $250 per vessel per day with respect to our LR2 vessels, and $325
62
per vessel per day with respect to each of our Handymax and MR vessels, plus 1.50% commission on gross revenues per
charter fixture. For commercial management of our vessels that are not operating in any of the Scorpio Pools, we pay SCM a
fee of $250 per vessel per day for each LR1 and LR2 vessel and $300 per vessel per day for each Handymax and MR vessel,
plus 1.25% commission on gross revenues per charter fixture.
Pursuant to the Revised Master Agreement, the fixed annual technical management fee that we pay to SSM was
reduced from $250,000 per vessel to $175,000, effective January 1, 2018 and certain services previously provided as part of
the fixed fee are now itemized. The aggregate cost, including the costs that are now itemized, for the services provided under
the technical management agreement did not and are not expected to materially differ from the annual management fee
charged prior to the amendment.
We also reimburse our Administrator for the reasonable direct or indirect expenses it incurs in providing us with the
administrative services described in “Item 4 - Information on the Company”.
A. Operating Results
Results of Operations for the year ended December 31, 2022 compared to the year ended December 31, 2021
For the year ended
December 31,
Change
favorable /
Percentage
(unfavorable) Change
2022
In thousands of U.S. dollars
Vessel revenue ..................................................................... $ 1,562,873
(323,725)
Vessel operating costs ..........................................................
Voyage expenses .................................................................
(92,698)
(168,008)
Depreciation - owned or sale leaseback vessels ...................
Depreciation - right of use assets .........................................
(38,827)
General and administrative expenses ...................................
(88,131)
Reversal of previously recorded impairment .......................
12,708
(66,486)
Net loss on sales of vessels ..................................................
(169,795)
Financial expenses ...............................................................
Gain/(loss) on repurchase/exchange of convertible notes ....
481
6,884
Financial income ..................................................................
Other income, net .................................................................
1,975
Net income/(loss) ................................................................ $ 637,251
$
2021
$ 540,786
(334,840)
(3,455)
(197,467)
(42,786)
(52,746)
—
—
(144,104)
(5,504)
3,623
2,058
$ (234,435) $
1,022,087
11,115
(89,243)
29,459
3,959
(35,385)
12,708
(66,486)
(25,691)
5,985
3,261
(83)
871,686
189 %
3 %
(2,583)%
15 %
9 %
(67)%
N/A
N/A
(18)%
109 %
90 %
(4)%
372 %
Net income/(loss). Net income for the year ended December 31, 2022 was $637.3 million, an increase of $871.7
million, or 372%, from the net loss of $234.4 million for the year ended December 31, 2021. The differences between the two
periods are discussed below.
Vessel revenue. Vessel revenue for the year ended December 31, 2022 was $1.6 billion, an increase of $1.0 billion,
or 189%, from vessel revenue of $540.8 million for the year ended December 31, 2021. TCE revenue (a non-IFRS measure)
per day increased to $34,878 per day during the year ended December 31, 2022 from $11,466 per day during the year ended
December 31, 2021. This increase was partially offset by a decrease in revenue days to 42,153 days from 46,865 days for the
years ended December 31, 2022 and 2021, respectively. The increase in revenue is discussed below by reportable segment.
63
The following is a summary of our consolidated revenue by revenue type, in addition to TCE revenue per day and
total revenue days.
In thousands of U.S. dollars
Pool and spot market revenue by operating segment
For the year ended
December 31,
Change
favorable /
Percentage
2022
2021
(unfavorable) Change
$
$
$
719,887
MR .......................................................................... $
539,630
LR2 .........................................................................
Handymax ..............................................................
243,951
11,196
LR1 .........................................................................
1,514,664
Total pool and spot market revenue ..................................
48,209
Time charter-out revenue ..................................................
1,562,873
Gross revenue ...................................................................
(92,698)
Voyage expenses ..............................................................
TCE revenue(1) .................................................................. $ 1,470,175
$ 262,714
180,876
50,143
47,053
540,786
—
540,786
(3,455 )
$ 537,331
Daily pool and spot market TCE by operating
segment:(1)
MR pool and spot market ....................................... $
LR2 pool and spot market ......................................
Handymax pool and spot market ............................
LR1 pool and spot market ......................................
Consolidated daily pool and spot market TCE .................
Time charter-out - daily TCE ............................................
Consolidated daily TCE ....................................................
Pool and spot market revenue days per operating
segment
MR ..........................................................................
LR2 .........................................................................
Handymax ..............................................................
LR1 .........................................................................
Total and pool spot market revenue days..........................
Time charter-out revenue days .........................................
Total revenue days ............................................................
$
33,299
38,277
39,253
13,724
35,309
25,370
34,878
21,009
13,429
5,069
816
40,323
1,830
42,153
11,396
12,189
9,523
11,713
11,466
—
11,466
22,812
14,819
5,215
4,019
46,865
—
46,865
457,173
358,754
193,808
(35,857 )
973,878
48,209
1,022,087
(89,243 )
932,844
174 %
198 %
387 %
(76)%
180 %
N/A
189 %
(2,583)%
174 %
21,903
26,088
29,730
2,011
23,843
25,370
23,412
(1,803 )
(1,390 )
(146 )
(3,203 )
(6,542 )
1,830
(4,712 )
192 %
214 %
312 %
17 %
208 %
N/A
204 %
(8)%
(9)%
(3)%
(80)%
(14)%
N/A
(10)%
(1) We report TCE revenues, a non-IFRS measure, because (i) we believe it provides additional meaningful information in conjunction with voyage
revenues and voyage expenses, the most directly comparable IFRS measures, (ii) it assists our management in making decisions regarding the
deployment and use of our vessels and in evaluating their financial performance, (iii) it is a standard shipping industry performance measure used
primarily to compare period-to-period changes in a shipping company’s performance irrespective of changes in the mix of charter types (spot charters,
time charters and bareboat charters) under which the vessels may be employed between the periods, and (iv) we believe that it presents useful
information to investors.
Pool and spot market revenue. Pool and spot market revenue for the year ended December 31, 2022 was $1.5
billion, an increase of $973.9 million, or 180% from $540.8 million for the year ended December 31, 2021. The increase in
pool and spot market revenue was due to a dramatic shift in market conditions (as discussed further below) during the year
ended December 31, 2022, which led to an increase in pool and spot market TCE revenue per day across all of our reportable
segments. This increase was partially offset by a decrease in pool revenue days to 40,323 for the year ended December 31,
2022 from 46,865 for the year ended December 31, 2021.
Pool and spot market revenue for the year ended December 31, 2022 reflected a structural change in the supply and
demand balance for product tankers. A confluence of events served as a catalyst to a substantial increase in ton-mile demand
for product tankers beginning in March 2022 and continuing through the date of this report. First, the continued easing of
COVID-19 restrictions around the globe has resulted in increased personal mobility thus stimulating underlying demand for
refined petroleum products. Second, record refining margins combined with low global refined petroleum product inventories
incentivized refiners to increase and maintain high utilization levels, resulting in substantial increases in refined petroleum
product export volumes throughout the world. Third, the volatility brought on by the ongoing conflict in Ukraine, which has
resulted in the implementation of sanctions on the export of Russian crude oil and refined petroleum products, changing
volumes and trade routes, and thus increasing ton-mile demand for refined petroleum products.
64
MR pool and spot market revenue. MR pool and spot market revenue for the year ended December 31, 2022 was
$719.9 million, an increase of $457.2 million, or 174%, from $262.7 million for the year ended December 31, 2021. The
increase in MR pool and market revenue was driven by the aforementioned shifts in global supply and demand dynamics,
which benefited all vessel classes. Record refining margins, high refinery utilization, and low inventory levels drove
significant increases in product exports in regions where MRs traditionally trade, such as the U.S. Gulf. This backdrop drove
increased demand for MR tankers and daily pool and spot market TCE revenue increased significantly as a result to $33,299
per day from $11,396 per day during the years ended December 31, 2022 and 2021, respectively.
This increase was slightly offset by a decrease in pool and spot market revenue days to 21,009 days from 22,812 days
during the years ended December 31, 2022 and 2021, respectively, driven mainly by the sale of three MRs during 2022 as well as
five MRs that entered into long term time charter-out agreements commencing in the third and fourth quarters of 2022.
LR2 pool and spot market revenue. LR2 pool and spot market revenue for the year ended December 31, 2022 was
$539.6 million, an increase of $358.8 million, or 198%, from $180.9 million for the year ended December 31, 2021. The increase in
LR2 pool and spot market revenue was driven by the aforementioned shifts in global supply and demand dynamics, which
benefited all vessel classes. In addition to the uplift provided by the overall demand fundamentals in the market, LR2s also
benefited from increased demand for longer-haul voyages, particularly as European countries began to shift their product imports
(such as diesel) from further afield. As a result of these factors, pool and spot market TCE revenue per day increased to $38,277 per
day from $12,189 per day during the years ended December 31, 2022 and 2021, respectively.
This increase was slightly offset by a decrease in LR2 pool and spot market revenue days to 13,429 days from
14,819 days during the years ended December 31, 2022 and 2021, respectively. This decrease was driven by nine LR2
vessels that entered into long term time charter-out agreements commencing in the second, third and fourth quarters of 2022
for a total of 1,060 days in 2022 as well as the sale of three LR2s during the second and third quarters of 2022.
Handymax pool and spot market revenue. Handymax pool and spot market revenue for the year ended December
31, 2022 was $244.0 million, an increase of $193.8 million, or 387%, from $50.1 million for the year ended December 31,
2021. Our ice class Handymax vessels trade on shorter haul routes, and while the backdrop of improving demand
fundamentals throughout the world benefited the demand for these vessels, the supply disruptions caused by the conflict in
Ukraine were also a key contributing factor in the improved daily rates earned by these vessels. As a result of these factors,
daily pool and spot market TCE for our Handymax vessels increased to $39,253 per day from $9,523 per day during the
years ended December 31, 2022 and 2021, respectively.
Pool and spot market revenue days decreased to 5,069 days from 5,215 days during the years ended December 31,
2022 and 2021, respectively, as a result of the expiration of the leases on four bareboat chartered-in vessels during the year
ended December 31, 2021.
LR1 pool and spot market revenue. LR1 pool and spot market revenue for the year ended December 31, 2022 was
$11.2 million, a decrease of $35.9 million, or 76%, from $47.1 million for the year ended December 31, 2021. This decrease
was driven by the sale of all 12 LR1s during the first and second quarters of 2022, decreasing the total LR1 pool and spot
market revenue days to 816 days from 4,019 days during the years ended December 31, 2022 and 2021, respectively.
This decrease was slightly offset by the increase in LR1 pool and spot market TCE revenue per day to $13,724 per
day from $11,713 per day during the years ended December 31, 2022 and 2021, respectively. This increase was driven by the
aforementioned shifts in global supply and demand, which benefited all vessel classes, but was limited due to the sale of the
vessels during the first half of the year.
Time charter-out revenue. Time charter-out revenue for the year ended December 31, 2022 was $48.2 million and
zero for the year ended December 31, 2021.
In thousands of U.S. dollars
MR ..............................................................................
LR2 .............................................................................
Total time charter-out revenue ...........................................
For the year ended
December 31,
2022
17,171
31,038
48,209
$
$
2021
—
—
—
Change
Favorable /
(unfavorable)
17,171
$
31,038
48,209
$
Percentage
Change
N/A
N/A
N/A
65
During the year ended December 31, 2022, we entered into time charter-out agreements on 14 of our vessels, for a
total of 1,830 revenue days, which are summarized in the table below:
Vessel
STI Gratitude ..................................
STI Guard .......................................
STI Gladiator ..................................
STI Guide .......................................
STI Marshall ...................................
STI Magnetic ..................................
STI Miracle .....................................
STI Memphis ..................................
STI Goal .........................................
STI Lombard ..................................
STI Gauntlet ...................................
STI Duchessa ..................................
STI Lavender ..................................
STI Grace ........................................
Vessel class
LR2
LR2
LR2
LR2
MR
MR
MR
MR
LR2
LR2
LR2
MR
LR2
LR2
Term
Three years
Five years
Three years
Three years
Three years
Three years
Three years
Three years
Three years
Three years
Three years
Three years
Three years
Three years
Rate
$28,000/day(1)
$28,000/day(2)
$28,000/day(3)
$28,000/day(3)
$23,000/day(4)
$23,000/day(5)
$21,000/day(6)
$21,000/day(7)
$30,000/day(8)
$32,750/day(9)
$32,750/day
$25,000/day
$35,000/day
$37,500/day(10)
Commencement date
May-22
July-22
July-22
July-22
July-22
July-22
August-22
June-22
August-22
September-22
November-22
October-22
December-22
December-22
(1) This vessel commenced a time charter in May 2022 for three years at an average rate of $28,000 per day. The charterers have the option to extend the
term of this agreement for an additional year at $31,000 per day. If this option is declared, the charterers have the option to further extend the term of
this agreement for an additional year at $33,000 per day.
(2) This vessel commenced a time charter in July 2022 for five years at a rate of $28,000 per day. The charterers have the option to convert the term of this
agreement to three years at $30,000 per day, which must be declared within 30 months after the delivery date.
(3) This vessel commenced a time charter in July 2022 for three years at an average rate of $28,000 per day. The charterers have the option to extend the
term of this agreement for an additional year at $31,000 per day. If this option is declared, the charterers have the option to further extend the term of
this agreement for an additional year at $33,000 per day.
(4) This vessel commenced a time charter in July 2022 for three years at a rate of $23,000 per day. The charterers have the option to extend the term of this
agreement for an additional year at $24,000 per day. If this option is declared, the charterers have the option to further extend the term of this agreement
for an additional year at $25,000 per day. If this second option is declared, the charterers have the option to further extend the term of this agreement for
an additional year at $26,000 per day.
(5) This vessel commenced a time charter in July 2022 for three years at an average rate of $23,000 per day. The daily rate is the average rate over the three
year period, which is payable in years one, two, and three at $30,000 per day, $20,000 per day, and $19,000 per day, respectively. The charterers have
the option to extend the term of this agreement for an additional year at $24,500 per day. If this option is declared, the charterers have the option to
further extend the term of this agreement for an additional year at $26,000 per day.
(6) This vessel commenced a time charter in August 2022 for three years at an average rate of $21,000 per day. The daily rate is the average rate over the
three year period, which is payable during the first six months at $30,000 per day, the next six months are payable at $20,000 per day, and years two and
three are payable at $19,000 per day. The charterers have the option to extend the term of this agreement for an additional year at $22,500 per day. If this
option is declared, the charterers have the option to further extend the term of this agreement for an additional year at $24,000 per day.
(7) This vessel commenced a time charter in June 2022 for three years at an average rate of $21,000 per day. The daily rate is the average rate over the three
year period, which is payable during the first six months at $30,000 per day, the next six months are payable at $20,000 per day, and years two and three
are payable at $19,000 per day. The charterers have the option to extend the term of this agreement for an additional year at $22,500 per day. If this
option is declared, the charterers have the option to further extend the term of this agreement for an additional year at $24,000 per day.
(8) This vessel commenced a time charter in August 2022 for three years at a rate of $30,000 per day. The charterers have the option to extend the term of this
agreement for an additional year at $32,000 per day. If this option is declared, the charterers have the option to further extend the term of this agreement for an
additional year at $34,000 per day.
(9) This vessel commenced a time charter in September 2022 for three years at an average rate of $32,750 per day. The charterer has the option to extend
the term of this agreement for an additional year at $34,750 per day. If this option is declared, the charterer has the option to further extend the term of
this agreement for an additional year at $36,750 per day.
(10) This vessel commenced a time charter in December 2022 for three years at an average rate of $37,500 per day. The daily rate is the average rate over the
three year period, which is payable during the first six months at $47,000 per day, the next six months are payable at $28,000 per day, and years two and
three are payable at $37,500 per day.
Vessel operating costs. Vessel operating costs for the year ended December 31, 2022 were $323.7 million, a decrease
of $11.1 million, from $334.8 million for the year ended December 31, 2021. Vessel operating days decreased to 43,394 days
from 48,114 days for the years ended December 31, 2022 and 2021, respectively, which was mainly the result of the sale of 18
vessels during the year ended December 31, 2022. This decrease was partially offset by an increase in average vessel operating
costs per day to $7,460 per day during the year ended December 31, 2022 from the average of $6,959 per day during the year
ended December 31, 2021. Vessel operating costs per day increased across all vessel classes, with the largest increases affecting
certain crewing expenses, services repairs, and spares and stores expenses. The easing of supply chain congestion (leading to a
high volume of spares and stores deliveries), the completion of previously deferred repairs and maintenance, and generalized
66
inflationary pressures all contributed to the increase. Additionally, in December 2022, we allocated $2.0 million to a provident
fund dedicated to our seafarers. Vessel operating costs by operating segment are discussed below.
The following table is a summary of our vessel operating costs by operating segment:
In thousands of U.S. dollars
Vessel operating costs
For the year ended
December 31,
2022
2021
Change
favorable /
(unfavorable)
Percentage
change
$
$
$
MR .........................................................................
LR2 ........................................................................
Handymax ..............................................................
LR1 ........................................................................
Total vessel operating costs ..........................................
$ 165,735
112,407
36,507
9,076
$ 323,725
$ 161,086
105,714
38,157
29,883
$ 334,840
Vessel operating costs per day
MR .........................................................................
LR2 ........................................................................
Handymax ..............................................................
LR1 ........................................................................
Consolidated vessel operating costs per day .................
$
$
7,444
7,593
7,144
7,474
7,460
7,005
6,896
7,055
6,823
6,959
Operating days
MR .........................................................................
LR2 ........................................................................
Handymax ..............................................................
LR1 ........................................................................
Total operating days .....................................................
22,265
14,805
5,110
1,214
43,394
22,995
15,330
5,409
4,380
48,114
(4,649)
(6,693)
1,650
20,807
11,115
(439)
(697)
(89)
(651)
(501)
(730)
(525)
(299)
(3,166)
(4,720)
(3)%
(6)%
4 %
70 %
3 %
(6)%
(10)%
(1)%
(10)%
(7)%
(3)%
(3)%
(6)%
(72)%
(10)%
MR vessel operating costs. Vessel operating costs for our MR segment were $165.7 million for the year ended
December 31, 2022, an increase of $4.6 million, or 3%, from $161.1 million for the year ended December 31, 2021.
Operating days decreased by 730 days to 22,265 days from 22,995 days during the years ended December 31, 2022 and 2021,
respectively, primarily as a result of the sale of three MR vessels during 2022. Operating costs per day increased to $7,444
per day from $7,005 per day, for the years ended December 31, 2022 and 2021, respectively, which was the result of general
inflationary pressures, with increases in crew related costs, repairs and maintenance, and stores and spares costs as the most
impacted expenses.
LR2 vessel operating costs. Vessel operating costs for our LR2 segment were $112.4 million for the year ended
December 31, 2022, an increase of $6.7 million, or 6%, from $105.7 million for the year ended December 31, 2021. LR2
operating costs per day increased to $7,593 per day from $6,896 per day for the years ended December 31, 2022 and 2021,
respectively. This increase was the result of general inflationary pressures, with increases in service repairs and spares and
stores related costs as the most impacted expenses. This increase was slightly offset by a decrease in LR2 operating days to
14,805 days from 15,330 days during the years ended December 31, 2022 and 2021, respectively, primarily as a result of the
sale of three LR2 vessels during 2022.
Handymax vessel operating costs. Vessel operating costs for our Handymax segment were $36.5 million for the
year ended December 31, 2022, a slight decrease of $1.7 million, or 4%, from $38.2 million for the year ended December 31,
2021. Handymax operating days decreased to 5,110 days from 5,409 days during the years ended December 31, 2022 and
2021, respectively, which was the result of the expiration of the bareboat charter-in agreements on four vessels during the
year ended December 31, 2021. Daily operating costs for our Handymax vessels increased slightly to $7,144 per day during
the year ended December 31, 2022 from $7,055 per day during the year ended December 31, 2021, which was the result of
general inflationary pressures, with increases in service repairs and spares costs as the most impacted expenses.
67
LR1 vessel operating costs. Vessel operating costs for our LR1 segment for the year ended December 31, 2022 were
$9.1 million, a decrease of $20.8 million, or 70%, from $29.9 million for the year ended December 31, 2021. Operating days
for LR1 vessels decreased to 1,214 from 4,380 days during the years ended December 31, 2022 and 2021, respectively, due
to the sale of 12 LR1 vessels during the 2022. Daily operating costs increased to $7,474 per day during the year ended
December 31, 2022 from $6,823 per day during the year ended December 31, 2021, mainly as a result of general inflationary
pressures seen across all vessel operating segments.
Voyage expenses. Voyage expenses were $92.7 million for the year ended December 31, 2022, an increase of $89.2
million, or 2,583%, from $3.5 million for the year ended December 31, 2021. This was primarily driven by an increase in
vessels that traded in the spot market during the year ended December 31, 2022. Fifteen MRs, 14 LR2s and 14 Handymax
vessels traded in the spot market during the year ended December 31, 2022, for a total of 4,155 days as compared to six MR
product tankers that traded in the spot market during the year ended December 31, 2021, for a total of 332 days. Voyage
expenses for the year ended December 31, 2022 consisted of bunker consumption of $50.2 million, port and agency expenses
of $23.2 million, voyage related insurance of $7.7 million, and other voyage related expenses (including commissions) of
$11.6 million.
Depreciation - Owned and lease financed vessels. Depreciation expense for owned and lease financed vessels was
$168.0 million for the year ended December 31, 2022, a decrease of $29.5 million, or 15%, from $197.5 million for the year
ended December 31, 2021. This decrease was primarily related of the sale of 17 of our owned or sale leaseback vessels
during the year ended December 31, 2022. These vessels were written down to their net realizable value upon being
designated as held for sale, and depreciation ceased being recorded upon that designation.
Depreciation - Right of use assets. Depreciation - right of use assets for the year ended December 31, 2022 was
$38.8 million, a decrease of $4.0 million, or 9%, from $42.8 million for the year ended December 31, 2021. Primarily, this
decrease is attributable to the sale of one of our right of use asset vessels. This vessel was written down to its net realizable
value upon being designated as held for sale during the first quarter of 2022, and depreciation expense ceased being recorded
upon that designation.
General and administrative expenses. General and administrative expenses were $88.1 million for the year ended
December 31, 2022, an increase of $35.4 million, or 67%, from $52.7 million for the year ended December 31, 2021. The
change was primarily driven by an increase in compensation related costs.
Reversal of previously recorded impairment. Reversal of previously recorded impairment was $12.7 million for the
year ended December 31, 2022. Under International Financial Reporting Standards, we are required to assess whether a
previously recorded impairment on an asset no longer exists or has decreased. We performed this assessment at December
31, 2022 and determined that given the strength in the product tanker market, and, in particular, the significant uplift in the
market values for the second-hand vessels, that the impairment charge of $14.2 million that was previously recorded at
December 31, 2020 on 13 MRs should be reversed. The reversal of $12.7 million represents the full amount of the previously
recorded impairment, less the depreciation that would have been recorded had the impairment not been recorded.
Net loss on sales of vessels. Net loss on sales of vessels was $66.5 million for the year ended December 31, 2022.
During the year ended December 31, 2022, we sold 18 vessels, consisting of three LR2s, 12 LR1s, and three MRs. We
recorded an aggregate loss of $69.1 million on the sale of 17 of these vessels and a gain of $2.6 million on the remaining
vessel.
Financial expenses. Financial expenses were $169.8 million for the year ended December 31, 2022, an increase of
$25.7 million, or 18%, from $144.1 million for the year ended December 31, 2021.
Financial expenses for the year ended December 31, 2022 primarily consisted of (i) interest payable on debt of
$137.1 million, (ii) accretion of our Convertible Notes due in 2022 and 2025 of $12.7 million, (iii) amortization of loan fees
of $6.4 million, (iv) accretion of the premiums and discounts primarily recorded as part of the purchase price allocation on
the indebtedness assumed from Navig8 Product Tankers Inc. in 2017 of $2.1 million, and (v) the loss on extinguishment of
debt and write-off of deferred financing fees of $11.5 million.
Financial expenses for the year ended December 31, 2021 primarily consisted of (i) interest payable on debt of
$116.0 million, (ii) accretion of our Convertible Notes due in 2022 and 2025 of $13.3 million, (iii) amortization of loan fees
of $7.6 million, (iv) the loss on extinguishment of debt and write-off of deferred financing fees of $3.6 million and (v)
accretion of the premiums and discounts recorded as part of the purchase price allocation on the indebtedness assumed from
Navig8 Product Tankers Inc. in 2017 of $3.7 million.
68
The increase in interest expense during the year ended December 31, 2022 when compared to the year ended
December 31, 2021, was primarily attributable to an increase in LIBOR rates, which underpin all of our variable rate
borrowings. As a result of the easing of COVID-19 restrictions, the related economic recovery and corresponding inflationary
pressures, LIBOR rates increased significantly throughout 2022. The increases in LIBOR rates were partially offset by the
overall reductions in our indebtedness arising from the sales of 18 vessels (and repayments of the related debt or lease
financing obligations) along with the exercise of purchase options on 22 lease financed vessels, the maturity of the
Convertible Notes Due 2022 in May 2022, and the conversion of the Convertible Notes Due 2025 in December 2022. The
combination of these factors resulted in higher interest expense for the year ended December 31, 2022 compared to
December 31, 2021 despite the decrease in the average carrying value of our debt to $2.69 billion during the year ended
December 31, 2022 compared to $3.14 billion for the year ended December 31, 2021.
The loss on extinguishment of debt and write-off of deferred financing fees during the years ended December 31,
2022 and 2021, respectively, were as follows:
• During the year ended December 31, 2022, our loss on extinguishment of debt and write-off of deferred financing
fees was $11.5 million, which consisted of (i) $6.6 million of write-offs of deferred financing fees related to the
repayments of debt or lease financing obligations for the 18 vessels sold during the year along with the notifications
to exercise purchase options on 22 lease financed vessels during the year, (ii) $4.9 million in costs related to the
extinguishment of debt, (iii) $0.9 million of write-offs of the discounts related to the payment of indebtedness on
certain vessels sold and to the notifications to exercise purchase options on certain vessels, and (iv) a gain of $0.9
million related to the adjustment of the carrying values of certain sale and leaseback arrangements related to the
notifications to exercise purchase options.
• During the year ended December 31, 2021, our loss on extinguishment of debt and write-off of deferred financing
fees was $3.6 million, which consisted of (i) $3.0 million of write-offs of deferred financing fees related to the
refinancing of existing indebtedness on certain vessels, and (ii) $0.6 million of write-offs of the discounts that were
initially recorded as part of the purchase price allocation on the debt assumed from Navig8 Product Tankers Inc. in
2017, and were written off as part of the refinancing of the existing debt on certain vessels in 2021.
Gain/(loss) on repurchase/exchange of convertible notes. In May and July 2022, we made repurchases on the open
market of our Convertible Notes Due 2025 for $14.3 million. The notes had liability and equity (the value of the conversion
feature) components of $12.8 million and $2.0 million, respectively, resulting in a gain of $0.5 million.
Loss on Convertible Notes exchange was $5.5 million for the year ended December 31, 2021. In March 2021 and
June 2021, we completed the exchange of approximately $62.1 million and $19.4 million, respectively, in aggregate principal
amount of Convertible Notes Due 2022 for approximately $62.1 million and $19.4 million, respectively, in aggregate
principal amount of Convertible Notes Due 2025 pursuant to separate, privately negotiated, agreements with certain holders
of the Convertible Notes Due 2022, which we refer to as the 2021 Convertible Notes Exchanges. We accounted for the 2021
Convertible Notes Exchanges as extinguishments of the original financial liability and the recognition of a new liability on
the basis that the terms of the Convertible Notes Due 2022 are substantially different to the terms of the Convertible Notes
Due 2025. We recorded an aggregate loss on the extinguishment of the Convertible Notes Due 2022 of $5.5 million as a
result of the 2021 Convertible Notes Exchanges, which primarily arose from (i) the difference between the carrying value and
the face value of the Convertible Notes Due 2022 on the date of the exchange, and (ii) transaction costs directly attributable
to the 2021 Convertible Notes Exchanges.
Financial income. Financial income was $6.9 million for the year ended December 31, 2022, an increase of $3.3
million, or 90%, from $3.6 million for the year ended December 31, 2021. This increase was driven by the interest earned on
our cash balance, due to the increased average cash balance during the year ended December 31, 2022 as compared to the
prior year.
Results of Operations for the year ended December 31, 2021 compared to the year ended December 31, 2020
For a discussion of our results for the year ended December 31, 2021 compared to the year ended December 31,
2020, please see “Item 5 - Operating and Financial Review and Prospects - A. Operating Results - Results of Operations for
the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020” contained in our annual report on
Form 20-F for the year ended December 31, 2021, filed with the SEC on March 23, 2022.
69
B. Liquidity and Capital Resources
Our primary source of funds for our short-term and long-term liquidity needs is expected to be the cash flows
generated from our vessels, which primarily operate in the Scorpio Pools, in the spot market or on time charter, in addition to
cash on hand. We believe that the Scorpio Pools reduce volatility because (i) they aggregate the revenues and expenses of all
pool participants and distribute net earnings to the participants based on an agreed upon formula and (ii) some of the vessels
in the pool are on time charter. Furthermore, spot charters provide flexibility and allow us to fix vessels at prevailing rates.
We currently project that we will have adequate financial resources to continue in operation and meet our financial
commitments (including but not limited to debt service obligations, obligations under sale and leaseback arrangements,
commitments under other leasing arrangements, and commitments under our scrubber and BWTS contracts) for a period of at
least 12 months from the date of this annual report.
The cash flows we generate from our vessels have been impacted by geopolitical events such as the COVID-19
pandemic and the conflict in Ukraine. The easing of COVID-19 restrictions around the globe resulted in increased personal
mobility which served as a catalyst for underlying demand for refined petroleum products. This demand, combined with low
global refined petroleum product inventories and strong refining margins, incentivized refiners to increase and maintain high
utilization levels which drove substantial increases in refined petroleum product export volumes throughout the world.
Additionally, the volatility brought on by the ongoing conflict in Ukraine, which has resulted in the implementation of
sanctions on the export of Russian crude oil and refined petroleum products, has continued to disrupt supply chains for crude
oil and refined petroleum products, changing volumes and trade routes, and thus increasing ton-mile demand for the seaborne
transportation of refined petroleum products.
We recorded all time high revenue and net income during the year ended December 31, 2022 as a result of favorable
market conditions that began in March 2022 and which continue through the date of this report. The cash flows generated
from operations have been, and continue to be, utilized to repay our outstanding debt and lease obligations.
During 2023, and in addition to our regularly scheduled debt and lease repayments, we also committed to the
following:
• The exercise of the purchase options on two MR product tankers (STI Brooklyn and STI Ville) and two LR2 product
tankers (STI Rose and STI Rambla) under our AVIC Lease Financing. These purchases closed in January 2023
resulting in a reduction of the related lease liability of $77.8 million.
• The exercise of the purchase options on three LR2 product tankers (STI Sanctity, STI Steadfast and STI Supreme)
that are currently financed under our Ocean Yield sale and leaseback arrangement. The purchase of STI Sanctity
closed in March 2023 for $27.8 million and the remaining repurchases are expected to occur in the second and third
quarters of 2023 and result in an aggregate reduction of the related lease liability of $55.6 million.
• The exercise of the purchase options on STI Grace and STI Jermyn which are financed under the 2021 CSSC Lease
Financing. The aggregate lease obligation on these vessels at the date of purchase is expected to be $46.9 million
and these purchases are expected to occur in May 2023.
• The exercise of the purchase options on STI Lavender, STI Magnetic, STI Marshall and STI Miracle which are
financed under the IFRS 16 - Leases - $670.0 Million lease financing. The aggregate lease obligation on these
vessels at the date of purchase is expected to be $102.9 million and these purchases are expected to occur in May
2023.
We do not have any other debt or leasing financing arrangements that are scheduled to mature or expire within
twelve months from the date of this report.
While we believe our current financial position is adequate to address these cash outflows, a deterioration in
economic conditions could cause us to breach the covenants under our financing arrangements and could have a material
adverse effect on our business, results of operations, cash flows and financial condition. These circumstances could cause us
to seek covenant waivers from our lenders and to pursue other means to raise liquidity, such as through the sale of vessels or
in the capital markets, to meet our obligations. A discussion and analysis of our key risks, including sensitivities thereto, can
be found in “Item 3. Key Information - D. Risk Factors” and “Item 11. Quantitative and Qualitative Disclosures About
Market Risk”.
70
We continuously evaluate potential transactions that we believe will be accretive to earnings, enhance shareholder
value or are in the best interests of the Company, which may include the pursuit of additional vessel sales, business
combinations, the acquisition of vessels or related businesses, the expansion of our operations, repayment of existing debt,
share repurchases, short-term investments or other uses. Any funds received may be used by us for any corporate purpose. In
connection with any transaction, we may enter into additional financing arrangements, refinance existing arrangements or
raise capital through public or private debt or equity offerings of our securities. Any funds raised by us may be used for any
corporate purpose. There is no guarantee that we will grow the size of our fleet or enter into transactions that are accretive to
our shareholders.
As of December 31, 2022, our cash and cash equivalents balance was $376.9 million, which was more than our cash
and cash equivalents balance of $230.4 million as of December 31, 2021. The changes in our cash balance are discussed
below under the section entitled Cash Flows. As of March 23, 2023 and December 31, 2022, we had approximately $2.0
billion and $2.0 billion in aggregate outstanding indebtedness, respectively (which reflects the amounts payable under term
loan facilities, lease financing arrangements and lease liabilities, and excludes unamortized deferred financing fees or other
premiums and discounts). All of our credit facilities are described below under “Long-Term Debt Obligations and Credit
Arrangements.”
As of December 31, 2022, our long-term liquidity needs were primarily comprised of our debt repayment
obligations for our secured credit facilities, lease financing arrangements, and obligations under our time and bareboat
charter-in arrangements (which are accounted for under IFRS 16- Leases).
Equity
2020 $250 Million Securities Repurchase Program
In September 2020, our Board of Directors authorized a securities repurchase program (the “2020 $250 Million
Securities Repurchase Program”) to purchase up to an aggregate of $250 million of securities, which, in addition to our
common shares, consisted of our Senior Notes Due 2025 (NYSE: SBBA), Convertible Notes Due 2022, and Convertible
Notes Due 2025 at the date of authorization. We had the following activity under our 2020 $250 Million Securities
Repurchase Program during the year ended December 31, 2022:
•
In May and July 2022, we repurchased $10.8 million and $1.5 million, respectively, in aggregate principal amount
of our Convertible Notes Due 2025 in the open market for $12.6 million and $1.7 million, respectively.
• Through October 2022, we repurchased an aggregate of 3,120,341 of our common shares at an average price of
$38.66 per share. These repurchases included the repurchase of 1,293,661 of our common shares from Eneti Inc., a
related party, for $38.65 per share and 1,826,680 common shares in the open market for an average price of $38.66
per share.
2022 $250 Million Securities Repurchase Program
In October 2022, our Board of Directors authorized a new securities repurchase program (the “2022 $250 Million
Securities Repurchase Program”) to purchase up to an aggregate of $250 million of securities, which, in addition to our
common shares, consisted of our Senior Notes Due 2025 (NYSE: SBBA), and Convertible Notes Due 2025 at the date of
authorization. The 2020 $250 Million Securities Repurchase Program was terminated upon the authorization of the 2022
$250 Million Securities Repurchase Program.
In December 2022, we repurchased 789,532 of our common shares in the open market at an average price of $51.61
per share under the 2022 $250 Million Securities Repurchase Program.
There were 11,429,197 and 7,519,324 common shares held in treasury at December 31, 2022 and 2021, respectively.
From January 1, 2023 through February 15, 2023, we repurchased an aggregate of 1,891,303 of our common shares
in the open market at an average price of $50.27 per share under the 2022 $250 Million Securities Repurchase Program.
2023 Securities Repurchase Program
On February 15, 2023, our Board of Directors authorized a new securities repurchase program (the “2023 Securities
Repurchase Program”) to purchase up to an aggregate of $250 million of our securities which, in addition to our common
shares also consist of our Senior Unsecured Notes Due 2025. The previous securities repurchase program was terminated on
this date and any future repurchases of our securities will be made under the 2023 Securities Repurchase Program.
71
From February 16 through the date of the issuance of these financial statements, we have repurchased an aggregate
of 332,659 of our common shares in the open market at an average price of $53.49 per share.
As of the date of this report, there is $232.2 million available under the 2023 Securities Repurchase Program.
2013 Equity Incentive Plan
For a description of issuances of our common shares pursuant to our 2013 Equity Incentive Plan, see “Item 6.
Directors, Senior Management and Employees - B. Compensation - 2013 Equity Incentive Plan.”
Cash Flows
The table below summarizes our sources and uses of cash for the periods presented:
In thousands of U.S. dollars
Cash flow data
Net cash inflow/(outflow)
Operating activities .................................................................................................
Investing activities ..................................................................................................
Financing activities .................................................................................................
For the year ended December 31,
2022
2021
$
$
769,333
571,956
(1,194,834)
73,300
(52,278)
21,882
Cash flow from operating activities
Fiscal year ended December 31, 2022 compared to fiscal year ended December 31, 2021
Operating cash flows are driven by our results of operations along with movements in working capital. The
following table sets forth the components of our operating cash flows for the years ended December 31, 2022 and
December 31, 2021:
For the year ended
December 31,
2022
In thousands of U.S. dollars
Vessel revenue(1) .............................................................. $ 1,562,873
Vessel operating costs(1) ...................................................
(323,725)
Voyage expenses(1) ..........................................................
(92,698)
General and administrative expenses - cash(1)(2) ..............
(67,734)
Financial expenses - cash(1) (3) ..........................................
(141,982)
Change in working capital(4) ............................................
(175,581)
6,884
Financial income - cash ...................................................
Other ................................................................................
1,296
Operating cash flow ....................................................... $ 769,333
2021
$ 540,786
(334,840)
(3,455)
(29,815)
(115,983)
14,337
171
2,099
73,300
$
$
Change
favorable /
(unfavorable)
1,022,087
11,115
(89,243)
(37,919)
(25,999)
(189,918)
6,713
(803)
696,033
$
Percentage
Change
189 %
3 %
(2,583)%
(127)%
(22)%
(1,325)%
3,926 %
(38)%
950 %
(1) See “Item 5. Operating and Financial Review and Prospects- A. Operating Results” for information on these variations for the years ended December 31,
2022 and 2021.
(2) Cash general and administrative expenses are general and administrative expenses from our consolidated statements of income or loss excluding the
amortization of restricted stock of $20.4 million and $22.9 million for the years ended December 31, 2022 and 2021, respectively.
(3) Cash financial expenses represents interest payable on our outstanding indebtedness and lease financing obligations. These amounts are derived from
Financial expenses from our consolidated statements of income or loss excluding (i) the amortization of deferred financing fees of $6.4 million and $7.6
million for the years ended December 31, 2022 and 2021, respectively, (ii) non-cash debt extinguishment costs, primarily the write-off of deferred
financing fees and unamortized discounts on sale and leaseback facilities, of $6.6 million and $3.6 million over these same periods, (iii) the accretion of
our Convertible Notes Due 2022 and Convertible Notes Due 2025 of $12.7 million and $13.3 million over these same periods, and (iv) accretion of $2.1
million and $3.7 million related primarily to the premiums and discounts recorded as part of the purchase price allocation on the indebtedness assumed
from Navig8 Product Tankers Inc. in 2017 during the years ended December 31, 2022 and 2021. Cash financial expenses increased primarily as a result
of higher average LIBOR rates during the year ended December 31, 2022 as compared to the year ended December 31, 2021. LIBOR rates have
increased as a result of the easing of COVID-19 restrictions and the related recovery of the economy, coupled with overall inflationary pressures that
central banks around the world are trying to mitigate through borrowing rate increases. These increases attributable to the increases in LIBOR rates were
partially offset by the overall reductions in our indebtedness arising from the sales of 18 vessels (and repayments of the related debt or lease financing
obligations) along with the exercise of purchase options on 22 lease financed vessels, the maturity of the Convertible Notes due 2022 in May 2022, and
the conversion of the Convertible Notes due 2025 in December 2022. The combination resulted in higher interest expense for the year ended December
31, 2022 compared to December 31, 2021 despite the decrease in the average carrying value of our debt to $2.69 billion during the year ended December
31, 2022 as compared to $3.14 billion for the year ended December 31, 2021.
72
(4) The change in working capital in 2022 was primarily driven by an increase in accounts receivable, inventories, prepaid expenses and a decrease in
accounts payable offset by an increase in accrued expenses and a decrease in other assets. The increase in accounts receivable is due to primarily driven
by overall strength in the product tanker market that began in the first quarter of 2022. Our revenues during the year ended December 31, 2022 were
primarily derived from the Scorpio Pools and in the spot market. Accounts receivable due from the Scorpio Pools and the spot market are driven by
market conditions in the months preceding the end of the period. The revenues earned by vessels operating in the Scorpio Pools and the spot market in
the months preceding December 31, 2022 were significantly greater than the months preceding December 31, 2021, thus leading to the increase in
account receivable. The increase in accrued expenses at December 31, 2022 was primarily the result of an increase in accrued compensation and related
benefits. The decrease in other assets was primarily the result of the reimbursement of working capital balances from the Scorpio Pools for vessels that
were sold or entered into long-term time charter-out agreements. The remaining changes in working capital were driven primarily by timing.
The change in working capital in 2021 was driven primarily by an increase in accounts payable, and decreases in
prepaid expenses and other current assets and inventories, offset by increases in accounts receivable and other assets and a
decrease in accrued expenses. These working capital movements were driven primarily by the timing of receipts from
customers and payments to suppliers.
Cash flow from investing activities
The following table sets forth the components of our investing cash flows for the years ended December 31, 2022
and December 31, 2021:
In thousands of U.S. dollars
Cash inflows
Proceeds from disposal of vessels(1).....................................
Distributions from dual fuel tanker joint venture(2) ..............
Total investing cash inflows ................................................
Investment in dual fuel tanker joint venture(2) .....................
Drydock, scrubber and BWTS payments (owned, lease
financed, and bareboat-in vessels)(3) ....................................
Total investing cash outflows ..............................................
Net cash inflow/(outflow) from investing activities .........
For the year ended
December 31,
2022
2021
Change
favorable /
(unfavorable)
Percentage
Change
607,693
493
608,186
—
1,525
1,525
607,693
(1,032)
606,661
N/A
(68)%
39,781 %
(1,750)
(6,701)
4,951
74 %
(34,480)
(36,230)
$ 571,956 $ (52,278) $
(47,102)
(53,803)
12,622
17,573
624,234
27 %
33 %
1,194 %
(1) During the year ended December 31, 2022, we sold 18 vessels, consisting of three LR2s (STI Savile Row, STI Carnaby and STI Nautilus), 12 LR1s (STI
Excelsior, STI Executive, STI Excellence, STI Pride, STI Providence, STI Prestige, STI Experience, STI Express, STI Exceed, STI Excel, STI Expedite,
and STI Precision) and three MRs (STI Fontvieille, STI Benicia, and STI Majestic) for aggregate net proceeds of $607.7 million.
(2)
In August 2021, we acquired a minority interest in a portfolio of nine product tankers, consisting of five dual-fuel MR methanol tankers (built between
2016 and 2021) which, in addition to traditional petroleum products, are designed to carry methanol both as a cargo and to consume it as a fuel, along
with four ice class 1A LR1 product tankers. The dual-fuel MR methanol tankers are currently on long-term time charter contracts greater than five years.
As part of this agreement, we acquired a 50% interest in a joint venture that ultimately has a minority interest in the entities that own the vessels for final
consideration of $6.7 million. In November 2022, we contributed an additional $1.75 million to the joint venture to increase the joint venture’s
ownership interest in one of the LR1 tankers. We account for our interest in this joint venture using the equity method pursuant to IFRS 11 - Joint
arrangements. Under this guidance, the investment is initially measured at cost, and the carrying amount of the investment is adjusted in subsequent
periods based on our share of profits or losses from the joint venture (adjusted for any fair value adjustments made upon initial recognition). Any
distributions received from the joint venture reduce the carrying amount.
The joint venture issued cash distributions of $0.5 million and $1.5 million during the years ended December 31, 2022 and 2021, respectively. The
December 2021 cash distribution arose primarily as a result of the sale of two of the LR1s during the fourth quarter of 2021.
(3) Drydock, scrubber, ballast water treatment system and other vessel related payments represent the cash paid in 2022 and 2021 for the drydocking of our
vessels along with payments made as part of the agreements to purchase and install scrubbers and ballast water treatment systems and other vessel
equipment. See the below section entitled “Capital Expenditures,” for further discussion on vessels that were drydocked and had scrubber or BWTS
installations during the years ended December 31, 2022 and 2021.
73
Cash flow from financing activities
Cash flows from financing activities primarily consist of the issuance, repayment and costs related to our secured
and unsecured debt, sale and leaseback liabilities, and IFRS 16 lease liabilities; the issuance and costs related to our common
stock; the payment of dividends to our common shareholders; and the activity within our securities repurchase programs
(defined below). The following table sets forth the components of our financing cash flows for the years ended December 31,
2022 and December 31, 2021:
In thousands of U.S. dollars
Cash inflows
Drawdowns from our secured credit facilities(1) ...............
Proceeds from sale and leaseback transactions(1) ..............
Issuance of Unsecured Senior Notes Due 2025(1) .............
Issuance of Convertible Notes Due 2025(1) .......................
Decrease in restricted cash(2) .............................................
Total financing cash inflows .............................................
Cash outflows
Repayments on our secured credit facilities(1) ..................
Repayments under sale and leaseback liabilities(1) ...........
Repayments under IFRS 16 lease liabilities(1) ..................
Repayments and repurchases of convertible notes(1).........
Dividend payments(3) ........................................................
Common stock repurchases(4) ...........................................
Debt issuance costs(5) ........................................................
Equity issuance costs ........................................................
Total financing cash outflows ...........................................
Net cash (outflow)/inflow from financing activities .....
For the year ended
December 31,
2022
2021
Change
favorable /
(unfavorable)
Percentage
Change
$
5,075
117,204
359
—
4,008
126,646
$ 68,593 $
540,282
41,929
119,419
502
770,725
(63,518)
(423,078)
(41,570)
(119,419)
3,506
(644,079)
(349,421)
(622,201)
(79,502)
(83,968)
(23,313)
(161,373)
(1,702)
—
(1,321,480)
$ (1,194,834) $ 21,882 $
(488,436)
(162,491)
(56,729)
—
(23,320)
—
(17,820)
(47)
(748,843)
139,015
(459,710)
(22,773)
(83,968)
7
(161,373)
16,118
47
(572,637)
(1,216,716)
(93 )%
(78 )%
(99 )%
(100 )%
698 %
(84 )%
28 %
(283 )%
(40 )%
N/A
— %
N/A
90 %
100 %
(76 )%
(5,560 )%
(1) The following table sets forth the cash drawdowns and repayments on our secured credit facilities, unsecured debt, sale and leaseback liabilities, and
IFRS 16 lease liabilities during the years ended December 31, 2022 and 2021. During these periods, certain credit facilities, unsecured debt, and lease
financing arrangements were either entered into, drawn, or repaid in full. We refer to Note 12 of our Consolidated Financial Statements included in Item
18 of this Annual Report on Form 20-F for further details of all of our financing arrangements, including the activity that occurred during the years
ended December 31, 2022 and 2021.
2022
2021
Drawdowns
Repayments
Drawdowns
Repayments
In thousands of U.S. dollars
KEXIM Credit Facility ...........................................................
ING Credit Facility .................................................................
2018 NIBC Credit Facility .....................................................
Credit Agricole Credit Facility ...............................................
ABN AMRO/K-Sure Credit Facility .....................................
Citibank/K-Sure Credit Facility .............................................
ABN AMRO/SEB Credit Facility ..........................................
Hamburg Commercial Bank Credit Facility ..........................
Prudential Credit Facility .......................................................
2019 DNB/GIEK Credit Facility ............................................
BNPP Sinosure Credit Facility ...............................................
2020 $225.0 Million Credit Facility .......................................
2021 $21.0 Million Credit Facility .........................................
2021 $43.6 Million Credit Facility .........................................
Total Secured Credit Facilities ............................................
Convertible Notes Due 2022 ..................................................
Unsecured Senior Notes Due 2025 ........................................
Convertible Notes Due 2025 ..................................................
Total Unsecured Senior Notes .............................................
Ocean Yield Lease Financing.................................................
BCFL Lease Financing (LR2s) ..............................................
CSSC Lease Financing ...........................................................
CSSC Scrubber Financing ......................................................
BCFL Lease Financing (MRs) ...............................................
2018 CMBFL Lease Financing ..............................................
$116.0 Million Lease Financing .............................................
$
$
—
—
—
—
—
—
—
—
—
—
5,075
—
—
—
5,075
—
359
—
359
—
—
—
—
—
—
—
$
$
—
—
—
(73,591)
—
(78,401)
—
(3,292)
(5,546)
(7,112)
(10,813)
(107,871)
(19,245)
(43,550)
(349,421)
(69,695)
—
(14,273)
(83,968)
(11,542)
(11,011)
(12,736)
(1,829)
(15,686)
(111,986)
(95,789)
$
$
—
2,128
—
—
—
—
—
—
—
—
1,915
—
21,000
43,550
68,593
—
41,929
119,419
161,348
—
3,814
11,848
—
5,779
—
1,926
$
$
(15,932)
(193,476)
(31,066)
(8,569)
(41,827)
(8,417)
(97,856)
(3,291)
(5,546)
(7,113)
(10,334)
(63,254)
(1,755)
—
(488,436)
—
—
—
—
(11,245)
(10,690)
(10,313)
(4,443)
(14,639)
(13,007)
(9,938)
74
AVIC Lease Financing ...........................................................
China Huarong Lease Financing ............................................
$157.5 Million Lease Financing .............................................
COSCO Lease Financing .......................................................
2020 CMBFL Lease Financing ..............................................
2020 TSFL Sale and Leaseback .............................................
2020 SPDBFL Lease Financing .............................................
2021 AVIC Lease Financing ..................................................
2021 CMBFL Lease Financing ..............................................
2021 TSFL Lease Financing ..................................................
2021 CSSC Lease Financing ..................................................
2021 $146.3 Million Lease Financing ...................................
2021 Ocean Yield Lease Financing .......................................
2022 AVIC Lease Financing ..................................................
Prepaid interest expense .........................................................
Total Sale and Leaseback Liabilities ..................................
IFRS 16 - Leases - 3 MRs ......................................................
IFRS 16 - Leases - 7 Handymax ............................................
IFRS 16 - Leases - $670.0 Million .........................................
Prepaid interest expense .........................................................
Total IFRS 16 Lease Liabilities ...........................................
$
$
2022
2021
Drawdowns
Repayments
Drawdowns
Repayments
—
—
—
—
—
—
—
—
—
—
—
—
—
117,204
—
117,204
—
—
—
—
—
$
$
(28,636)
(103,416)
(109,657)
(61,050)
(3,242)
(3,321)
(6,495)
(7,251)
(6,520)
(4,380)
(5,262)
(12,551)
(5,850)
(4,584)
593
(622,201)
(8,130)
—
(70,791)
(581)
(79,502)
$
$
—
10,000
—
—
—
—
—
96,352
79,050
57,663
57,400
146,250
70,200
—
—
540,282
—
—
—
—
—
$
$
(13,327)
(16,834)
(14,143)
(7,700)
(3,241)
(3,322)
(9,389)
(5,439)
(4,485)
(3,286)
(3,507)
—
(417)
—
(3,126)
(162,491)
(7,668)
(1,879)
(46,561)
(621)
(56,729)
(2) During the year end December 31, 2022, we repaid Citi / K-Sure Credit Facility in connection with the sales of STI Executive, STI Excellence, STI
Express and STI Experience. During the year ended December 31, 2021, we refinanced the amounts borrowed under our ABN AMRO/K-Sure Credit
Facility. As a result of these transactions, $4.0 million and $0.5 million of restricted cash was released during the years end December 31, 2022 and
2021.
(3) Dividend payments to shareholders were $23.3 million and $23.3 million for the years ended December 31, 2022 and 2021, respectively. These
dividends represent dividends of $0.40 per share (based on the number of shares outstanding on each of the record dates) for each of the years ended
December 31, 2022 and 2021.
(4) Common stock repurchases during the year ended December 31, 2022 represent the repurchase of 3,909,873 of our common shares at an average price
of $41.27 per share for a total of $161.4 million. These repurchases include the repurchase of 1,293,661 of our common shares from Eneti Inc., a related
party, for $38.65 per share and 2,616,212 common shares in the open market for an average price of $42.57 per share. No shares were repurchased
during the year ended December 31, 2021.
(5) Debt issuance costs relate to costs incurred for our secured credit facilities and lease financing arrangements which are described in Note 12 of our
Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F.
Long-Term Debt Obligations and Lease Financing Arrangements
We refer to Note 6 and Note 12 of our Consolidated Financial Statements included in Item 18 of this Annual Report
on Form 20-F for further details on our secured credit facilities, sale and leaseback liabilities, IFRS 16 lease liabilities, Senior
Notes Due 2025, Convertible Notes Due 2022 and Convertible Notes Due 2025.
Our secured credit facilities may be secured by, among other things:
•
•
•
•
a first priority mortgage over the relevant collateralized vessels;
a first priority assignment of earnings, insurances and charters from the mortgaged vessels for the specific
facility;
a pledge of earnings generated by the mortgaged vessels for the specific facility; and
a pledge of the equity interests of each vessel owning subsidiary under the specific facility.
Our debt and lease financing agreements may require us to comply with a number of covenants, including financial
covenants related to liquidity, consolidated net worth, maximum leverage ratios, loan to value ratios and collateral
maintenance, informational requirements, including the delivery of quarterly and annual financial statements and annual
projections, and restrictive covenants, including maintenance of adequate insurances; compliance with laws (including
environmental); compliance with the Employee Retirement Income and Security Act, or ERISA; maintenance of flag and
class of the vessels; restrictions on consolidations, mergers or sales of assets; approvals on changes in the manager of the
vessels; 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. Furthermore, our debt and lease financing agreements contain customary events of
default, including cross-default provisions, as well as subjective acceleration clauses under which the debt could become due
and payable in the event of a material adverse change in our business.
75
The following is a table summarizing our indebtedness as of December 31, 2022 and March 23, 2023. The balances
set forth below reflect the principal amounts due under each facility or lease financing arrangement as of each date and do not
reflect any: (i) unamortized deferred financing fees; (ii) discounts / premiums attributable to the debt, either assumed in a
business combination that was recorded as part of the purchase price allocation or as part of the market issuance of a security;
and (iii) deposits held by the lessor. The balances for the unsecured Senior Notes Due 2025 represent the face value of this
instrument. The balances for the Convertible Notes Due 2022 represents the face value of this instrument, and the balances
for the Convertible Notes Due 2025 represents the face value of this instrument plus interest that has accreted since the date
of issuance pursuant to its accretion feature, which is described in Note 12 of our Consolidated Financial Statements included
in Item 18 of this Annual Report on Form 20-F.
In thousands of U.S. dollars
Hamburg Commercial Credit Facility ..........................................................
Prudential Credit Facility ..............................................................................
2019 DNB / GIEK Credit Facility ................................................................
BNPP Sinosure Credit Facility .....................................................................
2020 $225 Million Credit Facility ................................................................
2023 $225.0 Million Credit Facility(1) ..........................................................
2023 $49.1 Million Credit Facility(2) ............................................................
Ocean Yield Lease Financing(3) ....................................................................
BCFL Lease Financing (LR2s) .....................................................................
CSSC Lease Financing .................................................................................
BCFL Lease Financing (MRs) ......................................................................
AVIC Lease Financing(4) ..............................................................................
2020 CMBFL Lease Financing .....................................................................
2020 TSFL Sale and Leaseback ....................................................................
2020 SPDBFL Lease Financing ...................................................................
2021 AVIC Lease Financing ........................................................................
2021 CMBFL Lease Financing .....................................................................
2021 TSFL Lease Financing .........................................................................
2021 CSSC Lease Financing(5) .....................................................................
2021 $146.3 Million Lease Financing ..........................................................
2021 Ocean Yield Lease Financing ..............................................................
2022 AVIC Lease Financing ........................................................................
Unsecured Senior Notes Due 2025 ...............................................................
IFRS 16 - Leases - 3 MR ..............................................................................
IFRS 16 - Leases - $670.0 Million(6).............................................................
Total .............................................................................................................
Amount
outstanding at
December 31, 2022
33,732
39,286
38,338
80,576
37,765
—
—
114,860
68,310
121,276
53,202
77,769
38,090
40,607
83,511
84,635
68,045
49,997
48,631
133,699
63,933
113,804
70,571
21,138
475,939
1,957,714
$
Amount
outstanding at
March 23, 2023
32,909
37,899
36,560
80,576
36,482
184,850
49,088
84,372
65,704
117,635
49,097
—
37,685
39,777
81,887
82,822
67,640
49,997
47,316
130,404
62,549
111,512
70,571
19,062
464,684
2,041,078
$
(1)
(2)
(3)
(4)
(5)
(6)
In January 2023, we executed a senior secured credit facility for up to $225.0 million with a group of European financial institutions (the “2023 $225.0
Million Credit Facility”). In February 2023, we drew down $184.9 million from this facility and 11 product tankers (10 MRs and one LR2) were
collateralized under this facility as part of the initial drawdown. The key terms and conditions of this facility are described in Item 4 of this Annual
Report in the section entitled Recent Developments.
In February 2023, we executed a senior secured credit facility for up to $49.1 million with a North American financial institution (the “$49.1 Million
Credit Facility”). In March 2023, we drew down $49.1 million from this facility to finance two LR2 product tankers, (STI Rose and STI Rambla). The
key terms and conditions of this facility are described in Item 4 of this Annual Report in the section entitled Recent Developments.
In March 2023 we exercised the purchase option on STI Sanctity for $27.8 million, which was previously financed on the Ocean Yield Lease Financing.
In January 2023, we exercised the purchase options on STI Brooklyn, STI Rambla, STI Rose and STI Ville on the AVIC Lease Financing and repaid the
aggregate outstanding lease obligation of $77.8 million as part of these transactions.
In March 2023, we gave notices to exercise the purchase options on STI Grace and STI Jermyn which are financed on the 2021 CSSC Lease Financing.
These purchases are expected to occur in May 2023 and the aggregate outstanding lease liability is expected to be $46.9 million at the date of purchase.
In March 2023, we gave notices to exercise the purchase options on STI Lavender, STI Magnetic, STI Marshall and STI Miracle which are financed on
the IFRS 16 - Leases - $670.0 Million lease financing. These purchases are expected to occur in May 2023 and the aggregate outstanding lease liability
is expected to be $102.9 million at the date of purchase.
76
Capital Expenditures
Vessel acquisitions and payments for vessels under construction
We did not enter into any agreements to construct vessels during the years ended December 31, 2022, 2021, and
2020. During the year ended December 31, 2019, we acquired the leasehold interests on 19 vessels from Trafigura Maritime
Logistics Pte. Ltd. (the “Trafigura Transaction”) four of which were under construction as of December 31, 2019. The leases
commenced upon delivery from the shipyard on two vessels in January 2020, one in March 2020, and one in September
2020. The table set forth below lists these vessels:
Vessel
Vessel Type
Constructed/Acquired
STI Miracle ................................
STI Maestro ...............................
STI Mighty ................................
STI Maximus .............................
MR
MR
MR
MR
Acquired
Acquired
Acquired
Acquired
During the year ended
December 31, 2020
January
January
March
September
(1)
(1)
(1)
(1)
(1) The leasehold interest in this vessel was acquired in 2019 as part of the Trafigura Transaction and is classified as a Right of use asset under IFRS 16.
Sales of vessels
During the first half of the year ended December 31, 2022, we sold 18 vessels consisting of three LR2s (STI Savile
Row, STI Carnaby and STI Nautilus); 12 LR1s (STI Excelsior, STI Executive, STI Excellence, STI Pride, STI Providence, STI
Prestige, STI Experience, STI Express, STI Exceed, STI Excel, STI Expedite, and STI Precision); and three MRs (STI
Fontvieille, STI Benicia, and STI Majestic). Seven vessel sales closed in the first quarter of 2022, nine vessel sales closed in
the second quarter of 2022 and two vessel sales vessels closed in the third quarter of 2022 for aggregate net proceeds of
$607.7 million.
Of these vessels, the net book value of 17 vessels of $637.8 million was previously recorded within Vessels and
drydock, and the net book value for one vessel (STI Majestic) of $35.4 million was previously recorded within Right of use
assets for vessels. As a result of these transactions, we recorded an aggregate net loss of $66.5 million (inclusive of a
$0.7 million write-off of goodwill on the LR2 vessels).
Additionally, we repaid aggregate outstanding debt and sale and leaseback obligations of $347.4 million and
incurred debt extinguishment costs (write-offs of deferred financing fees and discounts plus fees) of $3.5 million related to
these vessel sales.
Drydock
During the years ended December 31, 2022, 2021, and 2020, we completed the following drydocks, as described
below:
Drydock
Costs in thousands of U.S. dollars
Drydock in-progress at December 31, 2019 .......................................................
Costs incurred in 2020 ........................................................................................
Drydock completed in 2020(1) .............................................................................
Drydock in-progress at December 31, 2020 .......................................................
Costs incurred in 2021 ........................................................................................
Drydock completed in 2021(1) .............................................................................
Drydock in-progress at December 31, 2021 .......................................................
Costs incurred in 2022 ........................................................................................
Drydock completed in 2022(1) .............................................................................
Drydock in-progress at December 31, 2022 .......................................................
Total
Off-hire
days
Vessels
34
21
15
2,431
803
497
Cost
8,406
33,901
39,322
2,985
27,116
28,128
1,973
19,657
20,922
708
$
$
$
$
(1) Drydocks completed in 2020 includes 433 offhire days from drydocks which commenced in 2019. Drydocks completed in 2021 includes 112 offhire
days from drydocks which commenced in 2020. Drydocks completed in 2022 includes 34 offhire days from drydocks which commenced in 2021.
Offhire days also include offhire days for installations of BWTS and / or scrubbers.
77
As our fleet matures and expands, our drydock expenses will likely increase. Ongoing costs for compliance with
environmental regulations and society classification survey costs are a component of our vessel operating costs. With the
exception of the recent ratification of the ballast water treatment convention as described in “Item 3. Key Information - D.
Risk Factors”, we are not currently aware of any regulatory changes or environmental liabilities that we anticipate will have a
material impact on our results of operations or financial condition.
Ballast Water Treatment Systems and Scrubbers
In July 2018, we executed an agreement to purchase 55 ballast water treatment systems, or BWTS, from an unaffiliated
third-party supplier. These systems have been and are expected to be installed from 2019 through 2023, as each respective vessel
under the agreement is due for its International Oil Pollution Prevention, or IOPP, renewal survey. Costs capitalized for these
systems include the cost of the base equipment that we have contracted to purchase in addition to directly attributable installation
costs, costs incurred for systems that were installed during the period, and installation costs incurred in advance of installations that
are expected to occur in subsequent periods. We estimate the useful life of these systems to be for the duration of each vessel’s
remaining useful life and are depreciating the equipment and related installation costs on this basis.
We have also retrofitted the substantial majority of our vessels with exhaust gas cleaning systems, or scrubbers. The
scrubbers enable our ships to use high sulfur fuel oil, which is less expensive than low sulfur fuel oil, in certain parts of the
world. From August 2018 through November 2018, we entered into agreements with two separate suppliers to retrofit a total
of 77 of our tankers with such systems and in 2019 we exercised options to retrofit an additional 21 our vessels with
scrubbers.
In 2020, and as further amended in February 2021, we reached an agreement to postpone the purchase and
installation of scrubbers on 19 vessels. In August 2021, we exercised options to purchase six of these scrubbers. One of the
vessels under this agreement was sold during 2022 without a scrubber installation and 12 remain.
Costs capitalized for these systems include the base equipment and systems purchased, and installation costs
incurred. We estimate the useful life of these systems to be for the duration of each vessel’s remaining useful life, with the
exception of approximately 10% of the equipment cost, which is estimated to require replacement at each vessel’s next
scheduled drydock. This amount has been allocated as a notional component upon installation. The carrying value of the
equipment, related installation costs, and notional component will be depreciated on this basis.
We retrofitted six vessels in 2022 and one vessel in 2021 with scrubbers, respectively. During the year ended
December 31, 2022, we retrofitted a total of four vessels with BWTS and we did not install any BWTS during the year ended
December 31, 2021.
The following table summarizes Ballast Water Treatment Systems activity for the years ended December 31, 2022,
2021 and 2020:
Ballast Water Treatment Systems
Costs in thousands of U.S. dollars
BWTS in-progress at December 31, 2019 ...........................................................
Costs incurred in 2020(1) ......................................................................................
BWTS completed in 2020(2) .................................................................................
BWTS in-progress at December 31, 2020 ...........................................................
Costs incurred in 2021(1) ......................................................................................
BWTS completed in 2021(2) .................................................................................
BWTS in-progress at December 31, 2021 ...........................................................
Costs incurred in 2022(1) ......................................................................................
BWTS completed in 2022(2) .................................................................................
BWTS in-progress at December 31, 2022 ...........................................................
Vessels
Total
Off-hire
days
22
1,663
—
—
4
209
Cost
2,556
30,922
33,303
175
218
(65)
458
5,639
5,364
733
$
$
$
$
(1)
Includes capitalized interest of $0.1 million and $0.2 million for the years ended December 31, 2022 and 2020, respectively. Capitalized interest in 2021
was less than $0.1 million.
(2) Offhire days include offhire days for drydock and/or installations of scrubbers.
78
The following table summarizes scrubber installation activity for the years ended December 31, 2022, 2021, and
2020:
Scrubber
Costs in thousands of U.S. dollars
Scrubber in-progress at December 31, 2019 ........................................................
Costs incurred in 2020(1) ......................................................................................
Scrubber completed in 2020 - notional drydock(2) ...............................................
Scrubber completed in 2020(3) .............................................................................
Scrubber in-progress at December 31, 2020 ........................................................
Costs incurred in 2021(1) ......................................................................................
Scrubber completed in 2021 - notional drydock(2) ...............................................
Scrubber completed in 2021(3) .............................................................................
Scrubber in-progress at December 31, 2021 ........................................................
Costs incurred in 2022(1) ......................................................................................
Scrubber completed in 2022 - notional drydock(2) ...............................................
Scrubber completed in 2022(3) .............................................................................
Scrubber in-progress at December 31, 2022 ........................................................
Vessels
Total
Off-hire
days
Cost
46
3,507
1
6
83
400
9,339
$
135,349
6,900
132,439
5,349
$
4,371
150
4,774
4,796
14,590
150
18,453
783
$
$
(1)
Includes capitalized interest of $0.1 million, $0.2 million, and $1.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.
(2) For a newly installed scrubber, a notional component of approximately 10% is allocated from the scrubber’s cost. The notional scrubber cost is
estimated by us, based on the expected costs that we expect will incur for this equipment at the next scheduled drydock date and relates to the
replacement of certain components and maintenance of other components. This notional scrubber cost is carried separately from the cost of the scrubber.
Subsequent costs are recorded at actual cost incurred. The notional component of the scrubber is depreciated on a straight-line basis to the next estimated
drydock date and the remaining cost is depreciated over the remaining useful life of the vessel.
(3) Offhire days include offhire days for drydock and/or installations of BWTS.
Our Fleet—Illustrative comparison of excess of carrying amounts over estimated charter-free market value
of certain vessels
During the past few years, the market values of vessels have experienced particular volatility and 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.
The table set forth below indicates the carrying amount of each of our vessels or right of use assets as of
December 31, 2022 and December 31, 2021 and the aggregate difference between the carrying amount and the market value
represented by such vessels or right of use assets (see footnotes to the table set forth below). This aggregate difference
represents the approximate analysis of the amount by which we believe we would record a gain if we sold those vessels or
right of use assets, in the current environment, on industry standard terms, in cash transactions and to a willing buyer where
we are not under any compulsion to sell, and where the buyer is not under any compulsion to buy. For purposes of this
calculation, we have assumed (i) that the vessels would be sold at a price that reflects our estimate of their basic market
values and (ii) for vessels that are under lease financing arrangements or are recorded as right of use assets under IFRS 16 -
Leases, the carrying value of the vessel at the date indicated, would be the price at which we would purchase those vessels
back from the lessor. Additionally, we have not obtained valuations for certain of our leased vessels that are accounted for as
right of use assets under IFRS 16 - Leases, however we have included their carrying amounts in the table set forth below.
Our estimate of basic market value assumes 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 various 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 similar 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 ship brokers, whether
solicited or unsolicited, or that ship brokers have generally disseminated;
79
•
•
offers that we may have received from potential purchasers of our vessels; and
vessel sale prices and values of which we are aware through both formal and informal communications with
shipowners, shipbrokers, industry analysts and various other shipping 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.
Carrying value as of,
Vessel Name
Year Built December 31, 2022
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
STI Amber
STI Topaz
STI Ruby
STI Garnet
STI Onyx
STI Fontvieille
STI Ville
STI Duchessa
STI Wembley
STI Opera
STI Texas City
STI Meraux
STI San Antonio
STI Venere
STI Virtus
STI Aqua
STI Dama
STI Benicia
STI Regina
STI St. Charles
STI Yorkville
STI Milwaukee
STI Battery
STI Brixton
STI Comandante
STI Pimlico
STI Hackney
STI Acton
STI Fulham
STI Camden
STI Finchley
STI Clapham
STI Poplar
STI Elysees
STI Madison
STI Park
STI Orchard
STI Sloane
STI Broadway
STI Condotti
STI Battersea
STI Memphis
STI Mayfair
STI Soho
STI Tribeca
STI Hammersmith
STI Rotherhithe
STI Rose
2012
2012
2012
2012
2012
2013
2013
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2015
2015
2015
2015
80
29.2(1)
28.8(1)
26.5(1)
27.5(1)
29.0(1)
N/A(3)
24.7(1)
24.6(1)
24.9(1)
24.5(1)
29.2(1)
29.0(1)
29.1(1)
26.7(1)
27.1(1)
27.3(1)
27.2(1)
N/A(3)
27.4(1)
29.0(1)
27.8(1)
32.0(1)
27.8(1)
24.7(1)
23.1(1)
24.6(1)
24.6(1)
24.9(1)
24.8(1)
24.8(1)
25.0(1)
25.3(1)
25.3(1)
41.7(1)
41.9(1)
41.8(1)
42.0(1)
42.3(1)
41.6(1)
42.4(1)
24.9(1)
29.8(1)
28.1(1)
28.0(1)
28.5(1)
25.5(1)
25.8(1)
47.0(1)
December 31, 2021
27.4
27.4
25.2
27.5
27.6
26.1
26.5
26.3
26.4
26.3
30.8
30.6
30.7
28.3
28.6
28.9
28.8
31.6
29.0
30.6
29.4
32.4
29.4
26.1
25.0
26.1
26.1
26.4
26.2
26.2
26.4
26.8
26.7
43.9
44.1
44.0
44.3
44.5
43.8
44.7
26.4
31.5
29.7
29.6
30.1
27.0
27.3
49.6
Carrying value as of,
Vessel Name
Year Built December 31, 2022
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
STI Gramercy
STI Veneto
STI Alexis
STI Bronx
STI Pontiac
STI Manhattan
STI Winnie
STI Oxford
STI Queens
STI Osceola
STI Lauren
STI Connaught
STI Notting Hill
STI Spiga
STI Seneca
STI Savile Row
STI Westminster
STI Brooklyn
STI Kingsway
STI Lombard
STI Carnaby
STI Black Hawk
STI Excel
STI Solidarity
STI Grace
STI Jermyn
STI Excelsior
STI Expedite
STI Exceed
STI Executive
STI Excellence
STI Experience
STI Express
STI Precision
STI Prestige
STI Pride
STI Providence
STI Sanctity
STI Solace
STI Stability
STI Steadfast
STI Supreme
STI Symphony
STI Gallantry
STI Goal
STI Nautilus
STI Guard
STI Guide
STI Selatar
STI Rambla
STI Galata
STI Bosphorus
STI Leblon
STI La Boca
STI San Telmo
STI Donald C Trauscht
STI Gauntlet
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2016
2017
2017
2017
2017
2017
2017
2017
2017
2017
81
28.1(1)
42.7(1)
47.0(1)
28.8(1)
32.1(1)
28.5(1)
43.3(1)
43.6(1)
28.8(1)
32.5(1)
43.4(1)
43.3(1)
31.6(1)
46.6(1)
32.5(1)
N/A(3)
31.8(1)
28.8(1)
47.9(1)
48.3(1)
N/A(3)
31.2(1)
N/A(3)
36.9(1)
43.6(1)
44.5(1)
N/A(3)
N/A(3)
N/A(3)
N/A(3)
N/A(3)
N/A(3)
N/A(3)
N/A(3)
N/A(3)
N/A(3)
N/A(3)
38.5(1)
38.4(1)
38.8(1)
38.6(1)
40.8(1)
38.3(1)
38.2(1)
38.2(1)
N/A(3)
38.1(1)
38.3(1)
45.6(1)
46.4(1)
33.3(1)
31.2(1)
33.8(1)
33.8(1)
33.1(1)
33.6(1)
40.4(1)
December 31, 2021
29.7
44.9
49.5
30.4
32.7
30.0
45.6
45.9
30.3
32.4
45.6
45.4
33.4
49.0
33.1
49.8
33.6
30.4
50.4
50.8
50.5
33.0
33.0
38.8
45.8
46.6
34.1
34.0
34.1
36.7
36.8
34.7
37.1
37.8
37.5
37.5
37.4
40.4
40.2
40.7
40.5
38.6
40.1
40.1
39.8
39.6
39.9
39.7
46.4
47.2
33.8
31.5
34.2
34.3
32.8
33.2
41.1
Carrying value as of,
Vessel Name
Year Built December 31, 2022
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
STI Gladiator
STI Gratitude
STI Esles II
STI Jardins
STI Magic
STI Majestic
STI Mystery
STI Marvel
STI Magnetic
STI Millennia
STI Magister
STI Mythic
STI Marshall
STI Modest
STI Maverick
STI Lobelia
STI Lotus
STI Lily
STI Lavender
STI Miracle
STI Maestro
STI Mighty
STI Maximus
STI Le Rocher
STI Larvotto
STI Beryl
2017
2017
2018
2018
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2020
2020
2020
2020
2013
2013
2013
40.6(1)
40.8(1)
32.9(1)
32.9(1)
33.9(1)
N/A(3)
33.9(1)
33.9(1)
33.9(1)
33.9(1)
34.0(1)
34.0(1)
34.0(1)
34.0(1)
34.4(1)
47.8(1)
47.8(1)
47.8(1)
47.9(1)
35.0(1)
34.9(1)
35.2(1)
36.3(1)
6.1(2)
6.1(2)
6.2(2)
December 31, 2021
41.1
40.9
33.4
33.5
35.5
35.5
35.5
35.5
35.5
35.5
35.5
35.6
35.6
35.6
36.0
49.9
49.9
49.9
49.9
36.6
36.5
36.8
38.0
9.1
9.1
9.5
$ 3,779.1
$ 4,606.1
(1) As of December 31, 2022, the basic charter-free market value is higher than each vessel’s carrying value. We believe that the aggregate carrying value
of these vessels was lower than their aggregate basic charter-free market value by approximately $1.2 billion.
(2) This vessel is a leased vessel that is being accounted for as a right of use asset under IFRS 16 - Leases. Accordingly, the carrying value reflects the present
value of the minimum lease payments plus initial direct costs at the commencement date of the lease less straight-line depreciation over the life of the lease.
Independent valuations were not obtained for these vessels, however, they were included as part of our impairment testing as described above.
(3) These vessels were sold during the year ended December 31, 2022.
Material Cash Requirements
The following table sets forth our material cash requirements as of December 31, 2022:
Less than
1 year
1 to 3
years
3 to 5
years
More than
5 years
In thousands of U.S. dollars
Principal obligations under secured credit facilities(1) .................. $ 31,993 $ 175,055 $
—
Principal obligations under sale and leaseback liabilities(1) ..........
323,441
Principal obligations under IFRS 16 - lease liabilities(1) ...............
61,298
Estimated interest payments on secured bank loans(2) ..................
—
Estimated interest payments on sale and leaseback liabilities(2) ...
35,517
Estimated interest payments on IFRS 16 - lease liabilities(2) ........
1,560
Technical management fees(3) .......................................................
—
Commercial management fees(4) ...................................................
—
Ballast Water Treatment System purchase commitments(5) ..........
—
Exhaust Gas Cleaning System purchase commitments(6) .............
—
Senior unsecured notes(7) ..............................................................
—
Senior unsecured notes - estimated interest payments(8) ...............
—
Total ............................................................................................. $ 549,709 $ 765,554 $ 766,150 $ 421,816
340,643
288,635
235
73,762
40,228
—
—
—
—
—
—
222,647
93,597
18,470
116,890
59,388
—
—
—
1,526
70,571
7,410
273,639
53,548
16,474
82,088
40,824
13,933
20,195
194
11,881
—
4,940
22,647 $
82
(1) Represents principal and maturity payments due on our secured credit facilities, sale and leaseback liabilities and IFRS 16 - lease liabilities which are
described in Note 6 and Note 12 of our Consolidated Financial Statements included in Item 18 of this Annual Report on Form 20-F. These payments are
based on amounts outstanding as of December 31, 2022.
(2) Represents estimated interest payments on our secured credit facilities, sale and leaseback liabilities and IFRS 16 - lease liabilities. These payments were
estimated by taking into consideration: (i) the margin on each financing arrangement and (ii) the forward interest rate curve calculated from interest
swap rates, as published by a third party, as of December 31, 2022.
The forward curve was calculated as follows as of December 31, 2022:
Year 1 .........................................................
Year 2 .........................................................
Year 3 .........................................................
Year 4 .........................................................
Year 5 .........................................................
Year 6 .........................................................
Year 7 .........................................................
Year 8 .........................................................
Year 9 .........................................................
Year 10.......................................................
5.12%
4.23%
3.51%
3.55%(A)
3.34%
3.52%(A)
3.42%
3.54%(A)
3.57%(A)
3.52%
(A) Third party published interest swap rates were unavailable. As such, we interpolated these rates using the averages of the years in which swap rates
were published.
Interest was then estimated using the rates mentioned above multiplied by the amounts outstanding under our various financing arrangements using the
balance as of December 31, 2022 and taking into consideration the scheduled amortization of such arrangements going forward until their respective
maturities. As of December 31, 2022, the weighted-average margin on our variable rate financing was (i) 2.49% on our secured credit facilities, (ii)
3.63% on our sale and leaseback liabilities, and (iii) 3.50% on our IFRS 16 - lease liabilities. Additionally, the following sale and leaseback liabilities
and IFRS 16 - lease liabilities do not have a variable interest component: BCFL Lease Financing (MRs); the scrubber portion of BCFL Lease Financing
(LR2s); and IFRS 16 - Leases - 3 MR. Accordingly, the interest portion of these liabilities are calculated using the implied interest rate in these
agreements.
(3) Our technical manager, SSM, charges fees for its services pursuant to a Revised Master Agreement. Pursuant to this agreement, the fixed annual
technical management fee is $175,000, and certain other services are itemized. The aggregate cost, including the costs that are itemized, are
approximately $250,000 per year. Under the terms of the Revised Master Agreement, the termination fees are subject to a notice period of three months
and a payment equal to three months of management fees which would be due and payable upon the sale of a vessel, so long as such termination does
not amount to a change of control of the Company, including a sale of all or substantially all vessels, in which case, a payment equal to 24 months of
management fees will apply.
(4) We pay our commercial manager, SCM, $250 per vessel per day for LR2 vessels, $300 per vessel per day for LR1 vessels, $325 per vessel per day for
MR and Handymax vessels plus a 1.50% commission on gross revenue for vessels that are in one of the Scorpio Pools. When the vessels are not in the
pools, SCM charges fees of $250 per vessel per day for LR1 and LR2 vessels, $300 per vessel per day for Handymax and MR vessels plus a 1.25%
commission on gross revenue.
These fees are subject to a notice period of three months and a payment equal to three months of management fees which would be due and payable
upon the sale of a vessel, so long as such termination does not amount to a change of control of the Company, including a sale of all or substantially all
vessels, in which case, a payment equal to 24 months of management fees will apply.
(5) Represents obligations as of December 31, 2022 under our agreements to purchase ballast water treatment systems as described in the section above
entitled “Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Capital Expenditures”. These amounts exclude
installation costs and are subject to change as installation times are finalized.
(6) Represents obligations as of December 31, 2022 under our agreement to purchase exhaust gas cleaning systems (“scrubbers”) as described in the section
above entitled “Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources - Capital Expenditures”. These amounts
exclude installation costs and are subject to change as installation times are finalized.
(7) Represents the principal due at maturity on our Senior Notes Due 2025 as of December 31, 2022.
(8) Represents estimated coupon interest payments on our Senior Notes Due 2025 as of December 31, 2022. The Senior Notes Due 2025 bear interest at a
coupon rate of 7.00% per annum and mature in June 2025.
Off-Balance Sheet Arrangements
As of December 31, 2022, we were committed to purchasing scrubbers and ballast water treatment systems.
See “Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources” and “Item 7.
Major Shareholders and Related Party Transactions - B. Related Party Transactions” for further information.
C. Research and Development, Patents and Licenses, Etc.
Not applicable.
D. Trend Information
See “Item 4. Information on the Company - B. Business Overview - The International Oil Tanker Shipping Industry.”
83
E. Critical Accounting Estimates
Our consolidated financial statements are prepared in conformity with IFRS, as issued by the IASB. In preparing our
consolidated financial statements, we make judgements, estimates and assumptions about the application of our accounting
policies which affect the reported amounts of assets, liabilities, revenue and expenses. Our critical accounting judgements and
sources of estimation uncertainty are described in Note 1 to our consolidated financial statements, which are included
elsewhere in this Annual Report.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Set forth below are the names, ages and positions of our directors and executive officers as of the date of this annual
report. Our Board of Directors is elected annually, and each director elected holds office for a three-year term or until his or
her successor shall have been duly elected and qualified, except in the event of his or her death, resignation, removal or the
earlier termination of his or her term of office. The terms of our Class I directors expire at the 2023 annual meeting of
shareholders, the terms of our Class II directors expire at the 2024 annual meeting of shareholders, and the terms of our Class
III directors expire at the 2025 annual meeting of 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.
Certain of our officers participate in business activities not associated with us. As a result, they may devote less time
to us than if they were not engaged in other business activities and may owe fiduciary duties to both our shareholders as well
as shareholders of other companies to which they may be affiliated, including other Scorpio companies. This may create
conflicts of interest in matters involving or affecting us and our customers and it is not certain that any of these conflicts of
interest would be resolved in our favor. While there are no formal requirements or guidelines for the allocation of our
officers’ time between our business and the business of members of Scorpio, their performance of their duties is subject to
the ongoing oversight of our Board of Directors.
Name
Emanuele A. Lauro
Robert Bugbee
Cameron Mackey
Brian Lee
Filippo Lauro
Auste Vizbaraite
Alexandre Albertini
Ademaro Lanzara
Marianne Økland
Jose Tarruella
Reidar Brekke
Merrick Rayner
Sujata Parekh Kumar*
Age Position
44
62
54
56
46
33
46
80
60
51
61
67
63
Chairman, Class I Director, and Chief Executive Officer
President and Class II Director
Chief Operating Officer and Class III Director
Chief Financial Officer
Vice President
Secretary
Class III Director
Class I Director
Class III Director
Class II Director
Class II Director
Class I Director
Class III Director
Biographical information concerning the directors and executive officers listed above is set forth below.
*Appointed to the Board of Directors in March 2023.
Emanuele A. Lauro, Chairman and Chief Executive Officer
Emanuele A. Lauro, the Company’s founder, has served as Chairman and Chief Executive Officer since the closing of our
initial public offering in April 2010. He also co-founded and serves as Chairman and Chief Executive Officer of Eneti Inc. (NYSE:
NETI), which was formed in 2013. Mr. Emanuele Lauro also served as director and Chief Executive Officer of Hermitage Offshore
Services Ltd. between 2018 and 2021. Mr. Emanuele Lauro joined Scorpio in 2003 and has continued to serve there in a senior
management position since 2004. Under his leadership, Scorpio has grown from an owner of three vessels in 2003 to become a
leading operator and manager of more than 175 vessels in 2022. Over the course of the last several years, Mr. Emanuele Lauro has
founded and developed all of the Scorpio Pools in addition to several other ventures such as Scorpio Logistics, which owns and
operates specialized assets engaged in the transshipment of dry cargo commodities and invests in coastal transportation and port
infrastructure developments in Asia and Africa since 2007. He is the President of the Monaco Chamber of Shipping and is also a
member of the Advisory Board of Fordham University. In addition, Mr. Emanuele Lauro served as director of the Standard Club
84
from May 2013 to January 2019. He has a degree in international business from the European Business School, London. Mr.
Emanuele Lauro is the brother of our Vice President, Mr. Filippo Lauro.
Robert Bugbee, President and Director
Robert Bugbee has served as a Director and President since the closing of our initial public offering in April 2010.
He has more than 36 years of experience in the shipping industry. Mr. Bugbee also co-founded and serves as President and
Director of Eneti Inc. since July and April 2013, respectively. He also served as President and director of Hermitage Offshore
Services Ltd. between 2018 and 2021. He joined Scorpio in March 2009 and has continued to serve there in a senior
management position. Prior to joining Scorpio, Mr. Bugbee was a partner at Ospraie Management LLP between 2007 and
2008, a company which advises and invests in commodities and basic industries. From 1995 to 2007, he was employed at
OMI Corporation, or OMI, a NYSE-listed tanker company which was sold in 2007. While at OMI, Mr. Bugbee served as
President from January 2002 until the sale of the company, and before that served as Executive Vice President since January
2001, Chief Operating Officer since March 2000, and Senior Vice President from August 1995 to June 1998. Mr. Bugbee
joined OMI in February 1995. Prior to this, he was employed by Gotaas-Larsen Shipping Corporation since 1984. During this
time, Mr. Bugbee took a two year sabbatical beginning 1987 for the M.I.B. Program at the Norwegian School for Economics
and Business Administration in Bergen. He has a B.A. (Honors) from London University.
Cameron Mackey, Chief Operating Officer and Director
Cameron Mackey has served as the Company’s Chief Operating Officer since the closing of our initial public
offering in April 2010 and as a Director since May 2013. Mr. Mackey also serves as Chief Operating Officer of Eneti Inc.
since July 2013. He also served as Chief Operating Officer of Hermitage Offshore Services Ltd. between 2018 and 2021 and
as a director between 2019 and 2021. He joined Scorpio in March 2009, where he continues to serve in a senior management
position. Prior to joining Scorpio, Mr. Mackey was an equity and commodity analyst at Ospraie Management LLC from 2007
to 2008. Prior to that, he was Senior Vice President of OMI Marine Services LLC from 2004 to 2007, where he was also in
Business Development from 2002 to 2004. Mr. Mackey 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.
Brian Lee, Chief Financial Officer
Brian Lee has served as Chief Financial Officer since the closing of our initial public offering in April 2010. He
joined Scorpio in April 2009, where he continues to serve in a senior management position. He has been employed in the
shipping industry since 1998. Prior to joining Scorpio, he was the Controller of OMI from 2001 until the sale of the company
in 2007. Mr. Lee has an M.B.A. from the University of Connecticut and has a B.S. in Business Administration from the
University at Buffalo, State University of New York.
Filippo Lauro, Vice President
Mr. Filippo Lauro has served as an executive officer of the Company with the title of Vice President since May
2015. He also serves as Vice President of Eneti Inc. since June 2016. Mr. Filippo Lauro served as Vice President of
Hermitage Offshore Services Ltd. between 2018 and 2021. Mr. Filippo Lauro joined Scorpio in 2010 and has continued to
serve there in a senior management position. Prior to joining Scorpio, he was the founder of and held senior executive roles
in several private companies, primarily active in real estate, golf courses and resorts development. Mr. Filippo Lauro is the
brother of our Chairman and Chief Executive Officer, Mr. Emanuele Lauro.
Auste Vizbaraite, Secretary
Auste Vizbaraite has served as our Secretary since January 12, 2023. Ms. Vizbaraite also serves as secretary of Eneti
Inc. and other companies within Scorpio. After several years of experience in the maritime industry, she joined Scorpio in
2018 and has since been working within Scorpio’s legal department, focusing on implementing and developing Know Your
Counterparty and sanctions compliance procedures for both the Company and Eneti Inc.. Ms. Vizbaraite is a member of
International Compliance Association since 2019, where she has completed several qualifications in business compliance.
She has also completed courses with Corporate Governance Institute, focusing on corporate governance. Ms. Vizbaraite has
also been representing Scorpio Tankers Inc,. in Maritime Anti-Corruption Network since 2020.
85
Ademaro Lanzara, Director
Ademaro Lanzara has served on our Board of Directors since the closing of our initial public offering in April 2010
and is our lead independent director. Mr. Lanzara has served as Chairman of Alkemia Capital Partners Sgr SpA, Padova since
June 2018. Mr. Lanzara previously served as the Chairman of NEM Sgr SpA, Vicenza from November 2013 to June 2018, as
the Chairman of BPV Finance (International) Plc Dublin from 2008 to May 2018, as the deputy Chairman and Chairman of
the Audit and Compliance Committee of Cattolica Life DAC, Dublin from 2011 to July 2017 and as Chairman of BPVI
Fondi Sgr SpA, Milano from April 2012 to November 2013. From 1963 to 2006, Mr. Lanzara held a number of positions
with BNL spa Rome, a leading Italian banking group, including Deputy Group CEO, acting as the Chairman of the Credit
Committee and Chairman of the Finance Committee. He also served as Chairman and/or director of a number of BNL
controlled banks or financial companies in Europe, the United States and South America. He formerly served as a director of
each of Istituto dell’Enciclopedia Italiana fondata da Giovanni Treccani Spa, Rome, Italy, 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 Fund, in Rome, Italy, ICC International Chamber of
Commerce Italian section, Rome, Italy and Co-Chairman Round Table of Bankers and Small and Medium Enterprises,
European Commission, in Brussels, Belgium. Mr. Lanzara has an economics degree (graduated 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.
Alexandre Albertini, Director
Alexandre Albertini has served on our Board of Directors since the closing of our initial public offering in April
2010. Mr. Albertini has more than 21 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 its CEO since October 2010. Marfin
operates Handymax to Ultramax dry cargo vessels, providing services such as technical and crew management as well as
insurance, legal, financial, and information technology. In 2017, Mr. Albertini founded Factor8 Shipping SARL, a drybulk
commercial management company managing on average 15 vessels. He also serves as President of Ant. Topic srl, a vessel
and crewing agent based in Trieste, Italy. Mr. Albertini serves on the board of a private company in addition to various trade
associations; BIMCO, Monaco Chamber of Shipping and since January 2016 has been a Director of The Steamship Mutual
Underwriting Association (Bermuda) Limited.
Marianne Økland, Director
Marianne Økland has served on the Company’s Board of Directors since April 2013. She is also an independent
director on the Professional Welsh Rugby Board responsible for the Welsh national teams and the four professional regional
teams and was a non-executive director and Chair of the Audit Committee at Hermitage Offshore Services Ltd. Between
2010 and 2019, she held various non-executive director positions at IDFC Limited, IDFC Alternatives (India), Islandsbanki
(Iceland), the National Bank of Greece and NLB (Slovenia). She was also a member of the Audit Committee of the National
Bank of Greece, and the Chair of the Audit Committee of each of IDFC Limited and NLB (Slovenia). In addition, Ms.
Økland served as Managing Director of Avista Partners, a London based consultancy company that provides advisory
services and raises capital, from 2009 to 2018. Between 1993 and 2008, she held various investment banking positions at JP
Morgan Chase & Co. and UBS where she focused on debt capital raising and structuring. Ms. Økland has led many
transactions for large Nordic banks and insurance companies and worked on some of the most significant mergers and
acquisitions in these sectors. Between 1988 and 1993, she headed European operations of Marsoft, a Boston, Oslo and a
London based consulting firm that advises banks and large shipping, oil and raw material companies on shipping strategies
and investments. Ms. Økland holds a M.Sc. degree in Finance and Economics from the Norwegian School of Economics and
Business Administration where she also worked as a researcher and taught mathematics and statistics.
Jose Tarruella, Director
Jose Tarruella has served on our Board of Directors since May 2013. He is the founder and Chairman of Taorfi
Gestion s.l., a company specializing in advertising and public relations, since February 2018. Mr. Tarruella is also the
founder and Chairman of Camino de Esles s.l., a high-end restaurant chain with franchises throughout Madrid, Spain, since
2007. Prior to forming Taorfi Gestion and Camino de Esles, Mr. Tarruella was a Director in Group Tragaluz, which owns and
operates restaurants throughout Spain. Mr. Tarruella also acted as a consultant for the Spanish interests of Rank Group plc
(LSE: RNK.L) a leading European gaming-based entertainment business. He has been involved in corporate relations for
Esade Business School in Madrid. He earned an International MBA from Esade Business School in Barcelona and an MA
from the University of Navarre in Spain.
86
Reidar C. Brekke, Director
Reidar C. Brekke has served on the Company’s Board of Directors since December 2016. Mr. Brekke has over 21
years’ experience in the international energy, container logistics and transportation sector. He also serves as a partner of
Brightstar Capital Partners, a middle market private equity firm. From June 2010 to January 2022 he was a member of the
Board of Directors of Performance Shipping Inc. (NASDAQ: PSHG) and from December 2012 to August 2018, Mr. Brekke
served as a board member and President of Intermodal Holdings LP, a New York based portfolio company that invests in and
operates marine containers. From 2008 to 2012, Mr. Brekke served as President of Energy Capital Solution Inc., a company
that provides strategic and financial advisory services to international shipping, logistics and energy related companies. From
2003 to 2008, he served as Manager of Poten Capital Services LLC, a registered broker-dealer specialized in the maritime
sector. Prior to 2003, Mr. Brekke served as Chief Financial Officer, then President and Chief Operating Officer, of
SynchroNet Marine, a logistics service provider to the global container transportation industry. He also held various senior
positions with AMA Capital Partners LLC (formerly American Marine Advisers), a merchant banking firm focused on the
maritime and energy industries. Furthermore, Mr. Brekke has been an adjunct professor at Columbia University’s School of
International and Public Affairs - Center for Energy, Marine Transportation and Public Policy. Mr. Brekke graduated from
the New Mexico Military Institute in 1986 and has an MBA from the University of Nevada, Reno.
Merrick Rayner, Director
Merrick Rayner has served on our Board of Directors since September 2017. Mr. Rayner has 42 years of experience
in the tanker business. From 1974 to 2003, Mr. Rayner was a broker at H. Clarkson & Company Limited shipbrokers, with
experience in both the deep-sea tanker chartering business as well as new and second-hand vessel sale and purchase. From
1987 to 1989, Mr. Rayner served as Director of Clarkson Sale and Purchase Division. From 1989 until leaving H. Clarkson &
Company Limited in 2003, he was a director of the company, and also served as a director of Clarkson Research Studies
from 1992 until 2003. In 2003, Mr. Rayner joined E.A. Gibson’s shipbrokers as a broker, where he developed the company’s
time charter and projects group. He also served as a director of Gibson’s from 2012 until his retirement in 2016. Mr. Rayner
currently resides in the United Kingdom.
Sujata Parekh Kumar, Director
Ms. Kumar has served on our Board of Directors since March 2023. Ms. Kumar has over 40 years of experience in
entrepreneurship and industry across a number of sectors including logistics, financial services, insurance and shipping. From
2014 until 2021, Ms. Kumar served as Joint Managing Director of United Shippers Limited, one of the largest barge fleet
owners and operators in India that offered marine logistics for bulk cargo in India and Sri Lanka. She is a director of Parekh
Integrated Services Pvt. Ltd, one of India’s largest healthcare logistics providers with a pan-India footprint. She began her
career in financial services and is a director of a corporate entity that has a seat on the National Stock Exchange of India and
the Bombay Stock Exchange. Ms. Kumar is also the founder of an insurance brokerage company licensed by the Insurance
Regulatory and Development Authority of India. She has an MBA from Fairleigh Dickinson University, New Jersey, USA.
B. Compensation
We paid an aggregate compensation of $46.4 million, $23.0 million and $33.2 million to our senior executive
officers in 2022, 2021, and 2020, respectively. Executive management remuneration was as follows during these periods:
In thousands of U.S. dollars
Short-term employee benefits (salaries) ..............................................................
Share-based compensation(1) ................................................................................
Total ....................................................................................................................
For the year ended December 31,
2020
2021
2022
$
$
32,663
13,777
46,440
$
$
5,488
17,476
22,964
$
$
10,989
22,217
33,206
(1) Represents the amortization of restricted stock issued under our equity incentive plans. See Note 14 to our Consolidated Financial Statements included
herein for further description.
Each of our non-employee directors receive cash compensation in the aggregate amount of $60,000 annually, plus
an additional fee of $10,000 for each committee on which a director serves plus an additional fee of $25,000 for each
committee for which a director serves as Chairman, per year, plus an additional fee of $35,000 to the lead independent
director, per year, plus $2,000 for each meeting, plus reimbursements for actual expenses incurred while acting in their
capacity as a director. During each of the years ended December 31, 2022 and 2021, we paid aggregate cash compensation of
$0.9 million and $0.9 million to our directors, respectively. Our officers and directors are also eligible to receive awards
under our equity incentive plan which is described below under “—2013 Equity Incentive Plan.”
87
We believe that it is important to align the interests of our directors 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 meaningful component of our compensation
package for our directors and management consisted of equity interests in us in order to provide them on an on-going basis
with a meaningful percentage of ownership in us.
There are no material post-employment benefits for our executive officers or directors. By law, our employees in
Monaco are entitled to a one-time payment of up to two months’ salary upon retirement if they meet certain minimum service
requirements.
2013 Equity Incentive Plan
In April 2013, we adopted an equity incentive plan, which was amended in March 2014 and which we refer to as the
2013 Equity Incentive 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 initially reserved a total of 500,000 common
shares for issuance under the 2013 Equity Incentive Plan which was increased by an aggregate of 5,094,277 common shares
through December 31, 2019 and subsequently revised as follows:
The following is the reloading of additional common shares in 2020 and 2021 under the 2013 Equity Incentive Plan.
There were no additional shares reloaded during 2022.
1
2
3
4
Date of Reload
June 2020
December 2020
June 2021
October 2021
Common Shares
Reserved
362,766
367,603
386,883
693,864
Par Value
$0.01 per share
$0.01 per share
$0.01 per share
$0.01 per share
All other terms of the 2013 Equity Incentive Plan remained unchanged.
Under the terms of the 2013 Equity Incentive Plan, stock options and stock appreciation rights granted under the
2013 Equity Incentive 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
conditions 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 administrator. 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 common 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, change in capitalization or
other extraordinary event. In the event of a “change in control” (as defined in the 2013 Equity Incentive 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 2013 Equity Incentive 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 2013 Equity Incentive Plan will expire ten
years from the date the plan was adopted.
The following paragraphs summarize our grants of restricted stock during the years ended December 31, 2022,
2021, and 2020. The vesting periods of these grants are determined by the plan administrator and generally range from one to
five years. Additionally, vesting of these grants is generally subject to a grantee’s continued employment with the Company
through the vesting date unless the grantee is terminated without cause or due to the grantee’s death or disability.
88
In January 2020, we issued 469,680 shares of restricted stock to certain of our employees for no cash consideration.
The share price on the issuance date was $36.73 per share. The vesting schedule for these restricted shares is (i) one-third of
the shares vested on September 8, 2022, (ii) one-third of the shares vest on September 7, 2023, and (iii) one-third of the
shares vest on September 5, 2024.
In September 2020, we issued 220,500 shares of restricted stock to certain of our employees for no cash
consideration. The share price on the issuance date was $11.15 per share. The vesting schedule for these restricted shares is
(i) one-third of the shares vest on June 5, 2023, (ii) one-third of the shares vest on June 4, 2024, and (iii) one-third of the
shares vest on June 4, 2025.
In September 2020, we issued 141,900 shares of restricted stock to certain SSH employees for no cash
consideration. The share price on the issuance date was $11.15 per share. The vesting schedule of the restricted stock issued
to SSH employees is (i) one-third of the shares vest on June 5, 2023, (ii) one-third of the shares vest on June 4, 2024, and (iii)
one-third of the shares vest on June 4, 2025.
In December 2020, we issued 90,000 shares of restricted stock to our independent directors and 3,000 to an SSH
employee for no cash consideration. The share price on the issuance date was $11.36 per share. The vesting schedule of the
restricted stock issued to independent directors is (i) one-third of the shares vested on December 3, 2021, (ii) one-third of the
shares vested on December 2, 2022, and (iii) one-third of the shares vest on December 1, 2023. The vesting schedule of
restricted stock issued to the SSH employee is (i) one-third of the shares vest on June 5, 2023, (ii) one-third of the shares vest
on June 4, 2024, and (iii) one-third of the shares vest on June 4, 2025.
In April 2021, we issued 276,369 shares of restricted stock to certain of our employees for no cash consideration.
The share price on the issuance date was $18.38 per share. The vesting schedule for these restricted shares is (i) one-third of
the shares vest on March 1, 2024, (ii) one-third of the shares vest on March 3, 2025, and (iii) one-third of the shares vest on
March 2, 2026.
In April and May 2022, we issued an aggregate of 1,047,997 shares of restricted stock to certain of our employees,
SSH employees, and independent directors for no cash consideration. The share price on the issuances dates was $21.33 and
$26.11 per share, respectively. The vesting schedule for these restricted shares for employees and SSH employees is (i) one-
third of the shares vest on September 3, 2024, (ii) one-third of the shares vest on September 2, 2025, and (iii) one-third of the
shares vest on September 1, 2026. The vesting schedule for these restricted shares for independent directors is (i) one-third of
the shares vested on December 1, 2022, (ii) one-third of the shares vest on December 1, 2023, and (iii) one-third of the shares
vest on December 1, 2024.
Employment Agreements
We have entered into employment agreements with the majority of our executives. These employment agreements
remain in effect until terminated in accordance with their terms upon not less than between 24 months’ and 36 months’ prior
written notice, depending on the terms of the employment agreement applicable to each executive. Pursuant to the terms of
their respective employment agreements, our executives are prohibited from disclosing or unlawfully using any of our
material confidential information.
Upon a change in control of us, the annual bonus provided under the employment agreement becomes a fixed bonus
of between 150% and 250% of the executive’s base salary, and the executive may receive an assurance bonus equal to the
fixed bonus, depending on the terms of the employment agreement applicable to each executive.
Any such executive may 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 payments and benefits, including additional
bonus payments, otherwise due to him, to the extent permitted by applicable law, for the remaining balance 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 reimbursements beyond those accrued through the date of his termination, unless he
voluntarily terminated his employment in connection with certain conditions. Those conditions include a change in control
combined with a significant geographic relocation of his office, a material diminution of his duties and responsibilities, and
other conditions identified in the employment agreement.
C. Board Practices
Our Board of Directors currently consists of 10 directors, seven of whom have been determined by our Board of
Directors to be independent under the rules of the NYSE and the rules and regulations of the SEC. Our Board of Directors
has an Audit Committee, a Nominating and Corporate Governance Committee, a Compensation Committee and a Regulatory
89
and Compliance Committee, each of which is comprised of certain of our independent directors, who are Messrs. Alexandre
Albertini, Ademaro Lanzara, Jose Tarruella, Reidar Brekke, Mrs. Marianne Økland, Mr. Merrick Rayner, and Ms. Sujata
Parekh Kumar. The Audit Committee, among other things, reviews our external financial reporting, engages our external
auditors and oversees 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 members of Scorpio that our board believes may
present potential conflicts of interests between us and Scorpio. The Nominating and Corporate Governance Committee is
responsible for recommending to the Board of Directors nominees for director appointments and directors for appointment to
board committees and advising the board with regard to corporate governance practices. The Compensation Committee
oversees our equity incentive plan and recommends director and senior employee compensation. The Regulatory and
Compliance Committee oversees our operations to minimize environmental impact by the constant monitoring and measuring
of progress of our vessels. Our shareholders may also nominate directors in accordance with procedures set forth in our
bylaws.
D. Employees
As of December 31, 2022 and 2021, we had 24 and 26 shore-based employees, respectively. SSM and SCM were
responsible for our commercial and technical management.
E. Share Ownership
The following table sets forth information regarding the share ownership of our common stock as of March 23, 2023
by our directors and executive officers, including the restricted shares issued to our executive officers and to our independent
directors as well as distributions of dividends from Eneti, a related party, and shares purchased in the open market.
Name
Emanuele A. Lauro(1) .....................................................................................................
Robert Bugbee(2) ............................................................................................................
Cameron Mackey(3) ........................................................................................................
Brian M. Lee(4) ...............................................................................................................
All other executive officers and directors individually ..................................................
No. of Shares
% Owned(5)
713,593
1,005,511
740,341
734,067
*
1.21 %
1.70 %
1.25 %
1.24 %
*
(1)
(2)
(3)
(4)
Includes 469,371 unvested shares of restricted stock from the 2013 Equity Incentive Plan.
Includes 469,371 unvested shares of restricted stock from the 2013 Equity Incentive Plan.
Includes 333,780 unvested shares of restricted stock from the 2013 Equity Incentive Plan.
Includes 243,782 unvested shares of restricted stock from the 2013 Equity Incentive Plan.
(5) Based on 59,036,376 common shares outstanding as of March 23, 2023.
* The remaining executive officers and directors individually each own less than 1% of our outstanding shares of common stock.
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
Nothing to report
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 March 23, 2023.
Name
Scorpio Holdings Limited ................................................................................................
Dimensional Fund Advisors LP .......................................................................................
No. of Shares
3,706,735(1)
3,302,321(2)
% Owned(2)
6.3%
5.6%
(1) This information is derived from a Schedule 13D/A filed with the SEC on December 23, 2020 and other information made available to the Company.
(2) This information is derived from a Schedule 13G filed with the SEC on February 10, 2023.
(3) Based on 59,036,376 common shares outstanding as of March 23, 2023.
90
As of March 23, 2023, we had 174 shareholders of record, 48 of which were located in the United States and held an
aggregate of 57,781,647 shares of our common stock, representing 97.34% of our outstanding shares of common stock.
However, one of the U.S. shareholders of record is Cede & Co., a nominee of The Depository Trust Company, which held
56,351,635 shares of our common stock, as of that date.
B. Related Party Transactions
Management of Our Fleet
Revised Master Agreement
On September 29, 2016, we agreed to amend our master agreement, or the Master Agreement, with SCM and SSM
under a deed of amendment, or the Deed of Amendment. Pursuant to the terms of the Deed of Amendment, on November 15,
2016, we entered into definitive documentation to memorialize the agreed amendments to the Master Agreement, or the
Amended and Restated Master Agreement.
On February 22, 2018, we entered into definitive documentation to memorialize agreed amendments to the
Amended and Restated Master Agreement under a deed of amendment, or the Amendment Agreement. The Amended and
Restated Master Agreement as amended by the Amendment Agreement, or the Revised Master Agreement, is effective as
from January 1, 2018.
Pursuant to the Revised Master Agreement, the fixed annual technical management fee was reduced from $250,000
per vessel to $175,000, and certain services previously provided as part of the fixed fee are now itemized. The aggregate cost,
including the costs that are now itemized, for the services provided under the technical management agreement have not, and
are not expected to materially differ from the annual management fee charged prior to the amendment.
The independent members of our Board of Directors unanimously approved the revised technical management
agreement described in the preceding paragraph.
Commercial and Technical Management
Our vessels are commercially managed by SCM and technically managed by SSM pursuant to the Revised Master
Agreement (described above), which may be terminated by either party upon 24 months’ notice, unless terminated earlier in
accordance with the provisions of the Revised Master Agreement. In the event of the sale of one or more vessels, a notice
period of three months and a payment equal to three months of management fees will apply, provided that the termination
does not amount to a change in control, including a sale of all or substantially all of our vessels, in which case a payment
equal to 24 months of management fees will apply. SCM and SSM are related parties of ours. We expect that additional
vessels that we may acquire in the future will also be managed under the Revised Master Agreement or on substantially
similar terms.
SCM’s services include securing employment for our vessels in the spot market and on time charters. SCM also
manages the Scorpio Pools. When our vessels are in the Scorpio Pools, SCM, the pool manager, charges fees of $300 per
vessel per day with respect to our LR1/Panamax vessels and Aframax vessels, $250 per vessel per day with respect to our
LR2 vessels, and $325 per vessel per day with respect to each of our Handymax and MR vessels, plus 1.50% commission on
gross revenues per charter fixture. These are the same fees that SCM charges other vessels in these pools, including third-
party owned vessels. For commercial management of our vessels that do not operate in any of the Scorpio Pools, we pay
SCM a fee of $250 per vessel per day for each LR1/Panamax and LR2/Aframax vessel and $300 per vessel per day for each
Handymax and MR vessel, plus 1.25% commission on gross revenues per charter fixture.
SSM’s services include day-to-day vessel operation, performing general maintenance, monitoring regulatory and
classification society compliance, 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 providing technical
support. Effective January 1, 2018, the fixed annual technical management fee was reduced from $250,000 per vessel to
$175,000, and certain services previously provided as part of the fixed fee are now itemized, as noted above.
Amended Administrative Services Agreement
We have an Amended Administrative Services Agreement with SSH or our Administrator, for the provision of
administrative staff and office space, and administrative services, including accounting, legal compliance, financial and
information technology services. SSH is a related party to us. We reimburse our current Administrator for the reasonable
91
direct or indirect expenses it incurs in providing us with the administrative services described above. The services provided to
us by our Administrator may be sub-contracted to other entities within Scorpio.
Further, pursuant to our Amended Administrative Services Agreement, our Administrator, on behalf of itself and
other members of Scorpio, has agreed that it will not directly own product or crude tankers ranging in size from 35,000 dwt
to 200,000 dwt.
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 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. The managers of the pools negotiate charters with
customers primarily in the spot market but may also arrange time charter agreements. 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 otherwise might be obtainable in the spot market while providing a higher level of service
offerings to customers. When we employ a vessel in the spot charter market, we generally place such vessel in a tanker pool
managed by our commercial manager that pertains to that vessel’s size class. The earnings allocated 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 consumption. Pool Points are also awarded to vessels capable of carrying clean
products and to vessels capable of trading in certain ice conditions. We currently participate in, or have participated in four
pools: the Scorpio LR2 Pool, the Scorpio LR1 Pool, the Scorpio MR Pool, and the Scorpio Handymax Tanker Pool.
SCM is responsible for the commercial management of participating 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 LR1 Pool is administered by Scorpio LR1 Pool Ltd, the Scorpio MR Pool is administered by Scorpio MR Pool
Ltd. and the Scorpio Handymax Tanker Pool is administered by Scorpio Handymax Tanker Pool Ltd. Our founder, Chairman and
Chief Executive Officer and Vice President are members of the Lolli-Ghetti family which owns a majority of the issued and
outstanding stock of Scorpio LR2 Pool Ltd., Scorpio LR1 Pool Ltd., Scorpio MR Pool Ltd., and Scorpio Handymax Tanker Pool
Ltd., or the Pool Entities. Taking into account the recommendations of a pool committee and a technical committee, each of which
is comprised of representatives of each pool participant, the Pool Entities set the respective pool policies and issue directives to the
pool participants 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 for which each vessel is available.
Our Relationship with Scorpio and its Affiliates
Scorpio is owned and controlled by the Lolli-Ghetti family, of which Messrs. Emanuele Lauro and Filippo Lauro are
members. Annalisa Lolli-Ghetti is majority owner of Scorpio (of which our administrator and commercial and technical
managers are members) and beneficially owns approximately 6.3% of our common shares. We are not affiliated with any
other entities in the shipping industry other than those that are members of Scorpio.
In addition, Mr. Emanuele Lauro, Mr. Robert Bugbee and other members of our senior management have an indirect
minority equity interest in SSH, our Administrator, a member of Scorpio.
SCM and SSM, our commercial manager and technical manager, respectively, are also members of Scorpio. For
information regarding the details regarding our relationship with SCM, SSM and SSH, please see “– Management of our
Fleet.”
Our Board of Directors consists of ten individuals, seven of whom are independent directors. Three of the
independent directors 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 related parties, including Scorpio. Our three non-independent
directors and all of our executive officers serve in senior management positions in certain other companies within Scorpio.
92
Transactions with Related Parties
Transactions with entities controlled by the Lolli-Ghetti family (herein referred to as related parties) in the
consolidated statements of income and balance sheet are as follows:
In thousands of U.S. dollars
Pool revenue(1)
For the year ended December 31,
2020
2021
2022
Scorpio MR Pool Limited .............................................................................
Scorpio LR2 Pool Limited ............................................................................
Scorpio Handymax Tanker Pool Limited .....................................................
Scorpio LR1 Pool Limited ............................................................................
Voyage revenue(2) ................................................................................................
Time charter-out revenue (3) .................................................................................
Voyage expenses(4) ..............................................................................................
Vessel operating costs(5) .......................................................................................
Administrative expenses(6) ...................................................................................
$ 639,743
456,002
79,636
11,196
5,657
2,358
(9,194)
(33,084)
(13,175)
$ 256,874
180,912
50,143
47,053
—
—
(1,461)
(35,427)
(13,557)
$ 340,937
369,476
105,355
87,028
2,334
—
(3,507)
(33,896)
(13,876)
Purchases of bunkers(7) ........................................................................................
(45,957)
(2,561)
(3,556)
(1) These transactions relate to revenue earned in the Scorpio Pools. The Scorpio Pools are related parties. When our vessels are in the Scorpio Pools, SCM,
the pool manager, charges fees of $300 per vessel per day with respect to our LR1/Panamax and Aframax vessels, $250 per vessel per day with respect
to our LR2 vessels, and $325 per vessel per day with respect to each of our Handymax and MR vessels, plus a commission of 1.50% on gross revenue
per charter fixture. These are the same fees that SCM charges other vessels in these pools, including third party vessels.
(2) These transactions relate to revenue earned in the spot market on voyages chartered through SSH, a related party.
(3) These transactions relate to revenue earned for certain vessels on time charter, which have been time chartered out through SSH to the end customer.
(4) Related party expenditures included within voyage expenses in the consolidated statements of income or loss consist of the following:
• Expenses due to SCM, a related party, for commissions related to the commercial management services provided by SCM under the commercial
management agreement for vessels that are not in one of the Scorpio Pools. SCM’s services include securing employment, in the spot market and on time
charters, for our vessels. When not in one of the Scorpio Pools, each vessel pays (i) flat fees of $250 per day for LR1/Panamax and LR2/Aframax vessels
and $300 per day for Handymax and MR vessels and (ii) commissions of 1.25% of their gross revenue per charter fixture.
• Voyage expenses also consist of $2.4 million, $19,175 and $4,925 charged by related party port agents during the years ended December 31, 2022,
2021 and 2020. SSH has a majority equity interest in port agents that provide supply and logistical services for vessels operating in the regions.
(5) Related party expenditures included within vessel operating costs in the consolidated statements of income or loss consist of the following:
• Technical management fees of $29.8 million, $32.7 million, and $31.9 million charged by SSM, a related party, during the years ended December 31,
2022, 2021 and 2020 respectively. SSM’s services include day-to-day vessel operations, performing general maintenance, monitoring regulatory and
classification society compliance, 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 providing technical support. SSM administers the payment of salaries to our crew on our behalf.
The crew wages that were administered by SSM (and disbursed through related party subcontractors of SSM) were $141.2 million, $152.0 million,
and $146.0 million during the years ended December 31, 2022, 2021, and 2020 respectively. SSM’s annual technical management fee is a fixed fee of
$175,000 per vessel plus certain itemized expenses pursuant to the technical management agreement.
• Vessel operating expenses of $3.3 million, $2.7 million, and $2.0 million charged by a related party port agent during the years ended December 31,
2022, 2021 and 2020, respectively.
(6) We have an Amended Administrative Services Agreement with SSH for the provision of administrative staff and office space, and administrative
services, including accounting, legal compliance, financial and information technology services. SSH also administers the payroll for certain of our
employees. SSH is a related party to us. The services provided to us by SSH may be sub-contracted to other entities within Scorpio. The expenses
incurred under this agreement were recorded in general and administrative expenses in the consolidated statement of income or loss and were as follows:
• The expense for the year ended December 31, 2022 of $13.2 million included (i) administrative fees of $11.0 million charged by SSH, (ii) restricted
stock amortization of $2.0 million, which relates to the issuance of an aggregate of 493,300 shares of restricted stock to SSH employees for no cash
consideration pursuant to the 2013 Equity Incentive Plan, and (iii) the reimbursement of expenses of $81,762 to SSH and $36,869 to SCM.
• The expense for the year ended December 31, 2021 of $13.6 million included (i) administrative fees of $12.2 million charged by SSH, (ii) restricted
stock amortization of $1.3 million, which relates to the issuance of an aggregate of 315,950 shares of restricted stock to SSH employees for no cash
consideration pursuant to the 2013 Equity Incentive Plan and (iii) the reimbursement of expenses of $51,962 to SSH and $14,726 to SCM.
• The expense for the year ended December 31, 2020 of $13.9 million included (i) administrative fees of $12.6 million charged by SSH, (ii) restricted
stock amortization of $1.2 million, which relates to the issuance of an aggregate of 315,950 shares of restricted stock to SSH employees for no cash
consideration pursuant to the 2013 Equity Incentive Plan and (iii) the reimbursement of expenses of $19,772 to SSH and $45,539 to SCM.
(7) These amounts represent bunkers purchased from a related party which, for vessels operating in the spot market, are initially recorded as part of
inventory on the balance sheet prior to being consumed.
93
We had the following balances with related parties, which have been included in the consolidated balance sheets:
In thousands of U.S. dollars
Assets:
Accounts receivable (due from the Scorpio Pools)(1) ...................................................................
Prepaid expenses (SSM)(2) ...........................................................................................................
Accounts receivable (SSH) ..........................................................................................................
Prepaid expenses (related party port agent) .................................................................................
Prepaid expenses (SCM) ..............................................................................................................
Other assets (pool working capital contributions)(3) ....................................................................
Liabilities:
Accounts payable and accrued expenses (owed to the Scorpio Pools)(4) .....................................
Accounts payable and accrued expenses (related party bunker supplier) ....................................
Accounts payable and accrued expenses (related party port agent) .............................................
Accounts payable and accrued expenses (SSM) ..........................................................................
Accounts payable and accrued expenses (SCM) .........................................................................
Accounts payable and accrued expenses (SSH) ..........................................................................
As of December 31,
2021
2022
$
$ 236,389
5,450
4,976
98
84
53,161
10,090
2,380
955
823
540
287
36,216
3,426
—
—
—
73,161
2,548
—
674
9,844
25
1,888
(1) Accounts receivable due from the Scorpio Pools relate to hire receivables for revenues earned and receivables from working capital contributions. The
amounts as of December 31, 2022 included $0.6 million of working capital contributions made on behalf of our vessels to the Scorpio Pools. Upon
entrance into such pools, all vessels are required to make working capital contributions of both cash and bunkers. Additional working capital
contributions can be made from time to time based on the operating needs of the pools. These amounts are accounted for and repaid as follows:
• For vessels in the Scorpio LR2 Pool, Scorpio LR1 Pool, Scorpio MR Pool and Scorpio Handymax Tanker Pool, the initial contribution amount is
repaid, without interest, upon a vessel’s exit from the pool no later than six months after the exit date. Bunkers on board a vessel exiting the pool are
credited against such repayment at the actual invoice price of the bunkers. For all owned or lease financed vessels we assume that these contributions
will not be repaid within 12 months and are thus classified as non-current within other assets on the consolidated balance sheets.
• For time or bareboat chartered-in vessels we classify the initial contributions as current (within accounts receivable) or non-current (within other
assets) according to the expiration of the contract. Any additional working capital contributions are repaid when sufficient net revenues become
available to cover such amounts.
(2) Accounts receivable and prepaid expenses from SSM primarily relate to advances made for vessel operating expenses (such as crew wages) that will
either be reimbursed or applied against future costs.
(3) Represents the non-current portion of working capital receivables as described above.
(4) Accounts payable and accrued expenses owned to the Scorpio Pools relate to expenses incurred by the Scorpio Pools on behalf of certain of our vessels.
Other transactions
Starting in October 2019, we provided guarantees in respect of the payment obligations of a related party bunker
provider (who is engaged in the procurement of bunkers on behalf of the Company and the Scorpio Pools) toward its physical
suppliers. These guarantee agreements expired during the year ended December 31, 2021 and no amounts were paid to this
provider under these guarantees during the years ended December 31, 2021 and 2020.
As described in Note 8, in August 2021, we acquired a minority interest in a portfolio of nine product tankers,
consisting of five dual-fuel MR methanol tankers (built between 2016 and 2021) along with four ice class 1A LR1 product
tankers. Two of the LR1 tankers that are part of this joint venture are commercially and technically managed by SCM and
SSM, respectively.
During the year ended December 31, 2022, we sold 18 vessels, consisting of three LR2s, 12 LR1s and three MRs.
Pursuant to the Revised Master Agreement with SCM and SSM, in the event of the sale of one or more vessels, a notice
period of three months and a payment equal to three months of commercial and technical management fees would be due and
payable upon the sales of these vessels.
Termination fees of $2.5 million and $1.4 million were paid to SCM and SSM respectively, during the year ended
December 31, 2022 as a result of these sales.
SSH also owns a non-controlling 7.5% interest in the buyer of one of the MR product tankers. SSH also has an
interest in the entity that bareboat chartered-in one of the MR product tankers that we sold in 2022. During 2022, we received
an insurance claim of $1.7 million for certain repairs that this vessel required but were not yet undertaken. As part of the sale
of this vessel, we forwarded these funds to SSH in August 2022.
94
In August 2022, we repurchased 1,293,661 of our common shares from Eneti Inc., a related party, for $38.65 per
share.
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
See “Item 18. Financial Statements.”
Legal Proceedings
To our knowledge, we are not currently a party to any other 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 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
The declaration and payment of dividends is subject at all times to the discretion of our Board of Directors. The timing and
amount of dividends, if any, depends on, among other things, our earnings, financial condition, cash requirements and
availability, fleet renewal and expansion, restrictions in our loan agreements and finance lease arrangements, the provisions
of Marshall Islands law affecting the payment of dividends and other factors.
We are a holding company with no material assets other than the equity interests in our wholly-owned subsidiaries.
As a result, our ability to pay dividends, if any, depends on our subsidiaries and their ability to distribute funds to us. Our
credit facilities and lease financing arrangements have restrictions on our ability, and the ability of certain of our subsidiaries,
to pay dividends in the event of a default or breach of covenants under the agreements. Under such circumstances, we or our
subsidiaries may not be able to pay dividends so long as we are in default or have breached certain covenants of a credit
facility or lease financing arrangement without our lender’s consent or waiver of the default or breach. In addition, Marshall
Islands law generally prohibits the payment of dividends (i) other than from surplus (retained earnings and the excess of
consideration received for the sale of shares above the par value of the shares) or (ii) when a company is insolvent or (iii) if
the payment of the dividend would render the company insolvent.
In addition, we may incur expenses or liabilities, including extraordinary expenses, decreases in revenues, including
as a result of unanticipated off-hire days or loss of a vessel, or increased cash needs that could reduce or eliminate the amount
of cash that we have available for distribution as dividends.
Any dividends paid by us will be income to a United States shareholder. Please see “Item 10. Additional
Information - E. Taxation” for additional information relating to the United States federal income tax treatment of our
dividend payments, if any are declared in the future.
95
For the years ended December 31, 2022, 2021 and 2020, we paid aggregate dividends to our shareholders in the
amount of $23.3 million, $23.3 million and $23.3 million, respectively. We have paid the following dividends per share in
respect of the periods set forth below:
Date Paid
March 13, 2020 ....................................................................
June 15, 2020 .......................................................................
September 29, 2020 .............................................................
December 14, 2020 ..............................................................
March 15, 2021 ....................................................................
June 15, 2021 .......................................................................
September 29, 2021 .............................................................
December 15, 2021 ..............................................................
March 15, 2022 ....................................................................
June 15, 2022 .......................................................................
September 15, 2022 .............................................................
December 15, 2022 ..............................................................
Dividends
per Share
$
$
$
$
$
$
$
$
$
$
$
$
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
B. Significant Changes
There have been no significant changes since the date of the annual consolidated financial statements included in
this report, other than as described in Note 23 - Subsequent Events to our consolidated financial statements included herein.
ITEM 9. OFFER AND THE LISTING
A. Offer and Listing Details
Please see “Item 9. Offer and Listing - C. Markets.”
B. Plan of Distribution
Not applicable.
C. Markets
Since our initial public offering, our shares of common stock have traded on the NYSE under the symbol “STNG.”
Our Senior Notes Due 2025 are listed for trading on the NYSE under the symbol “SBBA.”
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
96
B. Memorandum and Articles of Association
Our amended and restated articles of incorporation have been filed as Exhibit 3.1 to 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 with the SEC on June 29, 2010. In June
2014, after receiving shareholder approval, we amended our amended and restated articles of incorporation to increase our
authorized common stock to 400,000,000 from 250,000,000. This amendment to our amended and restated articles of
incorporation is filed as Exhibit 3.1 to our Annual Report on Form 20-F filed with the SEC on March 31, 2015. In June 2018,
after receiving shareholder approval, we amended our amended and restated articles of incorporation to increase our
authorized common stock to 750,000,000 from 400,000,000. This amendment to our amended and restated articles of
incorporation is filed as Exhibit 3.1 to the Form 6-K filed with the SEC on June 1, 2018. The share numbers in this paragraph
have not been retroactively adjusted to reflect the below reverse stock split.
On January 18, 2019, we effected a one-for-ten reverse stock split. Our shareholders approved the reverse stock split
including a change in authorized common shares at the special meeting of shareholders held on January 15, 2019. Pursuant to
this reverse stock split, the total number of authorized common shares was reduced to 150,000,000 shares and common
shares outstanding were reduced from 513,975,324 shares to 51,397,470 shares (which reflects adjustments for fractional
share settlements). The par value was not adjusted as a result of the reverse stock split. The amended and restated articles of
incorporation to effect the reverse stock split and change in authorized common shares from 750,000,000 to 150,000,000 is
included as Exhibit 3.1 to the Form 6-K filed with the SEC on January 18, 2019. The information contained in these exhibits
is incorporated by reference herein.
Below is a summary of the description of our capital stock, including the rights, preferences and restrictions
attaching to each class of stock. Because the following is a summary, it does not contain all information that you may find
useful. For more complete information, you should read our amended and restated articles of incorporation, as amended (the
“Articles of Incorporation”) and amended and restated bylaws (the “Bylaws”), which are incorporated by reference herein.
Purpose
Our purpose, as stated in our Articles of Incorporation, is to engage in any lawful act or activity for which
corporations may now or hereafter be organized under the BCA. Our Articles of Incorporation and Bylaws do not impose any
limitations on the ownership rights of our shareholders.
Authorized capitalization
Under our Articles of Incorporation, we have authorized 175,000,000 registered shares, consisting of 150,000,000
common shares, par value $0.01 per share, of which 59,036,376 shares were issued and outstanding as of March 23, 2023 and
25,000,000 preferred shares, par value $0.01 per share, of which no shares are issued and outstanding.
Description of Common Shares
Each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders.
Subject to preferences that may be applicable to any outstanding preferred shares, holders of our common shares are entitled
to receive ratably all dividends, if any, declared by our Board of Directors out of funds legally available for dividends. Upon
our dissolution or liquidation or the sale of all or substantially all of our assets, after payment in full of all amounts required
to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of our common
shares are entitled to receive pro rata our remaining assets available for distribution. Holders of our common shares do not
have conversion, redemption or pre-emptive rights to subscribe to any of our securities. The rights, preferences and privileges
of holders of our common shares are subject to the rights of the holders of any preferred shares, which we may issue in the
future.
Description of Preferred Shares
Our Articles of Incorporation authorize our Board of Directors to establish one or more series of preferred stock and
to determine, with respect to any series of preferred stock, the terms and rights of that series, including the designation of the
series, the number of shares of the series, the preferences and relative, participating, option or other special rights, if any, and
any qualifications, limitations or restrictions of such series, and the voting rights, if any, of the holders of the series.
97
Directors
Our directors are elected by a plurality of the votes cast by shareholders entitled to vote. There is no provision for
cumulative voting.
Our Articles of Incorporation require our Board of Directors to consist of at least one member. Our Board of
Directors consists of 10 members. Our Bylaws may be amended by the vote of a majority of our entire Board of Directors.
Directors are elected annually on a staggered basis, and each shall serve for a three-year term and until his or her
successor shall have been duly elected and qualified, except in the event of his or her death, resignation, removal, or the
earlier termination of his or her term of office. Our Board of Directors, as advised by our Compensation Committee, has the
authority to fix the amounts which shall be payable to the members of the Board of Directors for attendance at any meeting or
for services rendered to us.
Shareholder Meetings
Under our Bylaws, annual meetings of shareholders will be held at a time and place selected by our Board of
Directors. The meetings may be held in or outside of the Republic of the Marshall Islands. Special meetings may be called at
any time by a majority of our Board of Directors, the chairman of our Board of Directors or an officer of the Company who is
also a director. Our Board of Directors may set a record date between 15 and 60 days before the date of any meeting to
determine the shareholders that will be eligible to receive notice and vote at the meeting. One or more shareholders
representing at least one-third of the total voting rights of our total issued and outstanding shares present in person or by
proxy at a shareholder meeting shall constitute a quorum for the purposes of the meeting.
Dissenters’ Rights of Appraisal and Payment
Under the BCA, our shareholders have the right to dissent from various corporate actions and receive payment of the
fair market value of their shares. In the event of any further amendment of our Articles of Incorporation, a shareholder also
has the right to dissent and receive payment for his or her shares if the amendment alters certain rights in respect of those
shares. The dissenting shareholder must follow the procedures set forth in the BCA to receive payment. In the event that we
and any dissenting shareholder fail to agree on a price for the shares, the BCA procedures involve, among other things, the
institution of proceedings in the high court of the Republic of the Marshall Islands or in any appropriate court in any
jurisdiction in which our shares are primarily traded on a local or national securities exchange.
Shareholders’ Derivative Actions
Under the BCA, any of our shareholders may bring an action in our name to procure a judgment in our favor, also
known as a derivative action, provided that the shareholder bringing the action is a holder of common shares both at the time
the derivative action is commenced and at the time of the transaction to which the action relates.
Limitations on Liability and Indemnification of Officers and Directors
The BCA authorizes corporations to limit or eliminate the personal liability of directors to corporations and their
shareholders for monetary damages for certain breaches of directors’ fiduciary duties. Our Bylaws include a provision that
eliminates the personal liability of directors for actions taken as a director to the fullest extent permitted by law.
Our Bylaws provide that we must indemnify our directors and officers to the fullest extent authorized by law. We
are also expressly authorized to advance certain expenses (including attorney’s fees and disbursements and court costs) to our
directors and officers and carry directors’ and officers’ insurance providing indemnification for our directors, officers and
certain employees for some liabilities. We believe that these indemnification provisions and this insurance are useful to
attract and retain qualified directors and executive officers.
The limitation of liability and indemnification provisions in our Bylaws may discourage shareholders from bringing
a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the
likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise
benefit us and our shareholders. In addition, shareholders’ investment may be adversely affected to the extent we pay the
costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers
and controlling persons pursuant to the foregoing provisions, or otherwise, we have been informed that in the opinion of the
SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
98
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees
for which indemnification is sought.
Anti-Takeover Effect of Certain Provisions of our Amended and Restated Articles of Incorporation and Amended
and Restated Bylaws
Several provisions of our Articles of Incorporation and Bylaws, which are summarized below, may have anti-
takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of
control and enhance the ability of our Board of Directors to maximize shareholder value in connection with any unsolicited
offer to acquire us. However, these anti-takeover provisions, which are summarized below, could also discourage, delay or
prevent (i) the merger or acquisition of us by means of a tender offer, a proxy contest or otherwise that a shareholder may
consider in its best interest and (ii) the removal of incumbent officers and directors.
Blank Check Preferred Stock
Under the terms of our Articles of Incorporation, our Board of Directors has authority, without any further vote or
action by our shareholders, to issue up to 25 million shares of blank check preferred stock. Our Board of Directors may issue
preferred shares on terms calculated to discourage, delay or prevent a change of control of us or the removal of our
management.
Election and Removal of Directors
Our Articles of Incorporation prohibit cumulative voting in the election of directors. Our Bylaws require parties
other than the Board of Directors to give advance written notice of nominations for the election of directors. Our Articles of
Incorporation also provide that our directors may be removed for cause upon the affirmative vote of not less than two-thirds
of the outstanding shares of our capital stock entitled to vote for those directors. These provisions may discourage, delay or
prevent the removal of incumbent officers and directors.
Limited Actions by Shareholders
Our Articles of Incorporation and our Bylaws provide that any action required or permitted to be taken by our
shareholders must be effected at an annual or special meeting of shareholders or by the unanimous written consent of our
shareholders. Our Bylaws provide that, unless otherwise prescribed by law, only a majority of our Board of Directors, the
chairman of our Board of Directors or an officer of the Company who is also a director may call special meetings of our
shareholders and the business transacted at the special meeting is limited to the purposes stated in the notice. Accordingly, a
shareholder may be prevented from calling a special meeting for shareholder consideration of a proposal over the opposition
of our Board of Directors and shareholder consideration of a proposal may be delayed until the next annual meeting.
Advance notice requirements for shareholder proposals and director nominations
Our Bylaws provide that shareholders seeking to nominate candidates for election as directors or to bring business
before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary.
Generally, to be timely, a shareholder’s notice must be received at our principal executive offices not less than 150 days nor
more than 180 days prior to the one-year anniversary of the immediately preceding annual meeting of shareholders. Our
Bylaws also specify requirements as to the form and content of a shareholder’s notice. These provisions may impede
shareholders’ ability to bring matters before an annual meeting of shareholders or make nominations for directors at an
annual meeting of shareholders.
Classified Board of Directors
As described above, our Articles of Incorporation provide for the division of our Board of Directors into three
classes of directors, with each class as nearly equal in number as possible, serving staggered three-year terms. Accordingly,
approximately one-third of our Board of Directors will be elected each year. This classified board provision could discourage
a third party from making a tender offer for our shares or attempting to obtain control of us. It could also delay shareholders
who do not agree with the policies of our Board of Directors from removing a majority of our Board of Directors for two
years.
99
Business combinations
Although the BCA does not contain specific provisions regarding “business combinations” between companies
organized under the laws of the Marshall Islands and “interested shareholders,” we have included these provisions in our
Articles of Incorporation. Specifically, our Articles of Incorporation prohibit us from engaging in a “business combination”
with certain persons for three years following the date the person becomes an interested shareholder. Interested shareholders
generally include:
•
•
any person who is the beneficial owner of 15% or more of our outstanding voting stock; or
any person who is our affiliate or associate and who held 15% or more of our outstanding voting stock at any
time within three years before the date on which the person’s status as an interested shareholder is determined,
and the affiliates and associates of such person.
Subject to certain exceptions, a business combination includes, among other things:
•
•
•
•
•
certain mergers or consolidations of us or any direct or indirect majority-owned subsidiary of ours;
any sale, lease, exchange, mortgage, pledge, transfer or other disposition of our assets or of any subsidiary of
ours having an aggregate fair market value equal to 10% or more of either the aggregate fair market value of all
of our assets, determined on a combined basis, or the aggregate value of all of our outstanding stock;
certain transactions that result in the issuance or transfer by us of any stock of ours to the interested shareholder;
any transaction involving us or any of our subsidiaries that has the effect of increasing the proportionate share
of any class or series of stock, or securities convertible into any class or series of stock, of ours or any such
subsidiary that is owned directly or indirectly by the interested shareholder or any affiliate or associate of the
interested shareholder; and
any receipt by the interested shareholder of the benefit directly or indirectly (except proportionately as a
shareholder) of any loans, advances, guarantees, pledges or other financial benefits provided by or through us.
These provisions of our Articles of Incorporation do not apply to a business combination if:
•
•
•
•
•
•
before a person became an interested shareholder, our Board of Directors approved either the business
combination or the transaction in which the shareholder became an interested shareholder;
upon consummation of the transaction which resulted in the shareholder becoming an interested shareholder,
the interested shareholder owned at least 85% of our voting stock outstanding at the time the transaction
commenced, other than certain excluded shares;
at or following the transaction in which the person became an interested shareholder, the business combination
is approved by our Board of Directors and authorized at an annual or special meeting of shareholders, and not
by written consent, by the affirmative vote of the holders of at least two-thirds of our outstanding voting stock
that is not owned by the interested shareholder;
the shareholder was or became an interested shareholder prior to the closing of our initial public offering in
2010;
a shareholder became an interested shareholder inadvertently and (i) as soon as practicable divested itself of
ownership of sufficient shares so that the shareholder ceased to be an interested shareholder; and (ii) would not,
at any time within the three-year period immediately prior to a business combination between us and such
shareholder, have been an interested shareholder but for the inadvertent acquisition of ownership; or
the business combination is proposed prior to the consummation or abandonment of and subsequent to the
earlier of the public announcement or the notice required under our Articles of Incorporation which (i)
constitutes one of the transactions described in the following sentence; (ii) is with or by a person who either was
not an interested shareholder during the previous three years or who became an interested shareholder with the
approval of the board; and (iii) is approved or not opposed by a majority of the members of the Board of
Directors then in office (but not less than one) who were directors prior to any person becoming an interested
shareholder during the previous three years or were recommended for election or elected to succeed such
directors by a majority of such directors. The proposed transactions referred to in the preceding sentence are
limited to:
(i) a merger or consolidation of us (except for a merger in respect of which, pursuant to the BCA, no vote of
our shareholders is required);
100
(ii) a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of
transactions), whether as part of a dissolution or otherwise, of assets of us or of any direct or indirect
majority-owned subsidiary of ours (other than to any direct or indirect wholly-owned subsidiary or to us)
having an aggregate fair market value equal to 50% or more of either the aggregate fair market value of all
of our assets determined on a consolidated basis or the aggregate fair market value of all the outstanding
shares; or
(iii) a proposed tender or exchange offer for 50% or more of our outstanding voting stock.
Registrar and Transfer Agent
The registrar and transfer agent for our common shares is Computershare Trust Company, N.A.
Listing
Our common shares are listed on the NYSE under the symbol “STNG.”
C. Material Contracts
We refer you “Item 6. Directors, Senior Management and Employees-B. Compensation-2013 Equity Incentive Plan”
and “Item 7. Major Shareholders and Related Party Transactions-B. Related Party Transactions” for a discussion of the
contracts that we consider to be both material and outside the ordinary course of business during the two-year period
immediately preceding the date of this annual report. Certain of these material agreements that are to be performed in whole
or in part at or after the date of this annual report are attached as exhibits to this annual report.
Other than as set forth above, there were no material contracts, other than contracts entered into in the ordinary
course of business, to which we were a party during the two-year period immediately preceding the date of this annual report.
D. Exchange Controls
Under Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign
exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of
our common shares.
E. Taxation
United States Federal Income Tax Considerations
In the opinion of Seward & Kissel LLP, 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 Code,
judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United States
Department of the Treasury, or the Treasury Regulations, all of which are subject to change, possibly 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 performance 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 us 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.
101
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 foreign 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 established 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 officially recognized by 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 Shipping Income if we satisfy
either the 50% Ownership Test or the Publicly-Traded Test.
For our 2022 taxable tax year, we intend to take the position that we satisfy the Publicly-Traded Test and we
anticipate that we will continue 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 during 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 NYSE.
Under the Treasury Regulations, our common shares will be considered to be “regularly traded” on an established
securities market 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 aggregate number of shares of such class of
stock traded on such market 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.”
We currently satisfy and anticipate that we 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 Test
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.
102
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 taxable 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 actually 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 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 purposes 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, we must satisfy certain substantiation requirements in regards to the identity of our 5% Shareholders.
We believe that we currently satisfy the Publicly-Traded Test and intend to take this position on our United States
federal income tax return for the 2022 taxable year. 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 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 such taxable
year, or that we will be able to satisfy the substantiation requirements in regards to our 5% Shareholders.
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 maximum 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 considered 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 applicable deductions, would be subject to United States federal income tax, currently imposed at a rate of
21%. 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 a 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
103
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 vessels so
that the gain therefrom 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 common 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. This discussion only addresses considerations relevant to those United States Holders who hold the
common shares as capital assets, that is, generally for investment purposes. 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 ownership of common shares.
As used herein, the term United States Holder means a beneficial 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 regardless of its source, or a trust if (i) 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 or (ii) it has in place an election to be treated as a
United States person for U.S. federal income tax purposes.
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 consult your tax advisor.
Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to our
common 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 generally not be entitled to claim a dividends received 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
computing 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, or 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 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 common shares are traded); (2) we are not a passive
foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year
(which, as discussed below, we believe we have not been, we believe we 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 common 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. 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”—generally, a dividend in an amount which is equal to or in
excess of 10% of a shareholder’s adjusted tax basis (or fair market value in certain circumstances) or dividends received
within a one-year period that, in the aggregate, equal or exceed 20% of a shareholder’s adjusted tax basis (or fair market
value upon the shareholder’s election) 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.
104
Sale, Exchange or Other Disposition of Common Shares
Assuming we do not constitute a passive foreign investment company for any taxable year, a United States Holder
generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common shares in an amount
equal to the difference 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 business); or
at least 50% of the average value of our assets during such taxable 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 corporations 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 PFIC 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 PFIC, 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 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 pronouncements
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 characterizes 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 addition, if we were to be treated as a PFIC for any taxable year, a United States Holder will generally 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 capital
gain, if any, for each of our taxable years during which we are 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
ordinary 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
105
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
distributed. 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
disposition 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 provide 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 instructions 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
previously included in income as a result of the mark-to-market election. 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 previously 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 distributions 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 amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we
were a PFIC, would be taxed as ordinary income and would not be “qualified 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 taxable 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 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 consult 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 States federal
income tax only if it is attributable to a permanent establishment maintained by the Non-United States Holder in the United
States.
106
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 benefits 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
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.
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 generally 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 corporate Non-United States Holder, your earnings and profits that are attributable to the effectively
connected income, subject to certain 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
information 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 federal income tax returns; or
•
in certain circumstances, fail to comply with applicable certification requirements.
Non-United States Holders may be required to establish their exemption from information reporting and backup
withholding by certifying their status on an appropriate IRS Form W-8.
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 payment 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 a non-
United States office of a broker that is a United States person or has some other contacts with the United States. Such
information 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 withholding rules that exceed your United States federal income tax liability by filing a refund claim with the
IRS.
Individuals who are United States Holders (and to the extent specified in applicable Treasury Regulations, certain
individuals who are Non- United States Holders and certain United States entities) who hold “specified foreign financial
assets” (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset
for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or
$50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury regulations).
Specified foreign financial assets would include, among other assets, our common shares, unless the shares are held through
an account maintained with a United States financial institution. Substantial penalties apply to any failure to timely file IRS
Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, in the event
107
an individual United States Holder (and to the extent specified in applicable Treasury Regulations, an individual Non- United
States Holder or a United States entity) that is required to file IRS Form 8938 does not file such form, the statute of
limitations on the assessment and collection of United States federal income taxes of such holder for the related tax year may
not close until three years after the date that the required IRS Form 8938 is filed. United States Holders (including United
States entities) and Non- United States Holders are encouraged to consult their own tax advisors regarding their reporting
obligations under this legislation.
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 materials, including this annual report and the
accompanying exhibits are available from http://www.sec.gov.
Shareholders may also visit the Investor Relations section of our website at www.scorpiotankers.com or request a
copy of our filings at no cost, by writing or telephoning us at the following address: Scorpio Tankers Inc., 9, Boulevard
Charles III Monaco 98000, +377-9798-5716. The information on our website is not incorporated by reference into this annual
report.
I. Subsidiary Information
Not applicable.
J. Annual Report to Security Holders
We intend to submit any annual report provided to security holders in electronic format as an exhibit to a current
report on Form 6-K.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 principal objective of these contracts is to minimize the risks and costs associated with our variable-rate
debt and are not for speculative or trading purposes.
Based on the floating rate debt at December 31, 2022 and 2021, a one-percentage point increase in the floating
interest rate would increase interest expense by $18.1 million and $26.2 million per year, respectively. The following table
presents the due dates for the principal payments on our fixed and floating rate debt:
In thousands of U.S. dollars
Principal payments floating rate debt (unhedged) ...............
Principal payments fixed rate debt .......................................
Total principal payments on outstanding debt ................
Spot Market Rate Risk
As of December 31,
2023
2024 - 2025 2026- 2027
$ 332,566 $
26,614
$ 359,180 $
441,750 $
120,120
561,870 $
Thereafter
384,739
—
384,739
651,925 $
—
651,925 $
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 operate in the spot market or participate in pools that are concentrated in the spot
market such as the Scorpio Pools. We currently do not have any vessels employed on time charter contracts. Additionally, we
have the ability to remove our vessels from the pools on relatively short notice if attractive time charter opportunities arise. A
$1,000 per day increase or decrease in spot rates for all of our vessel classes would have increased or decreased our operating
income by $40.3 million and $46.9 million for the years ended December 31, 2022 and 2021, respectively.
108
Foreign Exchange Rate Risk
Our primary economic environment is the international shipping market. This market utilizes the US dollar as its
functional currency. Consequently, virtually all of our revenues and the majority of our operating expenses are in US dollars.
However, we incur some of our combined expenses in other currencies, particularly 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 US dollar relative to other currencies will increase the US dollar cost of us paying 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 contracts 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 fluctuation risk in the future.
Bunker Price Risk
Our operating results are affected by movement in the price of fuel oil consumed by the vessels – known in the
industry as bunkers. 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 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 our profitability. We do not hedge our exposure to
bunker price risk.
Inflation
We do not expect inflation to be a significant risk to direct expenses in the current and foreseeable economic
environment.
See Note 22 to our Consolidated Financial Statements included herein for additional information.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
109
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART II
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
A. Disclosure Controls and Procedures
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 Rules 13a-15(e) and 15d-15(e)) as of December 31, 2022. 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, 2022 to provide reasonable 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 information 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 achieving their control objectives.
B. Management’s Annual Report on Internal Control Over Financial Reporting
In accordance with Rule 13a-15(f) and 15d-15(f) of the Exchange Act, the management of the Company is
responsible for the establishment and maintenance 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 dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures 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 of the effectiveness of the Company’s internal controls over financial reporting as
of December 31, 2022 based on the provisions of Internal Control—Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission, or COSO. Based on our assessment, management determined
that the Company’s internal controls over financial reporting were effective as of December 31, 2022 based on the criteria in
Internal Control—Integrated Framework (2013) issued by COSO.
The effectiveness of the Company’s internal control over financial reporting, at December 31, 2022, has been
audited by PricewaterhouseCoopers Audit, an independent registered public accounting firm, as stated in their report which
appears herein.
C. Attestation Report of the Registered Public Accounting Firm
The effectiveness of the Company’s internal control over financial reporting, at December 31, 2022, has been
audited by PricewaterhouseCoopers Audit, an independent registered public accounting firm, as stated in their report which
appears herein.
110
D. Changes in Internal Control Over Financial Reporting
There were no changes in internal control over financial reporting (as defined by Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) that occurred during the year ended December 31, 2022 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that Mr. Reidar Brekke, who serves on the Audit Committee, qualifies as an
“audit committee financial expert” and that he is “independent” in accordance with SEC rules.
ITEM 16B. CODE OF ETHICS
We have adopted a Code of Conduct and Ethics applicable to the Company’s officers, directors, employees and
agents, which complies with applicable guidelines issued by the SEC. Our Code of Conduct and Ethics as in effect on the
date hereof, has been filed as an exhibit to this annual report and is also available on our website at www.scorpiotankers.com.
The information on our website is not incorporated by reference into this annual report.
ITEM 16C. PRINCIPAL ACCOUNTING FEES AND SERVICES
(a) Audit Fees
Our principal accountant for fiscal years ended December 31, 2022 and 2021 was PricewaterhouseCoopers Audit
and the audit fee for those periods was $745,400 and $683,400, respectively.
Our principal accountant, PricewaterhouseCoopers Audit, or its affiliates, provided additional services related to the
reviews of our published interim financial results and related comfort letters, the 2021 Distribution Agreement to issue
additional notes of our Senior Notes Due 2025, and the March 2022 F-3 Shelf Registration Statement. The aggregate fees for
these services were $67,000 and $148,500 for the years ended December 31, 2022 and 2021, respectively.
(b) Audit-Related Fees
None
(c) Tax Fees
None
(d) All Other Fees
None
(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 LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
111
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Month
July .....................
August .................
September ...........
October ...............
December ............
Total number of
shares purchased
Average price paid
per share
367,861
1,293,661
580,359
878,460
789,532
$
$
$
$
$
29.18
38.65
41.63
40.67
51.61
Total number of
shares purchased as
part of publicly
announced program
Maximum amount
that may yet be
expected on share
repurchases under
program
367,861
1,293,661
580,359
878,460
789,532
$
$
$
$
$
224,991,019(1)
174,991,019(2)
150,833,254
115,102,340
209,250,349(3)
(1)
(2)
(3)
In May and July 2022, we repurchased $10.8 million and $1.5 million, respectively, in aggregate principal amount of our Convertible Notes Due 2025 in
the open market for $12.6 million and $1.7 million, respectively under the 2020 $250 Million Securities Repurchase Program. These repurchases are not
reflected separately in the table above but the remaining maximum amount was reduced by $14.3 million.
In August 2022, we repurchased 1,293,661 of our common shares from Eneti Inc., a related party, for $38.65 per share.
In October 2022, our Board of Directors authorized a new securities repurchase program (the “2022 $250 Million Securities Repurchase Program”) to
purchase up to an aggregate of $250 million of securities, which, in addition to our common shares, consisted of our Senior Notes Due 2025 (NYSE:
SBBA), and Convertible Notes Due 2025 at the date of authorization. The previous 2020 $250 Million Securities Repurchase Program was terminated
upon the authorization of the 2022 $250 Million Securities Repurchase Program.
We had $209.3 million remaining under our 2022 $250 Million Securities Repurchase Program as of December 31, 2022.
From January 1, 2023 through the February 15, 2023 we repurchased an aggregate of 1,891,303 of our common shares in the open market at an average
price of $50.27 per share under this program.
2023 Securities Repurchase Program
On February 15, 2023, our Board of Directors authorized a new securities repurchase program (the “2023 Securities
Repurchase Program”) to purchase up to an aggregate of $250 million of our securities which, in addition to our common
shares also currently consist of our Senior Unsecured Notes Due 2025. The aforementioned repurchases of common stock
were executed under the previous securities repurchase program, which was terminated and any future repurchases of our
securities will be made under the 2023 Securities Repurchase Program.
From February 16 through the date of this report, we have repurchased an aggregate of 332,659 of our common
shares in the open market at an average price of $53.49 per share.
As of the date of this report, there is $232.2 million available under the 2023 Securities Repurchase Program. We
expect to repurchase any securities in the open market, at times and prices that are considered to be appropriate, but we are
not obligated under the terms of the program to repurchase any securities.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
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 independent directors, (ii) establishing audit, compensation and nominating committees and (iii)
adopting a Code of Ethics.
There are two significant differences between our corporate governance 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. Marshall Islands law and our
Bylaws do not require our non-management directors to regularly hold executive sessions without management. During 2022
and through the date of this annual report, our non-management directors met in executive session three times. The NYSE
requires companies to adopt and disclose corporate governance guidelines. The guidelines must address, among other things:
director qualification standards, director responsibilities, director access to management and independent advisers, director
112
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.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
113
PART III
ITEM 17. FINANCIAL STATEMENTS
See “Item 18. Financial Statements.”
ITEM 18. FINANCIAL STATEMENTS
The financial information required by this Item is set forth beginning on page F-1 and is filed as part of this annual
report.
ITEM 19. EXHIBITS
Exhibit
Number
Description
1.1
1.2
1.3
1.4
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
4.1
4.2
4.2(a)
4.3
4.3(a)
4.3(b)
8.1
11.1
11.2
11.3
12.1
12.2
13.1
Amended and Restated Articles of Incorporation of the Company(1)
Amended and Restated Bylaws of the Company(3)
Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company(8)
Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company(12)
Form of Stock Certificate(12)
Form of Senior Debt Securities Indenture(4)
Form of Subordinated Debt Securities Indenture(4)
Base Indenture, dated May 12, 2014, by and between the Company and Deutsche Bank Trust Company(7)
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act(14)
Indenture, dated May 14, 2018, by and between the Company and Deutsche Bank Trust Company Americas, as
trustee, relating to the Company’s 3.00% Convertible Notes due 2022(11)
Indenture, dated March 25, 2021, by and between the Company and Deutsche Bank Trust Company Americas, as
trustee, relating to the Company’s 3.00% Convertible Notes due 2025(14)
Fourth Supplemental Indenture, dated May 29 2020, by and between the Company and Deutsche Bank Trust
Company Americas, as trustee, relating to the Company’s 7.00% Senior Notes due 2025(13)
2013 Amended and Restated Equity Incentive Plan(6)
Administrative Services Agreement between the Company and Liberty Holding Company Ltd.(2)
Deed of Amendment between the Company, SSH, SCM and SSM dated September 29, 2016(9)
Master Agreement between the Company, SSM and SCM dated January 24, 2013(5)
Amended and Restated Master Agreement between the Company, SSM and SCM dated November 15, 2016(9)
Amended and Restated Master Agreement between the Company, SSM and SCM dated February 21, 2018(10)
Subsidiaries of the Company
Code of Conduct and Ethics(10)
Whistleblower Policy(6)
Whistleblower Policy - Environmental(6)
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
13.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
15.1
15.2
15.3
101
104
Consent of Independent Registered Public Accounting Firm
Consent of Drewry Maritime Services (Asia) Pte Ltd.
Consent of Seward & Kissel LLP
Inline Interactive Data Files
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
(1) Filed as an Exhibit to the Company’s Amended Registration Statement on Form F-1/A (Amendment No. 1) (File No. 333-164940) on March 10, 2010,
and incorporated by reference herein.
(2) Filed as an Exhibit to the Company’s Amended Registration Statement on Form F-1/A (Amendment No. 2) (File No. 333-164940) on March 18, 2010,
and incorporated by reference herein.
(3) Filed as an Exhibit to the Company’s Annual Report filed on Form 20-F on June 29, 2010, and incorporated by reference herein.
(4) Filed as an Exhibit to the Company’s Registration Statement on Form F-3 (File No. 333-173929) on May 4, 2011, and incorporated by reference herein.
114
(5) Filed as an Exhibit to the Company’s Annual Report on Form 20-F on March 29, 2013, and incorporated by reference herein.
(6) Filed as an Exhibit to the Company’s Annual Report on Form 20-F on March 31, 2014, and incorporated by reference herein.
(7) Filed as an Exhibit to the Company’s Report on Form 6-K on May 13, 2014, and incorporated by reference herein.
(8) Filed as an Exhibit to the Company’s Annual Report on Form 20-F on March 31, 2015, and incorporated by reference herein.
(9) Filed as an Exhibit to the Company’s Annual Report on Form 20-F on March 16, 2017, and incorporated by reference herein.
(10) Filed as an Exhibit to the Company’s Annual Report on Form 20-F on March 23, 2018, and incorporated by reference herein.
(11) Filed as an Exhibit to the Company’s Report on Form 6-K on May 16, 2018, and incorporated by reference herein.
(12) Filed as an Exhibit to the Company’s Report on Form 6-K on January 18, 2019, and incorporated by reference herein.
(13) Filed as an Exhibit to the Company’s Report on Form 6-K on May 29, 2020, and incorporated by reference herein.
(14) Filed as an Exhibit to the Company’s Annual Report on Form 20-F on March 31, 2021, and incorporated by reference herein.
115
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 undersigned to sign this annual report on its behalf.
Dated: March 24, 2023
Scorpio Tankers Inc.
(Registrant)
/s/ Emanuele Lauro
Emanuele Lauro
Chief Executive Officer
116
SCORPIO TANKERS INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB Firm 1347) .............................................................
Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021 ..............................................................
Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and 2020 .....................................
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2022, 2021 and 2020 ..
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 ....................................
Notes to Consolidated Financial Statements .......................................................................................................................
Page
F-2
F-4
F-5
F-6
F-7
F-9
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Scorpio Tankers Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Scorpio Tankers Inc. and its subsidiaries (the “Company”)
as of December 31, 2022 and 2021, and the related consolidated statements of operations, changes in shareholders’ equity,
and cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively
referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial
reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2022 in conformity with International Financial Reporting Standards as
issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15B. Our
responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in
all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s 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. A company’s 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
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures 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.
F-2
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective,
or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Carrying Values of Vessels and Related Drydock Costs (including Right of Use Assets for Vessels)
As described in Notes 5 and 6, to the consolidated financial statements, as of December 31, 2022, the net book value of
vessels and drydock costs was $3,089 million and the net book value of right of use assets for vessels was $690 million. As
further described in Notes 1 and 7, management reviews the carrying amount of vessels and related drydock costs and right
of use assets for vessels to determine whether there is any indication that those assets have suffered an impairment loss or,
conversely, that a previously-recognized impairment loss should be reversed. If any indication of impairment exists (or,
conversely, that a previously-recognized impairment loss either no longer exists or has decreased), the recoverable amount of
the vessels and related drydock costs and right of use assets for vessels is estimated in order to determine the extent of the
impairment loss (or, conversely, the extent of a reversal of a previously-recognized impairment loss). Recoverable amount is
the higher of the fair value less selling costs and value in use. Management determines fair value less selling costs by
considering independent ship brokers’ valuations. In estimating value in use, management estimates each vessel’s future cash
flows, which are discounted to their present value. The discounted cash flow analysis requires management to develop
estimates and assumptions related to forecasted vessel revenue, vessel operating expenses, drydock costs, utilization rate,
remaining useful lives, residual values and discount rate. In the case of a reversal of a previously-recognized impairment loss,
the amount of any reversal is limited to increasing the carrying amount such that it 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.
Management treats each vessel and the related drydock costs as a cash generating unit. There was no impairment loss
recognized for the year ended December 31, 2022. For the year ended December 31, 2022, a reversal of previously-
recognized impairment loss was recorded for $12.7 million.
The principal considerations for our determination that performing procedures relating to carrying values of vessels and
related drydock costs (including right of use assets for vessels) is a critical audit matter are the significant judgment by
management when developing the value in use using the discounted cash flow technique. This in turn led to a high degree of
auditor judgment in evaluating audit evidence obtained related to each vessel’s future cash flows and significant assumptions.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
management’s assessment of vessels’ carrying amounts. These procedures also included, among others, testing
management’s process for assessing if there is any indication that vessels carrying amounts have suffered an impairment loss
(or, conversely, that a previously-recognized impairment loss no longer exists or has decreased); evaluating the
appropriateness of the value in use model used by management; testing the completeness and accuracy of underlying data
used in the model; evaluating the reasonableness of significant assumptions related to revenue growth and discount rate.
Evaluating the reasonableness of management’s assumptions related to revenue growth and discount rate involved evaluating
whether the assumptions used were reasonable considering (i) the current and past performance of the vessels, (ii) the
consistency with external market and industry data and (iii) whether these significant assumptions were consistent with
evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in
evaluating the reasonableness of the discount rate assumption. Our procedures also included recalculating the reversal
amount of the previously-recognized impairment.
/s/ PricewaterhouseCoopers Audit
Neuilly-sur-Seine, France
March 24, 2023
We have served as the Company’s auditor since 2013.
F-3
Scorpio Tankers Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2022 and 2021
In thousands of U.S. dollars
Assets
Current assets
Cash and cash equivalents ..................................................................
Accounts receivable ............................................................................
Prepaid expenses and other current assets ..........................................
Inventories ..........................................................................................
Restricted cash ....................................................................................
Total current assets ...........................................................................
Non-current assets
Vessels and drydock ...........................................................................
Right of use assets for vessels .............................................................
Other assets .........................................................................................
Goodwill .............................................................................................
Restricted cash ....................................................................................
Total non-current assets ...................................................................
Total assets ........................................................................................
Current liabilities
Current portion of long-term bank debt and bonds .............................
Sale and leaseback liability .................................................................
IFRS 16 - lease liability ......................................................................
Accounts payable ................................................................................
Accrued expenses ...............................................................................
Total current liabilities .....................................................................
Non-current liabilities
Long-term bank debt and bonds .........................................................
Sale and leaseback liability .................................................................
IFRS 16 - lease liability ......................................................................
Total non-current liabilities .............................................................
Total liabilities ...................................................................................
Shareholders’ equity
Issued, authorized and fully paid-in share capital:
Common stock, $0.01 par value per share; 150,000,000 and
150,000,000 shares authorized; 61,262,838 and 58,369,516
outstanding shares as of December 31, 2022 and December 31,
2021, respectively. ...........................................................................
Additional paid-in capital ...................................................................
Treasury shares ...................................................................................
Retained earnings/(accumulated deficit) .............................................
Total shareholders’ equity ...............................................................
Total liabilities and shareholders’ equity........................................
Notes
December 31,
2022
December 31,
2021
As of
2
4
3
9
5
6
8
7
9
12
12
6
10
11
12
12
6
14
14
14
14
$
$
$
$
376,870
276,700
18,159
15,620
—
687,349
3,089,254
689,826
83,754
8,197
783
3,871,814
4,559,163
31,504
269,145
52,346
28,748
91,508
473,251
264,106
871,469
443,529
1,579,104
2,052,355
230,415
38,069
7,954
8,781
4,008
289,227
3,842,071
764,025
108,963
8,900
783
4,724,742
5,013,969
235,278
178,062
54,515
35,080
24,906
527,841
666,409
1,461,929
520,862
2,649,200
3,177,041
727
3,049,732
(641,545)
97,894
2,506,808
4,559,163
$
659
2,855,798
(480,172)
(539,357)
1,836,928
5,013,969
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Scorpio Tankers Inc. and Subsidiaries
Consolidated Statements of Operations
For the years ended December 31, 2022, 2021 and 2020
In thousands of U.S. dollars except per share and share data
Revenue
Notes
For the year ended December 31,
2020
2021
2022
Vessel revenue ..........................................................................
16
$ 1,562,873 $
540,786 $
915,892
Operating expenses
Vessel operating costs ..............................................................
Voyage expenses ......................................................................
Depreciation - owned or sale and leaseback vessels ................
Depreciation - right of use assets for vessels ............................
Vessel (impairment)/reversal of previously recorded
impairment ............................................................................
Impairment of goodwill ............................................................
General and administrative expenses .......................................
Net loss on sales of vessels .......................................................
Total operating expenses ..........................................................
Operating income/(loss) .............................................................
Other (expense) and income, net
Financial expenses ....................................................................
Gain/(loss) on repurchase/exchange of
convertible notes ...................................................................
Financial income ......................................................................
Other income ............................................................................
Total other expense, net ............................................................
Net income/(loss) ........................................................................
Attributable to:
17
16
5
6
7
7
18
5
19
12
(323,725)
(92,698)
(168,008)
(38,827)
12,708
—
(88,131)
(66,486)
(765,167)
797,706
(334,840)
(3,455)
(197,467)
(42,786)
—
—
(52,746)
—
(631,294)
(90,508)
(333,748)
(7,959)
(194,268)
(51,550)
(14,207)
(2,639)
(66,187)
—
(670,558)
245,334
(169,795)
(144,104)
(154,971)
481
6,884
1,975
(160,455)
637,251 $
(5,504)
3,623
2,058
(143,927)
(234,435) $
1,013
1,249
1,499
(151,210)
94,124
$
Equity holders of the parent ..................................................
$
637,251 $
(234,435) $
94,124
Earnings/(loss) per share
Basic .....................................................................................
Diluted ..................................................................................
Basic weighted average shares outstanding ..........................
Diluted weighted average shares outstanding .......................
21
21
21
21
11.49 $
10.34 $
$
$
55,455,277
63,511,276
(4.28) $
(4.28) $
1.72
1.67
54,665,898
56,392,311
54,718,709
54,718,709
There are no items of other comprehensive income or loss
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Scorpio Tankers Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31, 2022, 2021 and 2020
In thousands of U.S. dollars except share data
Balance as of January 1, 2020 ............................................
Net income for the period...................................................
Issuance of restricted stock, net of forfeitures ...................
Amortization of restricted stock, net of forfeitures ............
Dividends paid, $0.40 per share(1) ......................................
Net proceeds from issuance of common shares pursuant
to at the market program ................................................
Purchase of treasury shares ................................................
Equity issuance costs ..........................................................
Balance as of December 31, 2020 ....................................
Net loss for the period ........................................................
Equity component of issuance of Convertible
Notes due 2025...............................................................
Write off of equity portion of Convertible
Notes due 2022...............................................................
Issuance of restricted stock ................................................
Amortization of restricted stock, net of forfeitures ............
Dividends paid, $0.40 per share(1) ......................................
Balance as of December 31, 2021 ....................................
Net income for the period...................................................
Repurchase of Convertible Notes due 2025 .......................
Issuance of restricted stock, net of forfeitures ...................
Conversion of Convertible Notes due 2025 to common
shares ..............................................................................
Amortization of restricted stock, net of forfeitures ............
Purchase of treasury shares ................................................
Dividends paid, $0.40 per share(1) ......................................
Balance as of December 31, 2022 ....................................
Number of
shares
outstanding
58,202,400 $
—
923,680
—
—
137,067
(1,170,000)
—
58,093,147 $
Share
capital
Additional
paid-in
capital
Treasury
shares
(Accumulated
deficit) /
retained
earnings
Total
646 $ 2,842,446 $ (467,057) $
—
—
(9)
9
28,506
—
(23,302)
—
—
—
—
—
(399,046 ) $ 1,976,989
94,124
—
28,506
(23,302)
94,124
—
—
—
1
—
—
2,574
—
(9)
656 $ 2,850,206 $ (480,172) $
—
(13,115)
—
—
—
—
276,369
—
—
—
—
—
3
—
—
—
7,502
(1,518)
(3)
22,931
(23,320)
—
—
—
—
—
—
58,369,516 $
659 $ 2,855,798 $ (480,172) $
—
—
—
2,575
(13,115)
(9)
(304,922 ) $ 2,065,768
(234,435 )
(234,435)
—
7,502
—
—
—
—
(1,518)
—
22,931
(23,320)
(539,357 ) $ 1,836,928
—
—
1,045,497
5,757,698
—
(3,909,873)
—
—
—
10
58
—
—
—
—
(1,966)
(11)
—
—
—
637,251
—
—
637,251
(1,966)
(1)
198,827
20,397
—
(23,313)
—
—
(161,373)
—
—
—
—
—
198,885
20,397
(161,373)
(23,313)
97,894 $ 2,506,808
61,262,838 $
727 $ 3,049,732 $ (641,545) $
(1) The Company’s policy is to distribute dividends from available retained earnings first and then from additional paid in capital.
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Scorpio Tankers Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2022, 2021 and 2020
In thousands of U.S. dollars
Operating activities
Net income/(loss) ..................................................................................
Depreciation - owned or sale and leaseback vessels .............................
Depreciation - right of use assets ..........................................................
Amortization of restricted stock............................................................
(Reversal of previously recorded impairment)/impairment of
goodwill and vessels .........................................................................
Amortization of deferred financing fees ...............................................
Non-cash debt extinguishment costs .....................................................
Accretion of Convertible Notes ............................................................
Net loss on sales of vessels ...................................................................
Gain on sale and leaseback amendment ................................................
Accretion of fair value measurement on debt assumed in business
combinations .....................................................................................
(Gain)/loss on repurchase/exchange of Convertible Notes ...................
Share of income from dual fuel tanker joint venture ............................
Changes in assets and liabilities:
(Increase)/decrease in inventories .........................................................
(Increase)/decrease in accounts receivable ...........................................
(Increase)/decrease in prepaid expenses and other current assets .........
Decrease/(increase) in other assets .......................................................
(Decrease)/increase in accounts payable ...............................................
Increase/(decrease) in accrued expenses ...............................................
Net cash inflow from operating activities ..........................................
Investing activities
Net proceeds from disposal of vessels ..................................................
Investment in dual fuel tanker joint venture .........................................
Distributions from dual fuel tanker joint venture ..................................
Drydock, scrubber, ballast water treatment system and other vessel
related payments (owned, sale leaseback and bareboat-in vessels) ...
Net cash inflow/(outflow) from investing activities ..........................
Financing activities
Debt repayments ...................................................................................
Issuance of debt ....................................................................................
Debt issuance costs ...............................................................................
Principal repayments on IFRS 16 lease liabilities .................................
Issuance of convertible notes ................................................................
Decrease in restricted cash ....................................................................
Repurchase/repayment of convertible notes .........................................
Gross proceeds from issuance of common stock ..................................
Equity issuance costs ............................................................................
Dividends paid ......................................................................................
Repurchase of common stock ...............................................................
Net cash (outflow)/inflow from financing activities ..........................
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 (which includes $0.2 million, $0.2 million and $1.4
million of interest capitalized during the years ended December 31,
2022, 2021 and 2020, respectively) ..................................................
F-7
Notes
$
5
6
14
7
12
12
12
5
12
12
12
For the year ended December 31,
2021
2022
2020
$
$
(234,435)
197,467
42,786
22,931
94,124
194,268
51,550
28,506
637,251
168,008
38,827
20,397
(12,708)
6,385
6,604
12,718
66,486
—
2,106
(481)
(679)
944,914
(7,522)
(238,631)
(10,205)
19,492
(4,482)
65,767
(175,581)
769,333
607,693
(1,750)
493
(34,480)
571,956
(971,622)
122,638
(1,702)
(79,502)
—
4,008
(83,968)
—
—
(23,313)
(161,373)
(1,194,834)
146,455
230,415
376,870
$
$
—
7,570
3,604
13,265
—
(2,851)
3,682
5,504
(560)
58,963
480
(5,052)
4,476
(601)
20,716
(5,682)
14,337
73,300
—
(6,701)
1,525
(47,102)
(52,278)
(650,927)
650,804
(17,820)
(56,729)
119,419
502
—
—
(47)
(23,320)
—
21,882
42,904
187,511
230,415
$
16,846
6,657
2,025
8,413
—
—
3,422
(1,013)
—
404,798
(615)
19,957
1,424
856
(5,094)
(1,945)
14,583
419,381
—
—
—
(174,477)
(174,477)
(800,072)
705,390
(13,523)
(77,913)
—
7,001
(46,737)
2,601
(26)
(23,302)
(13,115)
(259,696)
(14,792)
202,303
187,511
$
134,921
$
114,671
$
132,329
Additionally, we completed the following non-cash transactions during the years ended December 31, 2022, 2021 and 2020:
•
In December 2022, all of the holders of our 3.00% Convertible Notes due 2025 (the “Convertible Notes Due 2025”)
converted their notes into an aggregate of 5,757,698 of our common shares. The principal balance of these notes was
$205.1 million upon conversion, which included the principal that had accreted since issuance. This transaction is
described in Note 12.
• The March 2021 and June 2021 exchange of approximately $62.1 million and $19.4 million, respectively, in
aggregate principal amount of Convertible Notes Due 2022 for approximately $62.1 million and $19.4 million,
respectively in aggregate principal amount of new Convertible Notes Due 2025 pursuant to separate, privately
negotiated, agreements with certain holders of the Convertible Notes Due 2022, which we refer to as the 2021
Convertible Notes Exchanges. These transactions are described in Note 12.
• The 2020 deliveries of four MR tankers, whose leasehold interests were acquired as part of the Trafigura
Transaction (defined in Note 6), which included the assumption of obligations under bareboat charter-in agreements
of $138.8 million (whose obligations are recorded as part of the Company’s IFRS 16 - $670 Million lease
financing). This transaction is described in Note 6.
These transactions represent the significant non-cash transactions incurred during the years ended December 31, 2022, 2021
and 2020.
The accompanying notes are an integral part of these consolidated financial statements.
F-8
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 the seaborne
transportation of 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 April 6, 2010, we closed on our initial public offering, and our
common stock currently trades on the New York Stock Exchange under the symbol “STNG.”
Our fleet as of December 31, 2022 consisted of 113 owned, sale and leaseback, or bareboat chartered-in product
tankers (14 Handymax, 60 MR and 39 LR2).
Our vessels are commercially managed by Scorpio Commercial Management S.A.M., or SCM, which is majority
owned by the Lolli-Ghetti family of which Mr. Emanuele Lauro, our Chairman and Chief Executive Officer, and Mr. Filippo
Lauro, our Vice President, are members. SCM’s services include securing employment for our vessels in pools, in the spot
market, and on time charters.
Our vessels are technically managed by Scorpio Ship Management S.A.M., or SSM, which is majority owned by the
Lolli-Ghetti family. SSM facilitates vessel support such as crew, provisions, deck and engine stores, insurance, maintenance
and repairs, and other services necessary to operate the vessels such as drydocks and vetting/inspection under a technical
management agreement.
We also have an administrative services agreement with Scorpio Services Holding Limited, or SSH, which is
majority owned by the Lolli-Ghetti family. The administrative services provided under this agreement primarily include
accounting, legal compliance, financial, information technology services, and the provision of administrative staff and office
space, which are contracted to subsidiaries of SSH. We pay our 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 incorporate the financial statements of Scorpio Tankers Inc. and its
subsidiaries. The consolidated financial statements have been presented in United States dollars, or USD or $, which is the
functional currency of Scorpio Tankers Inc. and all its subsidiaries, and have been authorized for issue by the Board of
Directors on March 23, 2023. The consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board.
All inter-company transactions, balances, income and expenses were eliminated on consolidation.
Going concern
The financial statements have been prepared in accordance with the going concern basis of accounting as described
further in the “Liquidity risk” section of Note 22.
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. Liquidity risks can manifest themselves when economic conditions
deteriorate or when we have significant maturities of our financial instruments.
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 and meet our financial
commitments (including, but not limited to, debt service and lease financing obligations) 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.
We recorded all time high revenue and net income during the year ended December 31, 2022 as a result of favorable
market conditions that began in March 2022 and which continue through the date of the issuance of these financial
statements. The cash flows generated from operations have been, and continue to be, utilized to repay our outstanding debt
and lease obligations.
F-9
During 2023, and in addition to our regularly scheduled debt and lease repayments, we also committed to the
following:
• The exercise of the purchase options on two MR product tankers (STI Brooklyn and STI Ville) and two LR2 product
tankers (STI Rose and STI Rambla) under our AVIC Lease Financing. These purchases closed in January 2023
resulting in a reduction of the related lease liability of $77.8 million.
• The exercise of the purchase options on three LR2 product tankers (STI Sanctity, STI Steadfast and STI Supreme)
that are financed under our Ocean Yield sale and leaseback arrangement. The purchase of STI Sanctity closed in
March 2023 for $27.8 million and the remaining purchases are expected to occur in the second and third quarters of
2023 and result in an aggregate reduction of the related lease liability of $55.6 million.
• The exercise of the purchase options on STI Grace and STI Jermyn which are financed under the 2021 CSSC Lease
Financing. These purchases are expected to occur in May 2023 and the aggregate outstanding indebtedness on these
vessels is expected to be $46.9 million at the date of purchase.
• The exercise of the purchase options on STI Lavender, STI Magnetic, STI Marshall and STI Miracle which are
financed under the IFRS 16 - Leases - $670.0 Million lease financing. These purchases are expected to occur in May
2023 and the aggregate outstanding indebtedness on these vessels is expected to be $102.9 million at the date of
purchase.
We do not have any other debt or leasing financing arrangements that are scheduled to mature or expire within
twelve months from the date of these financial statements.
While we believe our current financial position is adequate to address these cash outflows, a deterioration in
economic conditions could cause us to breach the covenants under our financing arrangements and could have a material
adverse effect on our business, results of operations, cash flows and financial condition. These circumstances could cause us
to seek covenant waivers from our lenders and to pursue other means to raise liquidity, such as through the sale of vessels or
in the capital markets, to meet our obligations.
Significant Accounting Policies
The following is a discussion of our significant accounting policies that were in effect during the years ended
December 31, 2022, 2021, and 2020.
Revenue recognition
Revenue earned by our vessels is comprised of pool revenue, time charter revenue and voyage revenue.
(1) 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 attributed to each vessel (which are determined by vessel attributes such as cargo carrying
capacity, fuel consumption, and construction characteristics); and
•
the number of days the vessel participated in the pool in the period.
(2) Time charter agreements are when our vessels 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.
(3) 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.
Of these revenue streams, revenue generated in the spot market from voyage charter agreements is within the scope
of IFRS 15 - Revenue from Contracts with Customers, which was issued by the International Accounting Standards Board on
May 28, 2014 and applied to an entity’s first annual IFRS financial statements for a period beginning on or after January 1,
2018. IFRS 15 amended the existing accounting standards for revenue recognition and is based on principles that govern the
recognition of revenue at an amount an entity expects to be entitled when products or services are transferred to customers.
F-10
Revenue generated from pools and time charters is accounted for as revenue earned under operating leases and is
therefore within the scope of IFRS 16 - Leases. IFRS 16, Leases, was issued by the International Accounting Standards
Board on January 13, 2016 and applied to an entity’s first annual IFRS financial statements for a period beginning on or after
January 1, 2019. IFRS 16 amended the definition of what constitutes a lease to be a contract that conveys the right to control
the use of an identified asset if the lessee has both (i) the right to obtain substantially all of the economic benefits from the
use of the identified asset, and (ii) the right to direct the use of the identified asset throughout the period of use. We have
determined that our existing pool and time charter-out arrangements meet the definition of leases under IFRS 16, with the
Company as lessor, on the basis that the pool or charterer manages the vessels in order to enter into transportation contracts
with their customers, and thereby enjoys the economic benefits derived from such arrangements. Furthermore, the pool or
charterer can direct the use of a vessel (subject to certain limitations in the pool or charter agreement) throughout the period
of use.
Moreover, under IFRS 16, we are also required to identify the lease and non-lease components of revenue and
account for each component in accordance with the applicable accounting standard. In time charter-out or pool arrangements,
we have determined that the lease component is the vessel and the non-lease component is the technical management services
provided to operate the vessel. These components are accounted for as follows:
• All fixed lease revenue earned under these time charter-out arrangements is recognized on a straight-line basis
over the term of the lease.
• Lease revenue earned under our pool arrangements is recognized as it is earned, since it is 100% variable.
• The non-lease component is accounted for as services revenue under IFRS 15 - Revenue from Contracts with
Customers. This revenue is recognized “over time” as the customer (i.e. the pool or the charterer) is
simultaneously receiving and consuming the benefits of the service.
The accounting for our different revenue streams pursuant to the above accounting standards is therefore
summarized as follows:
Pool revenue
We recognize pool revenue based on quarterly reports from the pools 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 calculated share of
pool revenue for the vessel.
Spot market revenue
For vessels operating in the spot market, we recognize revenue ‘over time’ as the customer (i.e. the charterer) is
simultaneously receiving and consuming the benefits of the vessel. Under IFRS 15, the performance obligation has been
identified as the transportation of cargo from one point to another. Therefore, in a spot market voyage under IFRS 15,
revenue is recognized on a pro-rata basis commencing on the date that the cargo is loaded and concluding on the date of
discharge.
Time charter revenue
Time charter revenue is recognized as services are performed based on the daily rates specified in the time charter
contract.
Voyage expenses
Voyage expenses primarily include bunkers, port charges, canal tolls, cargo handling operations and brokerage
commissions paid by us under voyage charters for vessels trading in the spot market. Under IFRS 15, voyage costs incurred
in the fulfillment of a voyage charter are deferred and amortized over the course of the charter commencing on the date that
the cargo is loaded and concluding on the date of discharge. Voyage costs are only deferred if they (i) relate directly to such
charter, (ii) generate or enhance resources to be used in meeting obligations under the charter, and (iii) are expected to be
recovered.
F-11
Vessel operating costs
Vessel operating costs, which include crewing, repairs and maintenance, insurance, stores, lubricating oil
consumption, communication expenses, and technical management fees, are expensed as incurred for vessels that are owned,
lease financed or bareboat chartered-in.
Earnings/(Loss) per share
Basic earnings / (loss) per share is calculated by dividing net income / (loss) attributable to equity holders of the
parent by the weighted average number of common shares outstanding. Diluted earnings / (loss) per share is calculated by
adjusting the net income / (loss) attributable to equity holders of the parent and the weighted average number of common
shares used for calculating basic income / (loss) per share for the effects of all potentially dilutive shares (including restricted
stock awards). Such dilutive common shares are excluded when the effect would be to increase earnings per share or reduce a
loss per share.
In the years ended December 31, 2022, 2021 and 2020, there were potentially dilutive items as a result of our (i)
2013 Equity Incentive Plan (as defined in Note 14), (ii) our Convertible Notes due 2022, and (iii) our Convertible Notes due
2025 (both of which are described in Note 12).
We applied the if-converted method when determining diluted earnings / (loss) per share. This requires the
assumption that all potential ordinary shares with respect to our Convertible Notes due 2022 and Convertible Notes due 2025
have been converted into ordinary shares at the beginning of the period or, if not in existence at the beginning of the period,
the date of the issue of the financial instrument or the granting of the rights by which they are granted. Under this method,
once potential ordinary shares are converted into ordinary shares during the period, the dividends, interest and other expense
associated with those potential ordinary shares will no longer be incurred. The effect of conversion, therefore, is to increase
income (or reduce losses) attributable to ordinary equity holders as well as the number of shares in issue. Conversion will not
be assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive.
The impact of potentially dilutive items on the calculations of earnings / (loss) per share are set forth in Note 21.
Leases
In a time or bareboat charter-in arrangement, we pay to lease a vessel for a fixed period of time at rates that are
generally fixed, but may contain a variable component based on inflation, interest rates, profit sharing or current market rates.
In a time charter-in arrangement, the vessel’s owner is responsible for crewing and other vessel operating costs, whereas
these costs are the responsibility of the charterer in a bareboat charter-in arrangement.
IFRS 16 - Leases amended the existing accounting standards to require lessees to recognize, on a discounted basis,
the rights and obligations created by the commitment to lease assets on the balance sheet as right-of-use assets and
corresponding lease liabilities, unless the term of the lease is 12 months or less. As of December 31, 2022, we had 21
bareboat chartered-in vessels which are being accounted for under IFRS 16, Leases as right of use assets and related lease
liabilities. Under IFRS 16, there is no charterhire expense for these vessels as the right of use assets are depreciated on a
straight-line basis (through depreciation expense) over the lease term, and the lease liability is amortized over that same
period (with a portion of each payment allocated to principal and a portion allocated to interest expense).
Foreign currencies
The individual financial statements of Scorpio Tankers Inc. and each of its subsidiaries are presented in the currency
of the primary economic environment in which we operate (its functional currency), which in all cases is U.S. dollars. For the
purpose of the consolidated financial statements, our results and financial position are also expressed in U.S. dollars.
In preparing the financial statements of Scorpio Tankers Inc. and each of its subsidiaries, transactions in currencies
other than the U.S. 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 translated into the functional currency at
rates ruling at that date. All resultant exchange differences have been recognized in the consolidated statements of income or
loss. The amounts charged to the consolidated statements of income or loss during the years ended December 31, 2022, 2021
and 2020 were not significant.
F-12
Segment reporting
During the years ended December 31, 2022, 2021 and 2020, we owned, lease financed, or chartered-in vessels
spanning four different vessel classes, Handymax, MR, LR1 and LR2, all of which earned revenues in the seaborne
transportation of refined petroleum products in the international shipping markets. Each vessel within these segments also
exhibits similar long-term financial performance and similar economic characteristics to the other vessels within the
respective vessel class, thereby meeting the aggregation criteria pursuant to IFRS 8 - Operating Segments. We have therefore
chosen to present our segment information by vessel class using the aggregated information from the individual vessels.
Segment results are evaluated based on reported net income or loss from each segment. The accounting policies
applied to the reportable segments are the same as those used in the preparation of our consolidated financial statements.
It is not practical to report revenue or non-current assets on a geographical basis due to the global nature of the
shipping market.
Vessels and drydock
Our fleet is measured at cost, which includes the cost of work undertaken to enhance the 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 the date of delivery. We estimate the useful lives of our vessels to be 25 years. Vessels under construction are
not depreciated until such time as they are ready for use. The residual value is estimated as the lightweight tonnage of each
vessel multiplied by a scrap value per ton. The scrap value per ton is estimated taking into consideration the historical four-
year average scrap market rates available at the balance sheet date with changes accounted for in the period of change and in
future periods.
The vessels are required to undergo planned drydocks for replacement 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. In deferred drydocking, we only include
direct costs that are incurred as part of the drydocking to meet regulatory requirements, or are expenditures that add economic
life to the vessel, increase the vessel’s earnings capacity or improve the vessel’s efficiency. Direct costs include shipyard
costs as well as the costs of placing the vessel in the shipyard. Expenditures for normal maintenance and repairs, whether
incurred as part of the drydocking or not, are expensed as incurred.
For an acquired or newly built vessel, a notional drydock component is allocated from the vessel’s cost. The
notional drydock cost is estimated 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 component is depreciated on a straight-line basis to the next estimated drydock.
The estimated amortization period for a drydock is based on the estimated period between drydocks. When the drydock
expenditure is incurred prior to the expiry of the period, the remaining balance is expensed.
During the years ended December 31, 2022, 2021, and 2020, we made investments in exhaust gas cleaning systems,
or scrubbers, and ballast water treatment systems, or BWTS. The costs of these systems is primarily being depreciated over
the estimated remaining useful life of each vessel, which is our estimate of the useful life of this equipment based on
experience with such systems. Additionally, for a newly installed scrubber, a notional component is allocated from the
scrubber’s cost. The notional scrubber cost is estimated by us, based on the expected related costs that we will incur for this
equipment at the next scheduled drydock date and relates to the replacement of certain components and maintenance of other
components. This notional scrubber cost is carried separately from the cost of the scrubber. Subsequent costs will be recorded
at actual cost incurred. The notional component of the scrubber is depreciated on a straight-line basis to the next estimated
drydock date.
Impairment of goodwill
Goodwill arising from our 2017 acquisition of Navig8 Product Tankers Inc. was allocated to the cash generating
units within each of the respective reportable segments that were expected to benefit from the synergies of the merger (LR2s
and LR1s). Goodwill is not amortized and is tested annually (or more frequently, if impairment indicators arise) by
comparing the aggregate carrying amount of the cash generating units within the reportable segment, plus the allocated
goodwill, to their recoverable amounts.
F-13
If there are impairment triggering events, the recoverable amount of goodwill is measured by the value in use of the
cash generating units within the reportable segment. In assessing value in use, the estimated future cash flows of the
reportable segment 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 reportable segment for which the estimates of future cash flows have
not been adjusted.
If the recoverable amount is determined to be less than the aggregate carrying amount of the assets in each
respective operating segment, plus goodwill, then goodwill is reduced to the lower of the recoverable amount or zero. An
impairment loss is recognized as an expense immediately. The goodwill that was previously allocated to the LR1 segment of
$2.6 million was written off at December 31, 2020.
Impairment of vessels and drydock, vessels under construction and right of use assets for vessels
At each balance sheet date, we review the carrying amount of our vessels and drydock, vessels under construction (if
applicable), and right of use assets for vessels 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 drydock, vessels under construction
and right of use assets for vessels is estimated in order to determine the extent of the impairment 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 (determined by taking into consideration two
valuations from independent ship brokers) 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. Where
appropriate, our value in use calculations also incorporate probability weighted assessments of different scenarios (such as
potential vessel sales).
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. At December 31, 2020, we recorded an impairment charge of $14.2 million as the recoverable amounts of 13 of
the MRs in our fleet were less than their carrying amounts.
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 carrying 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 impairment is recognized as income immediately. As described in Note 7, we reversed the previously recorded
impairment in the aggregate amount of $12.7 million as the recoverable amount of the previously impaired 13 MRs in our
fleet were greater than their carrying values. This reversal was recorded as income for the year ended December 31, 2022.
Inventories
Inventories consist of bunkers, lubricating oils and other items including stock provisions, and are stated at the lower
of cost and net realizable value. Cost is determined using the first in first out method. Stores and spares are charged to vessel
operating costs when purchased. Bunker consumption is recorded to voyage expenses (except when off-hire, where it is
recorded as a vessel operating cost) and lubricating oil consumption is recorded to vessel operating costs.
Interests in joint ventures
In August 2021, we acquired a minority interest in a portfolio of nine product tankers, consisting of five dual-fuel
MR methanol tankers (built between 2016 and 2021) which, in addition to traditional petroleum products, are designed to
both carry methanol as a cargo and to consume it as a fuel, along with four ice class 1A LR1 product tankers. As part of this
agreement, we acquired a 50% interest in a joint venture that ultimately has a minority interest in the entities that own the
vessels for final consideration of $6.7 million. On November 1, 2022, we contributed an additional $1.75 million to the joint
venture.
A joint venture is an arrangement where we have joint control and have rights to the net assets of the arrangement,
rather than rights to the joint venture’s assets and obligations for its liabilities. We account for our interest in this joint
venture using the equity method pursuant to IFRS 11 - Joint arrangements. Under this guidance, the investment is initially
measured at cost, and the carrying amount of the investment is adjusted in subsequent periods based on our share of profits or
losses from the joint venture (adjusted for any fair value adjustments made upon initial recognition). Any distributions
received from the joint venture reduce the carrying amount. This investment is described in Note 8.
F-14
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time (for example, the time period necessary to construct a vessel) to get
ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready
for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognized in the consolidated statement of income or loss in the period in which they
are incurred.
Financial instruments
IFRS 9, Financial instruments, sets out requirements for recognizing and measuring financial assets, financial
liabilities and some contracts to buy or sell non-financial items. Financial assets and financial liabilities are recognized in our
balance sheet when we become a party to the contractual provisions 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 contract whose terms require delivery within the timeframe established by the market concerned, and are initially
measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss,
which are initially measured at fair value.
Financial assets are classified into the following specified categories: financial assets “at fair value through profit or
loss”, or FVTPL, “at fair value through other comprehensive income” or at amortized cost on the basis of the Company’s
business model for managing financial assets and the contractual cash flow characteristics of the financial asset.
Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as
at FVTPL.
Financial assets at amortized cost
Financial assets are measured at amortized cost if both of the following conditions are met:
•
•
the financial asset is held within a business model whose objective is to hold financial assets in order to collect
contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
Financial assets at fair value through other comprehensive income
Financial assets are measured at fair value through other comprehensive income if both of the following conditions
are met:
•
•
the financial asset is held within a business model whose objective is achieved by both collecting contractual
cash flows and selling financial assets; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
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
F-15
•
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 hedging instrument.
Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognized in the statement of
income or loss. The net gain or loss recognized in income or loss incorporates any dividend or interest earned on the financial
asset. Fair value is determined in the manner described in Note 22.
Accounts receivable
Amounts due from the Scorpio Pools and other receivables that have fixed or determinable payments and are not
quoted in an active market are classified as accounts receivable. Accounts receivable without a significant financing
component are initially measured at their transaction price and subsequently measured at amortized cost, less any impairment
(as discussed below). 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
IFRS 9 introduced the expected credit loss (“ECL”) model to determine and recognize impairments. ECLs are a
probability-weighted estimate of credit losses and are measured as the present value of all cash shortfalls (i.e. the difference
between cash flows due to the entity in accordance with the contract and cash flows that we expect to receive). ECLs are
discounted at the effective interest rate of the financial asset. Under IFRS 9, credit losses are recognized earlier than under the
previous accounting guidance, IAS 39.
Under the general model to ECLs under IFRS 9, loss allowances are measured in two different ways:
•
•
12-month ECLs: 12-month ECLs are the expected credit losses that may result from default events on a
financial instrument that are possible within the 12 months after the reporting date. 12-month ECLs are utilized
when a financial asset has a low credit risk at the reporting date or has not had a significant increase in credit
risk since initial recognition.
Lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial
instrument. Lifetime ECLs are determined when an impaired financial asset has been purchased or originated or
when there has been a significant increase in credit risk since initial recognition.
IFRS 9 also permits operational simplifications for trade receivables, contract assets and lease receivables because
they are often held by entities that do not have sophisticated credit risk management systems (i.e. the ‘simplified model’).
These simplifications eliminate the need to calculate 12-month ECLs and to assess when a significant increase in credit risk
has occurred. Under the simplified approach:
•
•
For trade receivables or contract assets that do not contain a significant financing component, the loss allowance
is required to be measured at initial recognition and throughout the life of the receivable at an amount equal to
lifetime ECL.
For finance lease receivables, operating lease receivables, or trade receivables or contract assets that do contain
a significant financing component, IFRS 9 permits an entity to choose as its accounting policy to measure the
loss allowance using the general model or the simplified model (i.e. at an amount equal to lifetime expected
credit losses).
We measure loss allowances for all trade and lease receivables under the simplified model using the lifetime ECL
approach. When estimating ECLs, we consider reasonable and supportable information that is available without undue cost or
effort at the reporting date about past events, current conditions and forecasts of future economic conditions.
The application of the ECL requirements under IFRS 9 have not resulted in the recognition of an impairment charge
under the new impairment model. This determination was made on the basis that (i) most of our vessels operate in the
Scorpio Pools and we have never experienced a historical credit loss of amounts due from the Scorpio Pools, and (ii) for
vessels operating outside of the Scorpio Pools, either on time charter or in the spot market, over 98% of the amounts due as
of December 31, 2022 were collected as of the issuance of these financial statements. This determination also considers
reasonable and supportable information about current conditions and forecast future economic conditions.
F-16
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, 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.
Restricted cash
We placed deposits in debt service reserve accounts under the terms and conditions set forth under our Citibank / K-
Sure Credit Facility and the lease financing arrangements with Bank of Communications Financial Leasing (LR2s). The
funds in these accounts have been, or are expected to be applied against the principal balance of these facilities upon their
repayment or the expiration of the lease. The activity within these accounts (which is adjusted from time to time based on
prevailing interest rates) is recorded as financing activities on our consolidated statements of cash flows.
Financial liabilities
Financial liabilities are classified as either financial liabilities at amortized cost or financial liabilities at FVTPL.
There were no financial liabilities recorded at FVTPL during the years ended December 31, 2022 or December 31, 2021.
Financial liabilities at amortized cost
Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other
financial liabilities are subsequently measured at amortized cost using the effective interest method.
Financial liabilities at FVTPL
Financial liabilities not classified at amortized cost are classified as FVTPL.
Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognized in the Statement of
Income or Loss. The net gain or loss recognized in the statement of income or loss incorporates any interest paid on the
financial liability. Fair value is determined in the manner described in Note 22.
Effective interest method
The effective interest method is a method of calculating the amortized cost of a financial asset and a financial
liability. It allocates interest income and interest expense over the relevant period. The effective interest rate is the rate that
discounts estimated future cash flows (including all fees or 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.
Convertible debt instruments
Our convertible debt outstanding (which is described in Note 12) was accounted for pursuant to IAS 32 - Financial
liabilities and equity. Under IAS 32, we must separately account for the liability and equity components of convertible debt
instruments in a manner that reflects the issuer’s economic interest cost. Under this methodology, the instrument is split
between its liability and equity components upon initial recognition. The fair value of the liability is measured first, by
estimating the fair value of a similar liability that does not have any associated equity conversion option. This becomes the
liability’s carrying amount at initial recognition, which is recorded as part of Debt on the consolidated balance sheet. The
equity component (the conversion feature) is assigned the residual amount after deducting the amount separately determined
for the liability component from the fair value of the instrument as a whole and is recorded as part of Additional paid-in
capital within stockholders’ equity on the consolidated balance sheet. Issuance costs are allocated proportionately between
the liability and equity components.
The value of the equity component is treated as an original issue discount for purposes of accounting for the liability
component. Accordingly, we are required to record non-cash interest expense as a result of the amortization of the discounted
carrying value of the convertible notes to their face amount over the term of each instrument. IAS 32 therefore requires
interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest.
F-17
Derivative financial instruments
Derivative financial instruments are initially recognized at fair value at the date a derivative contract is entered into
and are subsequently remeasured to their fair value at each balance sheet date. A derivative with a positive fair value is
recognized as a financial asset whereas a derivative with a negative fair value is recognized as a financial liability. The
resulting gain or loss is recognized in income or loss immediately unless the derivative is designated and effective as a
hedging instrument, in which event the timing of the recognition in income or loss depends on the nature of the hedging
relationship.
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.
There were no derivative instruments or transactions during the years ended December 31, 2022, 2021, and 2020.
Lease Financing
During the years ended December 31, 2022, 2021, and 2020, we entered into sale and leaseback transactions in
which certain of our vessels were sold to a third party and then leased back to us under bareboat chartered-in arrangements.
In these transactions, the criteria necessary to recognize a sale of these vessels were not met under IFRS 15. Accordingly,
these transactions have been accounted for as financing arrangements, with the liability under each arrangement recorded at
amortized cost using the effective interest method and the corresponding vessels recorded at cost, less accumulated
depreciation, on our consolidated balance sheet. All of these arrangements are further described in Note 12.
Equity instruments
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 had 61,262,838 and 58,369,516 registered shares authorized, issued and outstanding with a par value of $0.01
per share at December 31, 2022 and December 31, 2021, respectively. These shares provide the holders with the same rights
to dividends and voting rights.
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 our best estimate 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 dividend has been declared in accordance with the terms
of the shareholder agreement.
Share based payments
The restricted stock awards granted under our 2013 Equity Incentive Plan as described in Note 14 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. In accordance with IFRS 2 - Share based payment, the share price at the grant date
serves as a proxy for the fair value of services to be provided by the individual under the plan.
Compensation expense related to the awards is recognized ratably over the vesting period, based on our estimate of
the number of awards that will eventually vest. The vesting period is the period during which an individual is required to
provide service in exchange for an award and is updated at each balance sheet date to reflect any revisions in estimates of the
number of awards expected to vest as a result of the effect of service vesting conditions. The impact of the revision of the
original estimate, if any, is recognized in the consolidated statement of income or loss such that the cumulative expense
reflects the revised estimate, with a corresponding adjustment to equity reserves.
F-18
Critical accounting judgments and key sources of estimation uncertainty
In the application of the accounting policies, we are required to make judgments, 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 considered to be relevant. Actual results may differ
from these estimates.
The estimates and underlying assumptions are reviewed on an on-going 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 periods if the revision affects both current and future periods.
The significant judgments and estimates are as follows:
Revenue recognition
Our revenue is primarily generated from time charters, spot voyages, or pools (see Note 16 for the components of
our revenue generated during the years ended December 31, 2022, 2021 and 2020). 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 specific rate per day. For long-term time charters, revenue is recognized 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 participants using a mechanism set out in the time charter agreement between the vessel owner and the pool.
We generated revenue from spot voyages during the years ended December 31, 2022 and December 31, 2021. We
recognize spot market revenue ‘over time’ as the customer (i.e. the charterer) is simultaneously receiving and consuming the
benefits of the vessel. Under IFRS 15, the performance obligation has been identified as the transportation of cargo from one point
to another. Therefore, in a spot market voyage under IFRS 15, revenue is recognized on a pro-rata basis commencing on the date
that the cargo is loaded and concluding on the date of discharge. Under IFRS 15, voyage costs incurred in the fulfillment of a
voyage charter are deferred and amortized over the course of the charter commencing on the date that the cargo is loaded and
concluding on the date of discharge. Voyage costs are only deferred if they (i) relate directly to such charter, (ii) generate or enhance
resources to be used in meeting obligations under the charter and (iii) are expected to be recovered.
Vessel impairment
We evaluate the carrying amounts of our vessels, vessels under construction and right of use assets for 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).
Recoverable amount is the higher of fair value less costs to sell (determined by taking into consideration vessel valuations
from independent ship brokers for each vessel) 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 projection 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. As part of our process of assessing fair value less selling costs of
the vessel, we obtain vessel valuations for our operating vessels from independent ship brokers on an annual basis or when there is
an indication that an asset or assets may be impaired. We generally do not obtain vessel valuations for vessels under construction. If
an indication of impairment is identified, the need for recognizing an impairment loss is assessed by comparing the carrying amount
of the vessels to the higher of the fair value less selling costs 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 vessels to the latest estimate of recoverable amount.
The results of our impairment testing for the years ended December 31, 2022 and 2021 are described in Note 7.
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 and impairment. We depreciate our vessels to their residual value on a straight-line basis over their estimated
useful lives of 25 years. 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 by taking into consideration the historical four-year scrap
market rate average at the balance sheet date, which we update annually.
F-19
An increase in the estimated useful life of a vessel or in its scrap value would have the effect of decreasing the
annual depreciation 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. No such regulations have been identified that
would have impacted the estimated useful life of our vessels. The estimated salvage value of the vessels may not represent
the fair value at any one time since market prices of scrap values tend to fluctuate.
Deferred drydock cost
We recognize drydock costs as a separate component of each vessel’s carrying amount and amortize the drydock
cost on a straight-line basis over the estimated period until the next drydock. We use judgment when estimating the period
between when drydocks are performed, which can result in adjustments to the estimated amortization of the drydock expense.
If the vessel is disposed 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 contracted. We expect that our vessels will be
required to be drydocked 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.
Adoption of new and amended IFRS and IFRIC interpretations from January 1, 2022
Standards and Interpretations adopted during the year ended December 31, 2022.
• Amendments to IFRS 3 - Reference to the Conceptual Framework
• Amendments to IAS 16 - Property, Plant and Equipment - Proceeds before Intended Use
• Amendments to IAS 37 - Onerous Contracts - Cost of Fulfilling a Contract
• Annual Improvements to IFRS Standards 2018-2020
The adoption of these standards did not have a significant impact on these consolidated financial statements.
Standards and Interpretations adopted during the year ended December 31, 2021.
• Amendments to IFRS 9 – Financial Instruments (IBOR reform) - Phase 2.
The adoption of this standard did not have a significant impact on these consolidated financial statements. See Note 22 for
further discussion on the impact of IBOR reform on our borrowings.
Standards and Interpretations yet not adopted
Additionally, at the date of authorization of these consolidated financial statements, the following Standards which
have not been applied in these consolidated financial statements were issued but not yet effective. We do not expect that the
adoption of these standards in future periods will have a significant impact on our financial statements.
• Amendment to IAS 1 - Non-current Liabilities with Covenants - Regarding liabilities with a right to defer
settlement that is subject to future covenants, this amendment clarifies that only covenants with which an entity
must comply on or before the reporting date will affect a liability’s classification as current or non-current.
Additional disclosures are required for non-current liabilities arising from loan arrangements that are subject to
covenants to be complied with within twelve months after the reporting period. The effective date is for annual
periods beginning on or after January 1, 2024, with earlier application permitted.
• Amendments to IAS 1 - Disclosure of Accounting Policies - To require entities to disclose material accounting
policies, instead of significant accounting policies. The amendments clarify, among other things, that
accounting policy information may be material because of its nature, even if the related amounts are immaterial.
The effective date is for annual periods beginning on or after January 1, 2023.
F-20
• Amendment to IAS 12 - Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction -
These amendments require companies to recognize deferred tax on transactions that, on initial recognition give
rise to equal amounts of taxable and deductible temporary differences. The effective date is for annual periods
beginning on or after January 1, 2023.
• Amendment to IAS 8 - Changes in Accounting Estimates - The definition of a change in accounting estimates is
replaced with a definition of accounting estimates. Under the new definition, accounting estimates are
“monetary amounts in financial statements that are subject to measurement uncertainty”. The Board clarified
that a change in accounting estimate that results from new information or new developments is not the
correction of an error. In addition, the effects of a change in an input or a measurement technique used to
develop an accounting estimate are changes in accounting estimates if they do not result from the correction of
prior period errors. A change in an accounting estimate may affect only the current period’s profit or loss, or the
profit or loss of both the current period and future periods. The effect of the change relating to the current
period is recognized as income or expense in the current period. The effect, if any, on future periods is
recognized as income or expense in those future periods. The effective date is for annual periods beginning on
or after January 1, 2023.
• Amendments to IFRS 16 - Lease Liability in a Sale and Leaseback - The amendment requires, in a sale and
leaseback transaction, the seller-lessee to measure the lease liability without recognizing any gain or loss that
relates to the right of use it retains. The effective date is for annual periods beginning on or after January 1,
2024, with earlier application permitted.
2. Cash and cash equivalents
The following is a table summarizing the components of our cash and cash equivalents as of December 31, 2022 and
2021:
In thousands of U.S. dollars
Cash at banks .......................................................................................................
Cash on vessels ....................................................................................................
At December 31,
2021
2022
$ 228,732
$ 375,229
1,683
1,641
$ 230,415
$ 376,870
3. Prepaid expenses and other current assets
The following is a table summarizing the components of our prepaid expenses and other current assets as of
December 31, 2022 and 2021:
In thousands of U.S. dollars
Prepaid vessel operating expenses - SSM ........................................................... $
Prepaid expense - related party port agent ...........................................................
Prepaid expense - SCM .......................................................................................
Scorpio MR Pool Limited ...................................................................................
Scorpio Handymax Tanker Pool Limited ............................................................
Scorpio LR2 Pool Limited ...................................................................................
Prepaid expenses and other current assets - related parties .................................
Prepaid port agent advances ................................................................................
Third party - prepaid vessel operating expenses ..................................................
Prepaid insurance ................................................................................................
Other prepaid expenses ........................................................................................
At December 31,
2021
2022
5,450 $
98
84
14
3
1
5,650
3,086
2,787
744
5,892
18,159
3,426
—
—
—
—
—
3,426
—
2,610
880
1,038
7,954
F-21
4. Accounts receivable
The following is a table summarizing the components of our accounts receivable as of December 31, 2022 and 2021:
In thousands of U.S. dollars
Scorpio MR Pool Limited ................................................................................... $ 115,092 $
Scorpio LR2 Pool Limited ...................................................................................
Scorpio LR1 Pool Limited ...................................................................................
Scorpio Handymax Tanker Pool Limited ............................................................
Scorpio Services Holding Limited (SSH) ............................................................
Receivables from the related parties ....................................................................
Spot voyage and time charter receivables ...........................................................
Insurance receivables ...........................................................................................
Other receivables .................................................................................................
113,523
607
7,149
4,976
241,347
34,475
878
—
At December 31,
2021
2022
16,414
14,344
3,079
2,379
—
36,216
820
905
128
38,069
$ 276,700 $
Scorpio MR Pool Limited, Scorpio LR2 Pool Limited, Scorpio Handymax Tanker Pool Limited and Scorpio LR1
Pool Limited are related parties, as described in Note 15. Amounts due from the Scorpio Pools relate to income receivables
and receivables for working capital contributions which are expected to be collected within one year. For all owned vessels,
we assume that these contributions will not be repaid within 12 months and are therefore considered as non-current within
Other Assets on the consolidated balance sheets. For chartered-in vessels, we classify the amounts as current (within accounts
receivable) or non-current (within Other Assets) according to the expiration of the contract.
Accounts receivable from SSH include revenue earned and expenses incurred for voyages in the spot market or on
time charter through SSH, a related party.
Spot voyage and time charter receivables represent amounts collectible from customers for our vessels operating on
time charter or in the spot market.
Insurance receivables primarily represent amounts collectible on our insurance policies in relation to vessel 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. Our accounts receivable mostly consist of accounts receivable from the
Scorpio Pools, or from vessels in the spot market or on time charter. We have never experienced a historical credit loss of
amounts due from the Scorpio Pools and all amounts are considered current. For vessels operating outside of the Scorpio
Pools, either on time charter or in the spot market, over 98% of the amounts due as of December 31, 2022 were collected as
of the date of these financial statements.
F-22
5. Vessels
Operating vessels and drydock
In thousands of U.S. dollars
Cost
Vessels
Drydock
Total
As of January 1, 2022 .......................................................................
Additions(1) .......................................................................................
Disposal of vessels(2) ........................................................................
Write-offs(3) ......................................................................................
As of December 31, 2022 .................................................................
$ 4,782,886
20,426
(758,250)
—
4,045,062
$ 135,471
19,807
(22,641)
(14,996)
117,641
$ 4,918,357
40,233
(780,891)
(14,996)
4,162,703
Accumulated depreciation and impairment
As of January 1, 2022 .......................................................................
Charge for the period ........................................................................
Disposal of vessels(2) ........................................................................
Reversal of previously recorded impairment ....................................
Write-offs(3) ......................................................................................
As of December 31, 2022 .................................................................
(1,020,407)
(145,140)
136,581
12,708
—
(1,016,258)
(55,879)
(22,868)
6,560
—
14,996
(57,191)
(1,076,286)
(168,008)
143,141
12,708
14,996
(1,073,449)
Net book value
As of December 31, 2022 .................................................................
$ 3,028,804
$
60,450
$ 3,089,254
Cost
As of January 1, 2021 .......................................................................
Additions(1) .......................................................................................
Write-offs(3) ......................................................................................
As of December 31, 2021 .................................................................
$ 4,773,502
9,384
—
4,782,886
$ 132,474
27,266
(24,269)
135,471
$ 4,905,976
36,650
(24,269)
4,918,357
Accumulated depreciation and impairment
As of January 1, 2021 .......................................................................
Charge for the period ........................................................................
Write-offs(3) ......................................................................................
As of December 31, 2021 .................................................................
(849,355)
(171,052)
—
(1,020,407)
(53,733)
(26,415)
24,269
(55,879)
(903,088)
(197,467)
24,269
(1,076,286)
Net book value
As of December 31, 2021 ................................................................
$ 3,762,479
$
79,592
$ 3,842,071
(1) Additions in 2022 and 2021 primarily relate to the drydock, BWTS, and scrubber costs incurred on certain of our vessels.
(2) Represents the net book value of 17 vessels, consisting of three LR2s (STI Savile Row, STI Carnaby and STI Nautilus), 12 LR1s (STI Excelsior, STI
Executive, STI Excellence, STI Pride, STI Providence, STI Prestige, STI Experience, STI Express, STI Exceed, STI Excel, STI Expedite, and STI
Precision), and two MRs (STI Fontvieille and STI Benicia) which were sold during the year ended December 31, 2022. These transactions are described
below.
(3) Represents the write-offs of fully depreciated equipment and notional drydock costs on certain of our vessels.
The following is a summary of the items that were capitalized during the years ended December 31, 2022 and 2021:
In thousands of U.S. dollars
For the year ended December 31, 2022 .............. $
For the year ended December 31, 2021 ..............
Drydock(1)
Notional
component
of
scrubber(2)
Total
drydock
additions Scrubber BWTS
Other
equipment
19,657 $
27,116
150 $ 19,807 $ 14,386 $
4,073
150
27,266
5,522 $
190
347 $
4,945
Capitalized
interest
Total
vessel
additions
171 $ 20,426
9,384
176
(1) Additions during the years ended December 31, 2022 and 2021 include new costs accrued in prior periods relating to drydocks, ballast water treatment
system, and scrubber installations.
(2) For a newly installed scrubber, a notional component of approximately 10% is allocated from the scrubber’s cost. The notional scrubber cost is
estimated by us, based on the expected related costs that we will incur for this equipment at the next scheduled drydock date and relates to the
replacement of certain components and maintenance of other components. This notional scrubber cost is carried separately from the cost of the scrubber.
Subsequent costs are recorded at actual cost incurred. The notional component of the scrubber is depreciated on a straight-line basis to the next estimated
drydock date. For the year ended December 31, 2022, we did not allocate the notional component of the scrubber installation costs for those vessels that
were sold during the period.
F-23
Activity
We did not take delivery of any owned vessels during the years ended December 31, 2022 and December 31, 2021.
As of December 31, 2022, we did not have any newbuildings on order.
Ballast Water Treatment Systems and Exhaust Gas Cleaning Systems, or Scrubbers
In July 2018, we executed an agreement to purchase 55 ballast water treatment systems, or BWTS, from an
unaffiliated third-party supplier. These systems have been and are expected to be installed from 2019 through 2023, as each
respective vessel under the agreement is due for its International Oil Pollution Prevention, or IOPP, renewal survey. Costs
capitalized for these systems include the cost of the base equipment that we have contracted to purchase in addition to
directly attributable installation costs, costs incurred for systems that were installed during the period, and installation costs
incurred in advance of installations that are expected to occur in subsequent periods. We estimate the useful life of these
systems to be for the duration of each vessel’s remaining useful life and are depreciating the equipment and related
installation costs on this basis.
We have also retrofitted the substantial majority of our vessels with exhaust gas cleaning systems, or scrubbers. The
scrubbers enable our ships to use high sulfur fuel oil, which is less expensive than low sulfur fuel oil, in certain parts of the
world. From August 2018 through November 2018, we entered into agreements with two separate suppliers to retrofit a total
of 77 of our tankers with such systems and in 2019 we exercised options to retrofit an additional 21 our vessels with
scrubbers.
In 2020, and as further amended in February 2021, we reached an agreement to postpone the purchase and
installation of scrubbers on 19 vessels. In August 2021, we exercised options to purchase six of these scrubbers. One of the
vessels under this agreement was sold during 2022 without a scrubber installation and 12 remain.
Costs capitalized for these systems include the base equipment and systems purchased, and installation costs
incurred. We estimate the useful life of these systems to be for the duration of each vessel’s remaining useful life, with the
exception of approximately 10% of the equipment cost, which is estimated to require replacement at each vessel’s next
scheduled drydock. This amount has been allocated as a notional component upon installation. The carrying value of the
equipment, related installation costs, and notional component will be depreciated on this basis.
We retrofitted six vessels in 2022 and one vessel in 2021 with scrubbers. During the year ended December 31, 2022,
we retrofitted a total of four vessels with BWTS. We did not install any BWTS during the year ended December 31, 2021.
The following table is a timeline of future expected payments and dates for our commitments to purchase scrubbers
and BWTS as of December 31, 2022(1):
Amounts in thousands of US dollars
Less than 1 month ..................................................
1-3 months .............................................................
3 months to 1 year ..................................................
1-5 years ................................................................
5+ years .................................................................
Total .......................................................................
As of December 31,
2022
$
$
129
2,892
9,054
1,526
—
13,601
(1) These amounts are subject to change as installation times are finalized. The amounts presented exclude installation costs.
Vessel Sales
During the first half of the year ended December 31, 2022, we sold 18 vessels consisting of three LR2s (STI Savile
Row, STI Carnaby and STI Nautilus); 12 LR1s (STI Excelsior, STI Executive, STI Excellence, STI Pride, STI Providence, STI
Prestige, STI Experience, STI Express, STI Exceed, STI Excel, STI Expedite, and STI Precision); and three MRs (STI
Fontvieille, STI Benicia, and STI Majestic). Seven vessel sales closed in the first quarter of 2022, nine vessel sales closed in
the second quarter of 2022 and two vessel sales vessels closed in the third quarter of 2022 for aggregate net proceeds of
$607.7 million.
F-24
Of these vessels, the net book value of 17 vessels of $637.8 million was previously recorded within Vessels and
drydock, and the net book value for one vessel (STI Majestic) of $35.4 million was previously recorded within Right of use
assets for vessels (Note 6). As a result of these transactions, we recorded an aggregate net loss of $66.5 million (inclusive of a
$0.7 million write-off of goodwill on the LR2 vessels).
Additionally, we repaid aggregate outstanding debt, sale and leaseback obligations, and lease liabilities under IFRS
16 of $347.4 million and incurred debt extinguishment costs (write-offs of deferred financing fees and discounts plus fees) of
$3.5 million related to these vessel sales. The financing facilities to which these repayments relate are described in Note 12.
The sale of the LR1s was not a strategic shift in our operations that had, or is expected to have, a material effect on
our operations. Moreover, the vessels disposed did not constitute a separate major line of business or geographical area of
operations. We therefore determined that the sale of these vessels did not constitute a discontinued operation under IFRS 5.
Collateral agreements
The below table is a summary of vessels with an aggregate carrying value of $3.1 billion at December 31, 2022
which have been pledged as collateral under the terms of our secured debt and lease financing arrangements, which includes
right of use assets that are accounted for under IFRS 16 (and are further described in Note 6), along with the respective
borrowing or lease financing facility (which are described in Note 12) as of December 31, 2022:
Credit Facility
IFRS 16 - Leases - $670.0 Million
STI Lobelia, STI Lotus, STI Lily, STI Lavender, STI Magic, STI Mystery, STI
Marvel, STI Magnetic, STI Millenia, STI Magister, STI Mythic, STI Marshall, STI
Modest, STI Maverick, STI Miracle, STI Maestro, STI Mighty, STI Maximus
Vessel Name
2019 DNB / GIEK Credit Facility
2020 $225.0 Million Credit Facility
2020 TSFL Lease Financing
2020 CMBFL Lease Financing
2020 SPDBFL Lease Financing
2021 AVIC Lease Financing
2021 CMBFL Lease Financing
2021 TSFL Lease Financing
2021 CSSC Lease Financing
2021 $146.3 Million Lease Financing
STI Condotti, STI Sloane
STI Spiga, STI Kingsway
STI Galata, STI La Boca
STI Bosphorus, STI Leblon
STI San Telmo, STI Donald C Trauscht, STI Esles II, STI Jardins
STI Memphis, STI Soho, STI Osceola, STI Lombard
STI Brixton, STI Comandante, STI Finchley, STI Pimlico, STI Westminster
STI Black Hawk, STI Pontiac, STI Notting Hill
STI Jermyn, STI Grace
STI Rotherhithe, STI Broadway, STI Hammersmith, STI Winnie, STI Lauren,
STI Connaught
2021 Ocean Yield Lease Financing
2022 AVIC Lease Financing
AVIC Lease Financing
BCFL Lease Financing (LR2s)
BCFL Lease Financing (MRs)
BNPP Sinosure Credit Facility
CSSC Lease Financing
Hamburg Commercial Credit Facility
Ocean Yield Lease Financing
Prudential Credit Facility
IFRS 16 - Leases - 3 MR
STI Gallantry, STI Guard
STI Oxford, STI Selatar, STI Gramercy, STI Queens
STI Ville, STI Brooklyn, STI Rose, STI Rambla
STI Solace, STI Solidarity, STI Stability
STI Amber, STI Topaz, STI Ruby, STI Garnet, STI Onyx
STI Elysees, STI Fulham, STI Hackney, STI Orchard, STI Park
STI Goal, STI Guide, STI Gauntlet, STI Gladiator, STI Gratitude
STI Poplar, STI Veneto
STI Sanctity, STI Steadfast, STI Supreme, STI Symphony
STI Acton, STI Camden, STI Clapham
STI Beryl, STI Larvotto, STI Le Rocher
The below table is a summary of vessels with an aggregate carrying value of $0.7 billion which were unencumbered
at December 31, 2022:
Unencumbered
STI Alexis, STI Duchessa, STI Mayfair, STI San Antonio, STI St. Charles, STI Yorkville, STI
Milwaukee, STI Battery, STI Tribeca, STI Bronx, STI Manhattan, STI Seneca, STI Madison, STI
Opera, STI Venere, STI Virtus, STI Aqua, STI Dama, STI Regina, STI Battersea, STI Wembley, STI
Texas City, STI Meraux
Vessel Name
F-25
6.
Right of use assets and related lease liabilities
For lease arrangements that were accounted for under IFRS 16 – Leases, we had bareboat charter-in commitments
on three vessels under fixed rate bareboat agreements and 19 vessels under variable rate bareboat agreements during the year
ended December 31, 2022 and we had bareboat charter-in commitments on seven vessels under fixed rate bareboat
agreements and 19 vessels under variable rate bareboat agreements during the year ended December 31, 2021. These
arrangements were accounted for under IFRS 16 - Leases.
Our commitments as of December 31, 2022 consisted of the following:
IFRS 16 - Leases - 3 MRs
In January 2019, we recognized right-of-use assets and corresponding liabilities relating to three bareboat chartered-
in vessel commitments (STI Beryl, STI Le Rocher and STI Larvotto). The bareboat contracts for these three vessels were
entered into in April 2017, are scheduled to expire in April 2025, and have a fixed lease payment of $8,800 per vessel per
day. We have the option to purchase these vessels beginning at the end of the fifth year of the agreement through the end of
the eighth year of the agreement. Additionally, a deposit of $4.35 million was retained by the buyer and will either be applied
to the purchase price of the vessel, if a purchase option is exercised, or refunded to us at the expiration of the agreement.
Based on the analysis of the purchase options, we determined the lease terms to be eight years, from the commencement date
through the expiration date of each lease. A weighted average incremental borrowing rate of approximately 6.0% was applied
at the date of initial application of IFRS 16 on this arrangement.
The IFRS 16 - Leases - 3 MRs obligations are secured by, among other things, assignments of earnings and
insurances and stock pledges and account charges in respect of the subject vessels and contain customary events of default,
including cross-default provisions as well as subjective acceleration clauses under which the lessor could cancel the lease in
the event of a material adverse change in our business.
In April 2020, we executed agreements to increase the borrowing capacity of the three vessels under our IFRS 16 -
Leases - 3 MRs obligation by up to $1.9 million per vessel to partially finance the purchase and installation of scrubbers on
these vessels. Each agreement will be for a fixed term of three years at the rate of up to $1,910 per vessel per day to be
allocated to principal and interest. There have been no borrowings under these agreements as of December 31, 2022.
The aggregate outstanding balances of these lease liabilities were $21.1 million and $29.3 million as of
December 31, 2022 and 2021, respectively.
IFRS 16 - Leases - Trafigura Transaction
On September 26, 2019, we acquired subsidiaries of Trafigura Maritime Logistics Pte. Ltd. (“Trafigura”) which had
leasehold interests in 19 product tankers under bareboat charter agreements (the “Agreements”) with subsidiaries of an
international financial institution (the “Trafigura Transaction”).
On the date of the Trafigura Transaction, certain terms of the Agreements were modified (“Modified Agreements”
and, collectively, “IFRS 16 - Leases - $670.0 Million”). Under IFRS 16- Leases the Modified Agreements did not meet the
criteria to qualify as separate leases and were measured accordingly as lease modifications. The Modified Agreements each
have a term of eight years from the latter of the date of the Trafigura Transaction or the delivery date of the respective vessel,
and we have purchase options beginning after the first year of each agreement, limited to eight vessels until after the third
anniversary date. Based on the analysis of the purchase options, we determined the lease terms to be eight years from the
commencement date of the Modified Agreements, through the expiration date of each lease, at which time we have assumed
that the exercise of the purchase options to be reasonably certain.
The Modified Agreements bear interest at LIBOR plus a margin of 3.50% per annum and are being repaid in equal
monthly installments of approximately $0.2 million per month per vessel. Additionally, an aggregate prepayment of $18.0
million ($0.8 million for each MR and $1.5 million for each LR2) was made in equal monthly installments over the first 12
months of each Modified Agreement.
Commencing with the date of the Trafigura Transaction, the following vessels were leased under the Modified
Agreements: STI Magic, STI Majestic, STI Mystery, STI Marvel, STI Magnetic, STI Millennia, STI Magister, STI Mythic, STI
Marshall, STI Modest, STI Maverick, STI Miracle, STI Maestro, STI Mighty, STI Maximus, STI Lobelia, STI Lotus, STI Lily
and STI Lavender. The Modified Agreements commenced upon delivery for (i) STI Miracle and STI Maestro in January
2020; (ii) STI Mighty in March 2020; and (iii) STI Maximus in September 2020. The Modified Agreements are secured by,
F-26
among other things, assignments of earnings and insurances and stock pledges and account charges in respect of the subject
vessels and contain customary events of default, including cross-default provisions as well as subjective acceleration clauses
under which the lessor could cancel the lease in the event of a material adverse change in our business. The leased vessels are
required to maintain a fair value, as determined by an annual appraisal from an approved third-party broker, of 111% of the
outstanding principal balance as of the last banking day of the year.
In April 2022, we exercised the purchase option on STI Majestic and repaid the aggregate outstanding lease
obligation of $25.6 million relating to this vessel under the IFRS 16 - Leases - $670.0 Million lease agreement.
The aggregate outstanding balances of these lease liabilities were $475.9 million and $546.7 million as of
December 31, 2022 and 2021, respectively. We were in compliance with the financial covenants under these agreements as of
those dates.
The following is the activity of the “Right of use assets for vessels” starting on January 1, 2021 through
December 31, 2022:
In thousands of U.S. Dollars
Cost
Vessels
Drydock
Total
As of January 1, 2022 ...................................................................................
Disposal of vessels(1) .....................................................................................
As of December 31, 2022 .............................................................................
$ 836,246
(38,163)
798,083
$
23,562
(985)
22,577
$ 859,808
(39,148)
820,660
Accumulated depreciation and impairment
As of January 1, 2022 ...................................................................................
Charge for the period ....................................................................................
Disposal of vessels(1) .....................................................................................
As of December 31, 2022 .............................................................................
(84,221)
(33,928)
3,247
(114,902)
(11,562)
(4,899)
529
(15,932)
(95,783)
(38,827)
3,776
(130,834)
Net book value
As of December 31, 2022 ............................................................................
$ 683,181
$
6,645
$ 689,826
(1) Represents the net book value of one MR vessel (STI Majestic) which was sold during the year ended December 31, 2022. This transactions is described
in Note 5 above.
In thousands of U.S. Dollars
Cost
Vessels
Drydock
Total
As of January 1, 2021 ...................................................................................
Other (1) .........................................................................................................
Fully depreciated assets(1) .............................................................................
As of December 31, 2021 .............................................................................
$ 853,690
(349)
(17,095)
836,246
$
23,562
—
—
23,562
$ 877,252
(349)
(17,095)
859,808
Accumulated depreciation and impairment
As of January 1, 2021 ...................................................................................
Charge for the period ....................................................................................
Other(1) ..........................................................................................................
Fully depreciated assets(1) .............................................................................
As of December 31, 2021 .............................................................................
(63,636)
(37,661)
(19)
17,095
(84,221)
(6,437)
(5,125)
—
—
(11,562)
(70,073)
(42,786)
(19)
17,095
(95,783)
Net book value
As of December 31, 2021 ............................................................................
$ 752,025
$
12,000
$ 764,025
(1) This amount represents the adjustment of the lease term and write-off of fully depreciated right of use assets related to the bareboat charters on four
fixed rate Handymax vessels that expired in March 2021.
F-27
The following table summarizes the payments made for the years ended December 31, 2022 and 2021 relating to
lease liabilities accounted for under IFRS 16 - Leases:
In thousands of U.S. dollars
Interest expense recognized in consolidated statements of income or loss ..................................
Principal repayments recognized in consolidated cash flow statements(1) ...................................
Net (increase) decrease in accrued interest expense ....................................................................
Net (decrease) in prepaid interest expense ...................................................................................
Total payments on lease liabilities under IFRS 16 - Leases .........................................................
For the year ended
December 31,
2022
2021
$
30,420
79,502
(188)
—
$ 109,734
$
$
23,641
56,729
39
(684)
79,725
(1) Principal repayments during the year ended December 31, 2022 includes the $25.6 million repayment of the lease obligation of one MR vessel (STI
Majestic) which was sold during the year ended December 31, 2022. This transactions is described above.
The undiscounted remaining future minimum lease payments under bareboat charter-in arrangements that are
accounted as lease liabilities under IFRS 16 - Leases as of December 31, 2022 are $639.1 million. The obligations under
these agreements will be repaid as follows:
In thousands of U.S. dollars
Less than 1 year ..........................................................................................................................................
1 - 5 years ...................................................................................................................................................
5+ years ......................................................................................................................................................
Total ............................................................................................................................................................
Discounting effect(1) ....................................................................................................................................
Prepaid interest expense..............................................................................................................................
Lease liability .............................................................................................................................................
As of
December 31,
2022
$
$
94,372
481,848
62,858
639,078
(142,001)
(1,202)
495,875
(1) Represents estimated interest payments using the applicable implicit or imputed interest rates in each lease agreement. For leases with implicit rates
which include a variable component tied to a benchmark, such as LIBOR, the payments were estimated by taking into consideration: (i) the margin on
each lease and (ii) the forward interest rate swap curve calculated from interest swap rates, as published by a third party, as of December 31, 2022.
Vessels recorded as Right of use assets derive income from subleases through time charter-out and pool
arrangements. For the years ended December 31, 2022, 2021 and 2020, sublease income of $246.5 million, $91.8 million and
$165.8 million, respectively, is included in Vessel revenue.
7. Carrying values of vessels, vessels under construction, right of use assets for vessels and goodwill
At each balance sheet date, we review the carrying amounts of our goodwill, vessels and related drydock costs and
right of use assets for vessels to determine if there is any indication that these amounts have suffered an impairment loss. If
such indication exists, the recoverable amount of the vessels, right of use assets and related drydock costs 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. As part of this evaluation, we consider certain indicators of potential impairment, such as market conditions
including forecast time charter rates and values for second-hand product tankers, discounted projected vessel operating cash
flows, and the Company’s overall business plans.
At December 31, 2022, we reviewed the carrying amount of our vessels and right of use assets for vessels to
determine if there was an indication that these assets had suffered an impairment. First, we assessed the fair value less the
cost to sell of our vessels taking into consideration vessel valuations from independent ship brokers. We then compared the
fair value less selling costs to each vessel’s carrying value and, if the carrying value exceeded the vessel’s fair value less
selling costs, an indicator of impairment existed.
At December 31, 2022, our operating fleet consisted of 113 owned, sale and leaseback, or right of use vessels
(“ROU vessels”). All of the vessels in our operating fleet had fair values less selling costs greater than their carrying amount
at this date. As such, we determined that there were no indications of impairment on any of our vessels as of December 31,
2022.
F-28
We also considered external factors as part of this assessment as the markets in which we operate experienced
significant strength during the year ended December 31, 2022. In addition to the increase in the fair value of second-hand
product tankers, the strength in the market was also apparent by reference to:
• The spot market TCE rates that our vessels earned during the year (both in and out of the Scorpio pools), which
averaged record highs;
• The time charter market for long-term fixtures, which also averaged record highs (with particular reference to
the time charters that we entered into in 2022 as described in Note 16).
Our operating results for the year ended December 31, 2022 are a reflection of these market conditions, with
revenues, operating cash flows, and net income significantly exceeding all-time company highs.
Reversal of previously recorded impairment
At December 31, 2020 an impairment charge of $14.2 million was recorded on 13 MR vessels by reference to their
value in use. At December 31, 2022, we evaluated whether this impairment should be reversed pursuant to the principles set
forth under IAS 36, Impairment of assets. Given the external factors noted above, we concluded that there were indicators
that the recoverable amount of these 13 vessels should be estimated again.
When assessing a potential reversal of a previously recorded impairment under IAS 36, we are required to
recalculate the carrying value of each of the 13 previously impaired vessels as if no impairment were recorded, and then
compare this recalculated carrying value to each vessel’s recoverable amount at December 31, 2022. In all instances, the
recoverable amount as determined by fair value less estimated costs to sell, taking into consideration vessel valuations from
independent ship brokers (a Level 2 measure of fair value), significantly exceeded the recalculated carrying value. As such,
we determined that the previous impairment, less the depreciation that would have been recorded had the impairment not
been recorded, should be reversed. This resulted in the reversal of the previously recorded impairment of $12.7 million.
The reversal of the previously recorded impairment was not triggered by the passage of time as there has been a
significant improvement in market conditions during 2022 that was not forecasted in our previous value in use calculations.
We also do not believe that this reversal is an indication that each vessel’s useful life, depreciation method, or residual value
should be changed. This is on the basis that all 13 vessels are approximately 10 years of age or younger, and we continue to
believe 25 years is a reasonable estimate of each vessel’s useful life. In accordance with our accounting policy, we update the
residual value of our vessels annually (in the period of change and in future periods) to incorporate the most recent scrap
values. We therefore believe that this policy reflects the most recently available information.
Impairment testing at December 31, 2021
At December 31, 2021, we reviewed the carrying amount of our vessels and right of use assets for vessels to
determine whether there was an indication that these assets had suffered an impairment. First, we assessed the fair value less
the cost to sell of our vessels taking into consideration vessel valuations from independent ship brokers. We then compared
the fair value less selling costs to each vessel’s carrying value and, if the carrying value exceeded the vessel’s fair value less
selling costs, an indicator of impairment exists. We also considered sustained weakness in the product tanker market or other
macroeconomic indications (such as the COVID-19 pandemic) to be an impairment indicator. Based upon these factors, we
determined that impairment indicators did exist at December 31, 2021.
Once this determination was made, we prepared a value in use calculation where we estimated each vessel’s future
cash flows. These estimates were primarily based on (i) our best estimate of forecasted vessel revenue through a combination
of the latest forecast, published time charter rates for the next three years and a 2.44% growth rate (which is based on
published historical and forecast inflation rates) in freight rates in each period through the vessel’s 15th year of useful life and
reduced to match the growth in expenses thereafter, (ii) our best estimate of vessel operating expenses and drydock costs,
which were based on our most recent forecasts for the following three years and a 2.44% (2.34% in 2020) growth rate in each
period thereafter, and (iii) the evaluation of other inputs such as the vessel’s remaining useful life, residual value and
utilization rate. These cash flows were then discounted to their present value using a pre-tax discount rate of 7.19% (7.24% in
2020). The results of these tests were as follows:
At December 31, 2021, our operating fleet consisted of 131 owned, sale and leaseback, or ROU vessels.
•
43 of our owned, sale and leaseback, or ROU vessels in our fleet had fair values less selling costs greater than
their carrying amount.
F-29
•
85 of our owned, sale and leaseback, or ROU vessels in our fleet had fair values less selling costs lower than
their carrying amount.
• We did not obtain valuations from independent ship brokers for three of our ROU vessels as they were not
required under the respective leases.
• We prepared a value in use calculation for all 131 vessels in our fleet which resulted in no impairment charge
being recognized.
• Additionally, there were no reversals of impairment recognized as income during the year ended December 31,
2021.
Sensitivities and benchmarking
The impairment test that we conducted is most sensitive to variances in the discount rate and future time charter
rates. Based on the sensitivity analysis performed for December 31, 2021:
• A 1.0% increase in the discount rate would have resulted in 26 vessels being impaired for an aggregate $12.5
million loss, comprised of: 13 MRs for $7.4 million; and 13 Handymax vessels for $5.1 million.
• A 5% decrease in forecasted time charter rates, which is between $900 per day and $1,500 per day depending
on the vessel class, would have resulted in 46 vessels being impaired for an aggregate $46.0 million loss,
comprised of: 32 MRs for $27.5 million; and 14 Handymax vessels for $18.5 million.
We also compared the results of our value in use calculations as of December 31, 2021 to various other scenarios,
which can be summarized as follows:
•
•
•
If we used 10-year historical average TCE rates for our value in use calculations, the calculation would result in
two vessels being impaired for an aggregate $0.4 million loss, comprised of: one MR for $0.2 million; and one
LR1 for $0.2 million.
If we used 15-year historical average TCE rates for our value in use calculations, no impairment loss would be
recorded in any of our vessel classes.
If we used 20-year historical average TCE rates for our value in use calculations, no impairment loss would be
recorded in any of our vessel classes.
While the results of this scenario building exercise support our conclusions, it remains our belief that our base case
value in use calculations, through the use of independently published time charter rates, formed an objective approximation
of forward looking cash flows based on the most recent available data in the market (which incorporates market views on the
trajectory of the COVID-19 pandemic, among other factors). Historical averages do not incorporate such perspectives and are
also based on time periods when vessel operating expenses were lower (as opposed to our calculations, where we project
gradual increases in vessel operating expenses).
Goodwill
Goodwill arising from our September 2017 acquisition of Navig8 Product Tankers Inc. has been allocated to the
cash generating units within each of the respective operating segments that are expected to benefit from the synergies of this
transaction (LR2s and LR1s). The carrying value of the goodwill allocated to the LR2 segment was $8.2 million at December
31, 2022 and $8.9 million at December 31, 2021. The decrease of $0.7 million was due to the sale of three LR2 vessels
during the year ended December 31, 2022 and corresponding write-off of the goodwill allocated to these vessels. Goodwill is
not amortized and is tested annually (or more frequently, if impairment indicators arise) by comparing the aggregate carrying
amount of the cash generating units in each respective operating segment, plus the allocated goodwill, to their recoverable
amounts. Recoverable amount is the higher of the fair value less cost to sell (determined by taking into consideration vessel
valuations from independent ship brokers for each vessel within each segment) and value in use. In assessing value in use, the
estimated future cash flows of the operating segment 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 operating segment for which the
estimates of future cash flows have not been adjusted. Where appropriate, our value in use calculations also incorporate
probability weighted assessments of different scenarios (such as potential vessel sales).
This test was performed in connection with the assessment of the carrying amount of our vessels and related
drydock costs at December 31, 2022 and 2021, and an impairment charge was not recorded.
F-30
Capitalized interest
In accordance with IAS 23 “Borrowing Costs,” applicable interest costs are capitalized during the period that ballast
water treatment systems and scrubbers for our vessels are constructed and installed. For the years ended December 31, 2022
and 2021, we capitalized interest expense for the respective vessels of $0.2 million and $0.2 million, respectively. The
capitalization rate used to determine the amount of borrowing costs eligible for capitalization was 0.1% and 1.6% for each of
the years ended December 31, 2022 and 2021, respectively. We cease capitalizing interest when the vessels reach the location
and condition necessary to operate in the manner intended by management.
There were no vessels under construction during the years ended December 31, 2022 and December 31, 2021.
8. Other non-current assets
The following is a table summarizing the components of our Other non-current assets as of December 31, 2022 and
2021:
In thousands of U.S. dollars
Scorpio LR2 Pool Ltd. pool working capital contributions(1) ......................................................
Scorpio MR Pool Ltd. pool working capital contributions(1) .......................................................
Scorpio Handymax Tanker Pool Ltd. pool working capital contributions(1) ................................
Scorpio LR1 Pool Ltd. pool working capital contributions(1) ......................................................
Working capital contributions to Scorpio Pools ..........................................................................
Seller’s credit on sale leaseback vessels(2) ...................................................................................
Deposits for exhaust gas cleaning system (“scrubbers”)(3) ..........................................................
Investment in dual fuel tanker joint venture(4) .............................................................................
Investment in BWTS supplier(5) ...................................................................................................
Capitalized loan fees(6) .................................................................................................................
Other ............................................................................................................................................
At December 31,
2021
2022
25,500
22,000
5,661
—
53,161
11,430
9,737
7,672
1,751
—
3
83,754
$
35,700
25,200
5,661
6,600
73,161
10,793
15,840
5,736
1,751
1,635
47
$ 108,963
$
$
(1) Upon entrance into the Scorpio LR2, LR1, MR, and Handymax Pools, all vessels are required to make initial working capital contributions of both cash
and bunkers. Initial working capital contributions are repaid, without interest, upon a vessel’s exit from the pool. Bunkers on board a vessel exiting the
pool are credited against such repayment at the actual invoice price of the bunkers. For all owned vessels, we assume that these contributions will not be
repaid within 12 months and are thus classified as non-current within Other Assets on the consolidated balance sheets. For chartered-in vessels we
classify the amounts as current (within Accounts Receivable) or non-current (within Other Assets) according to the expiration of the contract.
(2) The seller’s credit on vessels sold and leased back represents the present value of the deposits of $4.35 million per vessel ($13.1 million in aggregate)
that was retained by the buyer as part of the 2017 sale and operating leaseback transactions for STI Beryl, STI Le Rocher and STI Larvotto, which is
described in Note 6. This deposit will either be applied to the purchase price of the vessel if a purchase option is exercised or refunded to us at the
expiration of the agreement. The present value of this deposit has been calculated based on the interest rate that is implied in the lease, and the carrying
value will accrete over the life of the lease, through interest income, until expiration. We recorded $0.6 million and $0.6 million as interest income as
part of these agreements during each of the years ended December 31, 2022 and 2021, respectively.
(3) From August 2018 through September 2019, we entered into agreements with two separate suppliers to retrofit a total of 98 of our tankers with
scrubbers for total consideration of $146.6 million (which excludes installation costs). Deposits paid for these systems are reflected as investing cash
flows within the consolidated statement of cash flows. In April 2020, we reached an agreement to postpone the purchase and installation of scrubbers on
19 of our vessels. In August 2021, we declared options to purchase and install scrubbers on six vessels (five LR1s and an LR2). These scrubbers were
installed within the first half of 2022.
(4)
In August 2021, we acquired a minority interest in a portfolio of nine product tankers, consisting of five dual-fuel MR methanol tankers (built between
2016 and 2021) which, in addition to traditional petroleum products, are designed to both carry methanol as a cargo and to consume it as a fuel, along
with four ice class 1A LR1 product tankers. The dual-fuel MR methanol tankers are currently on long-term time charter contracts greater than five years.
As part of this agreement, we acquired a 50% interest in a joint venture that ultimately has a minority interest in the entities that own the vessels for final
consideration of $6.7 million. In November 2022, we contributed an additional $1.75 million to the joint venture to increase the joint venture’s
ownership interest in one of the LR1 tankers. We account for our interest in this joint venture using the equity method pursuant to IFRS 11 - Joint
arrangements. Under this guidance, the investment is initially measured at cost, and the carrying amount of the investment is adjusted in subsequent
periods based on our share of profits or losses from the joint venture (adjusted for any fair value adjustments made upon initial recognition). Any
distributions received from the joint venture reduce the carrying amount.
We recorded $0.7 million and $0.6 million as our share of net income resulting from this joint venture during the years ended December 31, 2022 and
2021, respectively. The joint venture issued cash distributions of $0.5 million and $1.5 million during the years ended December 31, 2022 and 2021,
respectively. The December 2021 cash distribution arose primarily as a result of the sale of two of the LR1s during the fourth quarter of 2021.
F-31
(5)
In July 2018, we executed an agreement to purchase 55 BWTS from an unaffiliated third-party supplier for total consideration of $36.2 million. These
systems have been, or are expected to be installed over the subsequent five years, as each respective vessel under the agreement comes due for its
International Oil Pollution Prevention, or IOPP, renewal survey. Upon entry into this agreement, we also obtained a minority equity interest in this
supplier for no additional consideration. We have determined that of the total consideration of $36.2 million, $1.8 million was attributable to the
minority equity interest.
Since July 2018, aggregate deposits of $36.1 million have been made, of which $34.3 million has been reclassified to “Vessels” upon the installation of
these systems. The remaining $1.8 million of this amount has been recorded as the aforementioned minority equity interest, which is being accounted for
as a financial asset under IFRS 9. Deposits paid for these systems are reflected as investing cash flows within the consolidated statement of cash flows.
Under the terms of the agreement, we were granted a put option, exercisable after one year following the date of the agreement, whereby we can put the
shares back to the supplier at a predetermined price. The supplier was also granted a call option, exercisable two years following the date of the
agreement, whereby it can buy the shares back from us at a predetermined price, which is greater than the strike price of the put option. Given that the
value of this investment is contractually limited to the strike prices set forth in these options, we have recorded the value of the investment at the put
option strike price, or $1.8 million in aggregate. The difference in the aggregate value of the investment, based on the spread between the exercise prices
of the put and call options, is $0.6 million. We consider this value to be a Level 3 fair value measurement, as this supplier is a private company, and the
value has been determined based on unobservable market data (i.e. the proceeds that we would receive if we exercised our put option in full).
(6) Represents upfront loan fees on credit facilities that are expected to be used to partially finance the purchase and installation of scrubbers or refinance
the indebtedness on certain vessels. These fees are reclassified as deferred financing fees (net of Debt) when the tranche of the loan to which the vessel
relates is drawn.
9. Restricted Cash
Restricted cash as of December 31, 2022 primarily represents debt service reserve accounts that must be maintained
as part of the terms and conditions of our Bank of Communications Financial Leasing (LR2s) sale and leaseback. The funds
in these accounts will be released at the end of the lease term.
Restricted cash as of December 31, 2021 primarily represents debt service reserve accounts that were required to be
maintained as part of the terms and conditions of our Citibank/K-Sure Credit Facility and Bank of Communications Financial
Leasing (LR2s) sale and leaseback.
10. Accounts payable
The following is a table summarizing the components of our accounts payable as of December 31, 2022 and 2021:
In thousands of U.S. dollars
Scorpio MR Pool Limited ............................................................................................................
Scorpio Handymax Tanker Pool Limited ....................................................................................
Amounts due to a related party bunker supplier ..........................................................................
Scorpio Ship Management S.A.M. (SSM) ...................................................................................
Scorpio Commercial Management S.A.M. (SCM) ......................................................................
Scorpio LR2 Pool Limited ...........................................................................................................
Scorpio Services Holding Limited (SSH) ....................................................................................
Amounts due to a related party port agent ...................................................................................
Scorpio LR1 Pool Limited ...........................................................................................................
Accounts payable to related parties .............................................................................................
Suppliers ......................................................................................................................................
$
At December 31,
2021
2022
$
7,333
2,333
2,322
734
507
424
286
137
—
14,076
62
625
—
9,684
25
1,076
1,888
257
785
14,402
14,672
28,748
$
20,678
35,080
$
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 approximates fair value.
F-32
11. Accrued expenses
The following is a table summarizing the components the components of our accrued expenses as of December 31,
2022 and 2021:
In thousands of U.S. dollars
Accrued expenses to a related party port agent ............................................................................
Scorpio Ship Management S.A.M. (SSM) ...................................................................................
Related party port agent ...............................................................................................................
Scorpio Commercial Management S.A.M. (SCM) ......................................................................
Scorpio Services Holding Limited (SSH) ....................................................................................
Scorpio LR1 Pool Limited ...........................................................................................................
Accrued expenses to related parties .............................................................................................
Suppliers ......................................................................................................................................
Accrued short-term employee benefits ........................................................................................
Deferred income ..........................................................................................................................
Accrued interest ...........................................................................................................................
Other accrued expenses ...............................................................................................................
At December 31,
2021
2022
818
89
58
33
1
—
999
32,051
40,295
10,963
7,200
—
91,508
$
$
417
161
—
—
—
—
578
15,193
3,908
—
5,156
71
24,906
$
$
Deferred income represents amounts collected in advance from customers for our vessels on time charter or deferred
revenue on time charter out arrangements whose payment terms differ from the pattern of revenue recognition on a straight
line basis. The terms of these agreements are described in Note 16.
12. Current and long-term debt
The following is a breakdown of the current and non-current portion of our debt outstanding as of December 31,
2022 and December 31, 2021:
In thousands of U.S. dollars
Current portion of bank debt and bonds(1) .............................................................................. $
Sale and leaseback liabilities(2) ...............................................................................................
Current portion of long-term debt ...........................................................................................
At December 31,
2022
31,504 $
269,145
300,649
2021
235,278
178,062
413,340
Non-current portion of bank debt and bonds(3) .......................................................................
Sale and leaseback liabilities(4) ...............................................................................................
666,409
1,461,929
$ 1,436,224 $ 2,541,678
264,106
871,469
(1) The current portion at December 31, 2022 was net of unamortized deferred financing fees of $0.5 million. The current portion at December 31, 2021
was net of unamortized deferred financing fees of $1.1 million.
(2) The current portion at December 31, 2022 was net of unamortized deferred financing fees of $0.8 million and prepaid interest of $2.5 million. The
current portion at December 31, 2021 was net of unamortized deferred financing fees of $1.4 million and prepaid interest of $3.1 million.
(3) The non-current portion at December 31, 2022 was net of unamortized deferred financing fees of $4.0 million. The non-current portion at December 31,
2021 was net of unamortized deferred financing fees of $10.6 million.
(4) The non-current portion at December 31, 2022 was net of unamortized deferred financing fees of $7.4 million. The non-current portion at December 31,
2021 was net of unamortized deferred financing fees of $11.8 million.
F-33
The following is a rollforward of the activity within debt (current and non-current, and inclusive of IFRS 16 - lease
liabilities), by facility, for the year ended December 31, 2022:
In thousands of U.S. dollars
Credit Agricole Credit Facility.............................
Citibank / K-Sure Credit Facility .........................
Hamburg Commercial Bank Credit Facility ........
Prudential Credit Facility .....................................
2019 DNB / GIEK Credit Facility .......................
BNPP Sinosure Credit Facility.............................
2020 $225.0 Million Credit Facility ....................
2021 $21.0 Million Credit Facility ......................
2021 $43.6 Million Credit Facility ......................
Ocean Yield Lease Financing ..............................
BCFL Lease Financing (LR2s) ............................
CSSC Lease Financing .........................................
BCFL Lease Financing (MRs) .............................
2018 CMBFL Lease Financing ............................
$116.0 Million Lease Financing ..........................
AVIC Lease Financing .........................................
China Huarong Lease Financing ..........................
$157.5 Million Lease Financing ..........................
COSCO Lease Financing .....................................
2020 CMBFL Lease Financing ............................
2020 TSFL Lease Financing ................................
2020 SPDB-FL Lease Financing .........................
2021 AVIC Lease Financing ................................
2021 CMBFL Lease Financing ............................
2021 TSFL Lease Financing ................................
2021 CSSC Lease Financing ................................
2021 $146.3 Million Lease Financing .................
2021 Ocean Yield Lease Financing .....................
2022 AVIC Lease Financing ................................
IFRS 16 - Leases - 3 MR (See Note 6) ................
IFRS 16 - Leases - $670.0 Million (see Note 6) ..
Unsecured Senior Notes Due 2025 ......................
Convertible Notes Due 2022 ................................
Convertible Notes Due 2025 ................................
$
Less: deferred financing fees ...............................
Less: prepaid interest expense ..............................
Total ...................................................................... $
Carrying
Value
as of
December 31,
2021
Activity
Other
Activity(1)
Drawdowns Repayments
753
(73,591)
—
620
(78,401)
—
—
(3,292)
—
—
(5,546)
—
—
(7,112)
—
—
(10,813)
5,075
—
(107,871)
—
—
(19,245)
—
—
(43,550)
—
(519)
(11,542)
—
465
(11,011)
—
773
(14,565)
—
—
(15,686)
—
—
(111,986)
—
—
(95,789)
—
—
(28,636)
—
—
(103,416)
—
—
(109,657)
—
—
(61,050)
—
—
(3,242)
—
—
(3,321)
—
—
(6,495)
—
—
(7,251)
—
—
(6,520)
—
—
(4,380)
—
—
(5,262)
—
—
(12,551)
—
—
(5,850)
—
—
(4,584)
117,204
—
(8,130)
—
—
(70,791)
—
42
359
—
(69,695)
—
1,383
(14,273) (188,082)
—
122,638 $ (1,135,104) $ (184,565) $
15,107
—
119,594 $ (1,135,092) $ (169,458) $
72,838
77,781
37,024
44,832
45,450
86,314
145,636
19,245
43,550
126,334
77,604
132,957
68,888
111,986
95,789
106,405
103,416
109,657
61,050
41,332
43,928
87,111
90,913
74,565
54,377
53,893
146,250
69,783
—
29,268
546,730
70,050
68,312
202,355
3,145,623 $
(24,821)
(3,747)
3,117,055 $
(3,044)
—
—
12
Balance as of
December 31,
2022
consists of:
Carrying
Value
as of
December 31,
2022
Non-
Current
—
—
33,732
39,286
38,338
80,576
37,765
—
—
114,273
67,058
119,165
53,202
—
—
77,769
—
—
—
38,090
40,607
80,616
83,662
68,045
49,997
48,631
133,699
63,933
112,620
21,138
475,939
70,451
—
—
Current
—
—
3,292
5,546
7,113
10,909
5,134
—
—
89,030
10,431
14,310
16,304
—
—
77,769
—
—
—
3,242
3,321
6,495
7,252
6,520
4,380
5,262
13,179
5,850
9,168
8,622
44,926
—
—
—
—
—
30,440
33,740
31,225
69,667
32,631
—
—
25,243
56,627
104,855
36,898
—
—
—
—
—
—
34,848
37,286
74,121
76,410
61,525
45,617
43,369
120,520
58,083
103,452
12,516
431,013
70,451
—
—
1,948,592 $ 358,055 $ 1,590,537
(11,433)
—
1,932,099 $ 352,995 $ 1,579,104
(12,758)
(3,735)
(1,325)
(3,735)
(1) Relates to non-cash accretion, write-offs, amortization or other adjustments on (i) debt or lease obligations assumed as part of the 2017 merger with
Navig8 Product Tankers Inc. (“NPTI”), which were recorded at fair value on the closing dates, (ii) the carrying values of certain sale and leaseback
arrangements related to the notifications to exercise purchase options; (iii) our Unsecured Senior Notes Due 2025, (iv) our Convertible Notes due 2022
and Convertible Notes Due 2025 of $1.4 million and $11.3 million, respectively, and (v) the impact of the Convertible Notes Due 2025 that were
converted to common stock, as discussed below.
Secured Bank Debt
Each of our secured credit facilities contains financial and restrictive covenants, which require us to, among other
things, comply with certain financial tests (described below); deliver quarterly and annual financial statements and annual
projections; comply with restrictive covenants, including maintaining adequate insurances; comply with laws (including
environmental laws and ERISA); and maintain flag and class of our vessels. Other such covenants may, among other things,
restrict consolidations, mergers or sales of our assets; require us to obtain lender approval on changes in our vessel manager;
limit our ability to place liens on our assets; limit our ability to incur additional indebtedness; prohibit us from paying
dividends if there is a covenant breach under the loan or an event of default has occurred or would occur as a result of
payment of such dividend; or prohibit our transactions with affiliates. Furthermore, our debt agreements contain customary
events of default, including cross-default provisions, as well as subjective acceleration clauses under which the debt could
become due and payable in the event of a material adverse change in the Company’s business.
F-34
These secured credit facilities may be secured by, among other things:
•
•
•
•
a first priority mortgage over the relevant collateralized vessels;
a first priority assignment of earnings, insurances and charters from the mortgaged vessels for the specific
facility;
a pledge of earnings generated by the mortgaged vessels for the specific facility; and
a pledge of the equity interests of each vessel owning subsidiary under the specific facility.
Each of our secured credit facilities are described below.
Credit Agricole Credit Facility
As part of the closing of the four LR1s that were acquired from NPTI in 2017, we assumed the outstanding
indebtedness under a senior secured term loan with Credit Agricole (the “Credit Agricole Credit Facility”). STI Excel, STI
Excelsior, STI Expedite and STI Exceed were pledged as collateral under this facility. During the year ended December 31,
2022, we repaid the aggregate outstanding indebtedness on this facility of $72.0 million in connection with the sales of these
vessels.
The carrying value of the debt related to this facility (which includes the discount recorded to write the value down
to its fair value as part of the purchase price allocation of the acquisition) as of December 31, 2021 was $72.8 million, and we
were in compliance with the financial covenants relating to this facility as of that date.
Citibank / K-Sure Credit Facility
We assumed the outstanding indebtedness under a senior secured credit facility with Citibank N.A., London Branch,
Caixabank, S.A., and K-Sure, as part of the acquisition of NPTI (the “Citibank / K-Sure Credit Facility”). Four LR1s (STI
Excellence, STI Executive, STI Experience, and STI Express) were collateralized under this facility. During the year ended
December 31, 2022, we repaid the aggregate outstanding indebtedness of $77.3 million in connection with the sales of these
vessels.
Additionally, we had an aggregate of $4.0 million on deposit in a debt service reserve account in accordance with
the terms and conditions of this facility which was released upon the repayment of this facility.
The carrying value of the debt related to this facility (which includes the discount recorded to write the value down
to its fair value as part of the purchase price allocation of the acquisition) as of December 31, 2021 was $77.8 million. We
were in compliance with the financial covenants relating to this facility as of that date.
Hamburg Commercial Bank Credit Facility
In November 2019, we executed an agreement with Hamburg Commercial Bank AG for a senior secured term loan
facility for $43.65 million (the “Hamburg Commercial Bank Credit Facility”), of which, (i) $42.2 million (Tranche 1) was
used to refinance the existing debt for STI Veneto and STI Poplar, and (ii) $1.4 million (Tranche 2) was used to finance the
purchase and installation of a scrubber on STI Veneto. We refer to this facility as our Hamburg Commercial Bank Credit
Facility. Tranche 1 was drawn in December 2019 and Tranche 2 was drawn in April 2020.
Both tranches of the Hamburg Commercial Bank Credit Facility mature in November 2024, bear interest at LIBOR
plus a margin of 2.25% per annum and are scheduled to be repaid in equal quarterly installments of $0.8 million per quarter,
in aggregate, with a balloon payment due upon maturity.
Our Hamburg Commercial Bank Credit Facility includes financial covenants that require us to maintain:
• The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
• Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income
(on a consolidated basis) for each fiscal quarter commencing on or after December 31, 2018 and (ii) 50% of the
net proceeds of new equity issuances occurring on or after December 31, 2018.
F-35
• Minimum liquidity of not less than the greater of $25.0 million and $500,000 per each owned vessel plus
$250,000 per each time chartered-in vessel.
• The aggregate of the fair market value of the vessels provided as collateral under the facility shall be: 134% of
the loan outstanding.
The amounts outstanding under this facility as of December 31, 2022 and 2021 were $33.7 million and
$37.0 million, respectively, and we were in compliance with the financial covenants as of those dates.
Prudential Credit Facility
In November 2019, we executed an agreement with Prudential Private Capital for a senior secured term loan facility
for $55.5 million (the “Prudential Credit Facility”). The Prudential Credit Facility was fully drawn in December 2019, and a
portion of the proceeds was used to refinance the outstanding indebtedness of $35.6 million for STI Clapham, STI Camden
and STI Acton.
The Prudential Credit Facility has a final maturity of December 2025 and bears interest at LIBOR plus a margin of
3.00% per annum. The loan is scheduled to be repaid in monthly installments of $0.5 million per month, in aggregate, with a
balloon payment due upon maturity.
Our Prudential Credit Facility includes financial covenants that require us to maintain:
• The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
• Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income
(on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net
proceeds of new equity issuances occurring on or after January 1, 2016.
• Minimum liquidity of not less than the greater of $25.0 million and $500,000 per each owned vessel plus
$250,000 per each time chartered-in vessel.
• The aggregate of the fair market value of the vessels provided as collateral under the facility shall be no less
than 125% of the loan outstanding.
The amounts outstanding as of December 31, 2022 and 2021 were $39.3 million and $44.8 million, respectively, and
we were in compliance with the financial covenants as of those dates.
2019 DNB / GIEK Credit Facility
In November 2019, we executed a $55.5 million term loan facility with DNB Bank ASA and the Norwegian Export
Credit Guarantee Agency (“GIEK”). The loan is comprised of two facilities: (i) an ECA facility of $47.2 million (which is
comprised of a $41.6 million tranche which is guaranteed by GIEK, or the “GIEK Tranche”, and a $5.6 million commercial
tranche or the “Commercial Bank Tranche”) and (ii) a commercial facility of $8.3 million, or the “Commercial Facility.”
These facilities are collectively referred to as the 2019 DNB/GIEK Credit Facility.
In March 2020, we drew $31.9 million from this facility to refinance the existing debt on STI Sloane. In December
2020, we drew $23.7 million from this credit facility to refinance the existing debt on STI Condotti.
The 2019 DNB / GIEK Credit Facility matures in July 2024. The GIEK tranche bears interest at LIBOR plus a
margin of 2.50% per annum, and the Commercial Bank and Commercial Facility tranches bear interest at LIBOR plus a
margin of 2.50% per annum. The 2019 DNB / GIEK Credit Facility is scheduled to be repaid in equal quarterly installments
of approximately $1.8 million per quarter with a balloon payment due at maturity.
Our 2019 DNB/GIEK Credit Facility includes financial covenants that require us to maintain:
• The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
• Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income
(on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net
proceeds of new equity issues occurring on or after January 1, 2016.
F-36
• Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and
$250,000 per each time chartered-in vessel.
• The aggregate of the fair market value of the vessels provided as collateral under the facility shall at all times be
no less than 130% of the then aggregate outstanding principal amount of the loans under the credit facility
through the second anniversary of the date of the agreement and 135% at all times thereafter.
The amounts outstanding as of December 31, 2022 and 2021 were $38.3 million and $45.5 million, respectively, and
we were in compliance with the financial covenants as of those dates.
BNPP Sinosure Credit Facility
In December 2019, we executed a senior secured term loan facility with BNP Paribas and Skandinaviska Enskilda
Banken AB for up to $134.1 million. This loan is split into two facilities, (i) a commercial facility for up to $67.0 million (the
“Commercial Facility”), and (ii) a Sinosure facility for up to $67.0 million (the “Sinosure Facility”), which was funded by the
lenders under the commercial facility and insured by the China Export & Credit Insurance Corporation (“Sinosure”). These
facilities are collectively referred to as the BNPP Sinosure Credit Facility.
In March 2020, we drew $42.1 million from this facility to partially finance the purchase and installation of
scrubbers on 22 vessels. This borrowing is collateralized by STI Park and STI Fulham.
In June 2020, we drew $24.9 million from this facility to partially finance the purchase and installation of scrubbers
on 13 vessels. This borrowing is collateralized by STI Elysees.
In September 2020, we drew $24.9 million from this facility to partially finance the purchase and installation of
scrubbers on 13 vessels. This borrowing is collateralized by STI Orchard.
In December 2020, we drew down $9.6 million from our BNPP Sinosure Credit Facility to partially finance the
purchase of scrubbers on five vessels. This borrowing is collateralized by STI Hackney.
In January 2021, we signed an agreement to extend the availability period under this loan facility to June 15, 2022
from March 15, 2021 (the “Extension Agreement”).
In March 2021, we drew $1.9 million from our BNPP Sinosure Credit Facility to partially finance the purchase and
installation of a scrubber on an MR product tanker. This borrowing is collateralized by STI Hackney.
In March and June 2022, we drew an aggregate $5.1 million from our BNPP Sinosure Credit Facility to partially
finance the purchase and installation of scrubbers on two LR1 product tankers and one LR2 product tanker. This borrowing is
collateralized by STI Hackney.
There are no further amounts available to be drawn on this facility as of December 31, 2022.
The Sinosure Facility and the Commercial Facility bear interest at LIBOR plus a margin of 1.80% and 2.80% per
annum, respectively. The Sinosure Facility is scheduled to be repaid in 10 semi-annual installments of $5.5 million in
aggregate and the Commercial Facility is scheduled to be repaid at the final maturity date of the facility, or October 2025.
Our BNPP Sinosure Credit Facility includes financial covenants that require us to maintain:
• The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
• Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income
(on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net
proceeds of new equity issues occurring on or after January 1, 2016.
• Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and
$250,000 per each time chartered-in vessel.
• The aggregate of the fair market value of the vessels provided as collateral under the facility shall at all times be
no less than 130% of the then aggregate outstanding principal amount of the loans under the credit facility
through December 31, 2022 and 135% at all times thereafter.
F-37
The amounts outstanding as of December 31, 2022 and 2021 were $80.6 million and $86.3 million, respectively, and
we were in compliance with the financial covenants as of those dates.
2020 $225.0 Million Credit Facility
In May 2020, we executed the 2020 $225.0 Million Credit Facility with a group of European financial institutions.
In June 2020 we drew down $101.2 million from this facility to refinance the existing debt on four LR2s (STI Savile Row,
STI Spiga, STI Kingsway and STI Carnaby).
In September 2020, we drew down $43.7 million from this facility to refinance the existing debt on two LR1s (STI
Pride and STI Providence).
In October and November 2020, we drew down an aggregate of $71.8 million from this facility to refinance the
existing debt on three LR2 product tankers, STI Nautilus, STI Guard, and STI Gallantry.
The remaining availability of $2.2 million under the 2020 $225.0 Million Credit Facility was terminated in
December 2020.
In December 2021, we closed on the sale and leaseback transactions for two LR2 product tankers (STI Gallantry and
STI Guard) with Ocean Yield ASA (the “2021 Ocean Yield Lease Financing”, which is described below) and a portion of the
proceeds were used to repay the aggregate outstanding indebtedness of $42.3 million relating to these vessels on the 2020
$225.0 Million Credit Facility.
During the year ended December 31, 2022, we repaid an aggregate amount of $99.1 million in connection with the
sales of STI Pride, STI Providence, STI Saville Row, STI Carnaby and STI Nautilus.
This facility has a final maturity of five years from the closing date of the loan, bears interest at LIBOR plus a
margin, and the remaining amounts drawn are scheduled to be repaid in equal installments of approximately $1.3 million per
quarter (after taking into consideration the above mentioned repayments), in aggregate, with a balloon payment due at
maturity.
Our 2020 $225.0 Million Credit Facility includes financial covenants that require us to maintain:
• The ratio of net debt to total capitalization no greater than 0.65 to 1.00.
• Consolidated tangible net worth of no less than $1.4 billion.
• Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and
$250,000 per each time chartered-in vessel.
• The aggregate of the fair market value of the vessels provided as collateral under the facility shall at all times be
no less than 130% of the then aggregate outstanding principal amount of the loans outstanding and the swap
exposure under the credit facility through May 2022 and 140% at all times thereafter.
The amounts outstanding as of December 31, 2022 and 2021 were $37.8 million and $145.6 million, respectively,
and we were in compliance with the financial covenants as of those dates.
2021 $21.0 Million Credit Facility
In February 2021, we drew down $21.0 million on a term loan facility with a European financial institution (the
“2021 $21.0 Million Credit Facility”). The proceeds of this loan facility were used to refinance the outstanding debt on STI
Madison. The outstanding debt on this loan facility was repaid in full in October 2022.
The amount outstanding as of December 31, 2021 was $19.2 million, and we were in compliance with the financial
covenants as of that date.
F-38
2021 $43.6 Million Credit Facility
In November 2021, we closed on a senior secured term loan facility for two LR1 product tankers (STI Precision and
STI Prestige) with an international financial institution (the “2021 $43.6 Million Credit Facility”). The borrowing amount
under the agreement was $43.6 million and part of the proceeds were used to refinance the aggregate outstanding
indebtedness relating to these vessels.
During the year ended December 31, 2022, we repaid the aggregate outstanding indebtedness of $41.9 million on
this facility in connection with the sales of STI Prestige and STI Precision.
The amount outstanding as of December 31. 2021 was $43.6 million, and we were in compliance with the financial
covenants as of that date.
New loan facility commitment
In December 2022, we received a commitment from a European financial institution for a credit facility of up to
$117.4 million. The credit facility is expected to be used to finance two Handymax product tankers, four MR product tankers
and one LR2 product tanker. The credit facility is expected to have a final maturity of five years from the drawdown date of
each vessel, and is expected to bear interest at SOFR plus a margin of 1.925% per annum.
The terms and conditions of this credit facility, including financial covenants, are similar to those set forth in our
existing credit facilities. The credit facility is subject to customary conditions precedent and the execution of definitive
documentation, and is expected to close in the second quarter of 2023.
Lease financing arrangements
The below summarizes the key terms of our lease financing arrangements. For each arrangement, we have evaluated
whether, in substance, these transactions are leases or merely a form of financing. As a result of this evaluation, we have
concluded that each agreement is a form of financing on the basis that each transaction is a sale and leaseback transaction
which does not meet the criteria for a sale under IFRS 15. Accordingly, the cash received in the transfer has been accounted
for as a liability under IFRS 9, and each arrangement has been recorded at amortized cost using the effective interest method,
with the corresponding vessels being recorded at cost, less accumulated depreciation, on our consolidated balance sheet.
The obligations set forth below are secured by, among other things, assignments of earnings and insurances and
stock pledges and account charges in respect of the subject vessels. All of the financing arrangements contain customary
events of default, including cross-default provisions as well as subjective acceleration clauses under which the lessor could
cancel the lease in the event of a material adverse change in the Company’s business.
Ocean Yield Lease Financing
We assumed the obligations under a lease financing arrangement with Ocean Yield ASA for four LR2 tankers (STI
Sanctity, STI Steadfast, STI Supreme, and STI Symphony) in connection with the September 2017 acquisition of Navig8
Product Tankers Inc. (the “Ocean Yield Lease Financing”). Under this arrangement, each vessel is subject to a 13-year
bareboat charter, which expires between February and August 2029 (depending on the vessel). Charterhire, which is paid
monthly in advance, includes a fixed payment in addition to a quarterly adjustment based on prevailing LIBOR rates.
Monthly principal payments are approximately $0.2 million per vessel gradually increasing to $0.3 million per
vessel per month until the expiration of the agreement. The interest component of the leases approximates LIBOR plus 5.40%
per annum. We also have purchase options to re-acquire each of the vessels during the bareboat charter period, with the first
of such options exercisable beginning at the end of the seventh year from the delivery date of the subject vessel.
We are subject to certain terms and conditions, including financial covenants, under this arrangement which are
summarized as follows:
• The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
• Consolidated tangible net worth no less than $1.0 billion plus (i) 25% of the cumulative positive net income (on
a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net
proceeds of new equity issues occurring on or after January 1, 2016.
F-39
• Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and
$250,000 per each time chartered-in vessel.
In September 2022, we gave notice to exercise the purchase option on STI Sanctity. The purchase option price for
this vessel is $27.8 million, and the purchase closed in March 2023. In October 2022, we gave notice to exercise the purchase
options on STI Steadfast and STI Supreme. The purchase option price is $27.8 million per vessel, and the purchases are
expected to occur in the second and third quarters of 2023, respectively. The carrying value of the lease obligations related to
these vessels has been classified as current on the consolidated balance sheet as of December 31, 2022.
The carrying values of the amounts due under this arrangement (which reflect fair value adjustments made as part of
the initial purchase price allocation of the acquisition along with non-cash adjustments to the carrying values that were
triggered by the September and October 2022 notifications to exercise purchase options) were $114.3 million and
$126.3 million as of December 31, 2022 and 2021, respectively. We were in compliance with the financial covenants as of
those dates.
BCFL Lease Financing (LR2s)
We assumed the obligations of a lease financing arrangement with Bank of Communications Finance Leasing Co
Ltd., or BCFL, for three LR2 tankers (STI Solace, STI Solidarity, and STI Stability) as part of the September 2017 acquisition
of NPTI (the “BCFL Lease Financing (LR2s)”). Under the arrangement, each vessel is subject to a 10-year bareboat charter
which expires in July 2026. Charterhire under the arrangement is determined in advance, on a quarterly basis and is
calculated by determining the payment based off of the then outstanding balance, the time to expiration and an interest rate of
LIBOR plus 3.50% per annum. Using the forward interest swap curve at December 31, 2022, future monthly principal
payments are estimated to be $0.3 million per vessel until the expiration of the agreement. We have purchase options to re-
acquire each of the subject vessels during the bareboat charter period, with the first of such options exercisable at the end of
the fourth year from the delivery date of the respective vessel. There is also a purchase obligation for each vessel upon the
expiration of the agreement.
In April 2020, we executed an agreement to increase the borrowing capacity of our BCFL Lease Financing
arrangements (LR2s) by up to $1.9 million per vessel to partially finance the purchase and installation of scrubbers on the
above vessels. The agreement is for a fixed term of three years at the rate of up to $1,910 per vessel per day to be allocated to
principal and interest.
In July 2020, we drew $1.9 million to partially finance the purchase and installation of a scrubber on one vessel, and
in January 2021, we drew $3.8 million to partially finance the purchase and installation of scrubbers on two vessels.
Additionally, we have an aggregate of $0.8 million on deposit in a deposit account as of December 31, 2022 in
accordance with the terms and conditions of this facility. The funds deposited in this account are not freely available and will
be released upon maturity. The balance in this account has been recorded as non-current Restricted Cash on our consolidated
balance sheets as of December 31, 2022 and 2021, respectively.
The carrying values of the amounts due under this arrangement (which reflect fair value adjustments made as part of
the initial purchase price allocation of the acquisition) were $67.1 million and $77.6 million as of December 31, 2022 and
2021, respectively. We were in compliance with the financial covenants as of those dates.
CSSC Lease Financing and CSSC Scrubber Lease Financing
We assumed the obligations under a lease financing arrangement with CSSC (Hong Kong) Shipping Company
Limited, or CSSC, for eight LR2 tankers (STI Gallantry, STI Nautilus, STI Guard, STI Guide, STI Goal, STI Gauntlet, STI
Gladiator and STI Gratitude) as part of the September 2017 acquisition of Navig8 Product Tankers Inc. (the “CSSC Lease
Financing”).
Under the arrangement, each vessel is subject to a 10-year bareboat charter which expire throughout 2026 and 2027
(depending on the vessel). Charterhire under the arrangement is comprised of a fixed repayment amount of $0.2 million per
month per vessel plus a variable component calculated at LIBOR plus 4.60% per annum. We have purchase options to re-
acquire each of the subject vessels during the bareboat charter period, with the first of such options exercisable at the end of
the fourth year from the delivery date of the respective vessel. There is also a purchase obligation for each vessel upon the
expiration of the agreement.
F-40
Additionally, in September 2019, we executed an agreement with CSSC to increase the borrowing capacity by up to
$12.5 million to partially finance the purchase and installation of scrubbers on the eight LR2s (the “CSSC Scrubber Lease
Financing”). In December 2019, $11.0 million was borrowed under this arrangement to partially finance the purchase and
installation of seven scrubbers, and in August 2020, we drew down $1.6 million to partially finance the purchase and
installation of a scrubber on one vessel. The upsized portion of the lease financing bears interest at LIBOR plus a margin of
3.80% per annum, matures two years from the date of the drawdown and is being repaid in monthly installment payments of
approximately $0.3 million in aggregate after the repayments noted below.
In October and November 2020, we repaid $81.7 million on the CSSC Lease Financing and CSSC Scrubber Lease
Financing arrangements, and we paid a $1.6 million prepayment fee when we refinanced the existing debt on STI Nautilus,
STI Guard, and STI Gallantry.
In September 2021, we amended and restated the terms of the CSSC Lease Financing and CSSC Scrubber Lease
Financing arrangements for the remaining five LR2 vessels (STI Gratitude, STI Gladiator, STI Gauntlet, STI Guide and STI
Goal). Under the terms of the amended and restated agreement, the borrowing amount increased to $140.7 million from
$128.9 million at the time of the transaction (which is inclusive of scrubber financing), resulting in a net additional borrowing
of $11.8 million.
The tenor of the arrangement remained unchanged with each lease scheduled to expire throughout 2026 and 2027,
however the amended and restated lease contains an option to extend the lease for each vessel by an additional 24 months.
The interest under the amended and restated agreement was reduced to LIBOR plus a margin of 3.50% per annum and the
principal balance is scheduled to be repaid in equal installments of approximately $0.2 million per vessel per month. Each
lease also contains purchase options to re-acquire each of the subject vessels beginning on the second anniversary date from
the effective date of the amended agreement, with a purchase obligation for each vessel upon the expiration of each
agreement.
Our CSSC Lease Financing arrangement includes a financial covenant that requires the fair market value of each
vessel that is leased under this facility to at all times be no less than 125% of the applicable outstanding balance for such
vessel.
This transaction was accounted for as an amendment to the original financial liability under IFRS 9 as the terms of
the amended and restated arrangement were determined to not be substantially different than that of the original arrangement.
Pursuant to IFRS 9, where an existing financial liability is modified, a gain or loss should be recognized as the difference
between the original contractual cash flows and the modified contractual cash flows discounted using the original effective
interest rate. This calculation resulted in a gain of $2.9 million, which consisted of the gain arising from the present value
calculation of the modified contractual cash flows, offset by fees paid to the lessor.
The carrying values of the amounts due under the arrangement (which reflect fair value adjustments made as part of
the initial purchase price allocation and of the modification) were $119.2 million and $133.0 million as of December 31,
2022 and 2021, respectively. We were in compliance with the financial covenants under these arrangements as of those dates.
BCFL Lease Financing (MRs)
In September 2017, we entered into agreements to sell and lease back five 2012 built MR product tankers (STI
Amber, STI Topaz, STI Ruby, STI Garnet and STI Onyx) with Bank of Communications Finance Leasing Co Ltd., or BCFL,
for a sales price of $27.5 million per vessel (the “BCFL Lease Financing (MRs)”). The financing for STI Topaz, STI Ruby
and STI Garnet closed in September 2017, the financing for STI Onyx closed in October 2017, and the financing for STI
Amber closed in November 2017. Each agreement is for a fixed term of seven years at a bareboat rate of $9,025 per vessel
per day, and we have three consecutive one-year options to extend each charter beyond the initial term. Furthermore, we have
the option to purchase these vessels beginning at the end of the fifth year of the agreements through the end of the tenth year
of the agreements. A deposit of $5.1 million per vessel was retained by the buyers and will either be applied to the purchase
price of the vessel if a purchase option is exercised, or refunded to us at the expiration of the agreement (as applicable).
In April 2020, we executed an agreement to increase the borrowing capacity of our BCFL Lease Financing
arrangements (MRs) by up to $1.9 million per vessel to partially finance the purchase and installation of scrubbers on the
above vessels. The agreement is for a fixed term of three years at the rate of up to $1,910 per vessel per day to be allocated to
principal and interest.
In July 2020, we drew $1.9 million to partially finance the purchase and installation of a scrubber on one vessel and
in January 2021, we drew $5.8 million to partially finance the purchase and installation of scrubbers on three vessels.
F-41
Our BCFL Lease Financing (MRs) includes a financial covenant that requires us to maintain that the aggregate of
the fair market value of each vessel leased under the facility plus the aforementioned $5.1 million deposit shall at all times be
no less than 100% of the then outstanding balance plus the aforementioned $5.1 million deposit.
The aggregate outstanding balances under this arrangement were $53.2 million and $68.9 million as of
December 31, 2022 and 2021, respectively. We were in compliance with the financial covenants as of those dates.
2018 CMBFL Lease Financing
In July 2018, we executed an agreement to sell and leaseback six MR product tankers (STI Battery, STI Milwaukee,
STI Tribeca, STI Bronx, STI Manhattan, and STI Seneca) to CMB Financial Leasing Co., Ltd (the “2018 CMBFL Lease
Financing”). The aggregate borrowing amount under the arrangement was $141.6 million and the sales closed in August
2018.
Each agreement was for a fixed term of eight years, bearing interest at LIBOR plus a margin of 3.20% per annum,
and we had options to purchase the vessels at the start of the fourth year of each agreement. In December 2019, we amended
and restated the agreement to increase the borrowing capacity to partially finance the purchase and installation of scrubbers
on the six MRs that were then part of the agreement. In May 2020, we drew an aggregate of $10.1 million under the scrubber
portion of the 2018 CMBFL Lease Financing to partially finance the purchase and installation of scrubbers on the six MRs.
The upsized portion of the lease financing had a final maturity of 3.5 years after the first drawdown, bearing interest at
LIBOR plus a margin of 3.10% per annum
In December 2022, we exercised the purchase options on all of the vessels in this arrangement and repaid the
aggregate outstanding lease obligation (including the scrubber upsized portion) of $99.0 million as part of these transactions.
The aggregate amount outstanding, which included the scrubber and non-scrubber portions, was $112.0 million as of
December 31, 2021. We were in compliance with the financial covenants under these arrangements as of that date.
$116.0 Million Lease Financing
In August 2018, we executed an agreement to sell and leaseback two MR product tankers (STI Gramercy and STI
Queens) and two LR2 product tankers (STI Oxford and STI Selatar) in two separate transactions to an international financial
institution (the “$116.0 Million Lease Financing”). The net borrowing amount (which reflects the selling price less deposits
and commissions to the lessor) under the arrangement was $114.8 million in aggregate, consisting of $23.8 million per MR
and $33.7 million per LR2.
Under the terms of these agreements, we bareboat chartered-in the vessels for a period of seven years at $7,935 per
day for each MR and $11,040 per day for each LR2 (which included both the principal and interest components of the lease).
The leases also contained purchase options beginning at the end of the third year of each agreement, and a purchase
obligation for each vessel upon the expiration of each agreement.
In April 2020, we executed agreements to increase the borrowing capacity of four vessels under our $116.0 Million
Lease Financing by up to $1.9 million per vessel to partially finance the purchase and installation of scrubbers on these
vessels. Each agreement was for a fixed term of three years at the rate of up to $1,910 per vessel per day which was allocated
to principal and interest. In July 2020, we drew $5.7 million to partially finance the purchase and installation of scrubbers on
three vessels. In January 2021, we drew $1.9 million to partially finance the purchase and installation of scrubbers on one
vessel.
In May and June 2022, we exercised the purchase options on all of the vessels under this arrangement repaid the
outstanding indebtedness (including the scrubber portion) of $90.2 million related to these vessels as part of these
transactions. These vessels were refinanced under the 2022 AVIC Lease Financing (described below) as part of these
transactions.
The amounts outstanding, which included the scrubber and non-scrubber portions, was $95.8 million as of
December 31, 2021, and we were in compliance with the financial covenants as of that date.
F-42
AVIC Lease Financing
In July 2018, we executed an agreement to sell and leaseback three MR product tankers (STI Ville, STI Fontvieille
and STI Brooklyn) and two LR2 product tankers (STI Rose and STI Rambla) to AVIC International Leasing Co., Ltd. (the
“AVIC Lease Financing”). The borrowing amounts under the arrangement were $24.0 million per MR and $36.5 million per
LR2 ($145.0 million in aggregate). These transactions closed in August and September 2018.
Each agreement is for a fixed term of eight years, and we have options to purchase the vessels beginning at the end
of the second year of each agreement. The leases bear interest at LIBOR plus a margin of 3.70% per annum and are
scheduled to be repaid in quarterly principal installments of $0.5 million per MR and $0.8 million per LR2. Each agreement
also has a purchase obligation at the end of the eighth year, which is equal to the outstanding principal balance at that date.
Additionally, in February 2020, we executed an agreement to upsize the AVIC Lease Financing arrangement to
finance the purchase and installation of scrubbers on two MRs (STI Fontvieille and STI Brooklyn) and two LR2s (STI Rose
and STI Rambla) that are part of this arrangement. The upsized portion of the lease financing was to be used to finance up to
the lesser of 80% of the purchase and installation price of the scrubbers or 80% of the appreciated value of the vessel. In
December 2020, we drew $4.6 million from the upsized portion of this arrangement to partially finance the purchase and
installation of scrubbers on three vessels that are currently part of this arrangement, one MR (STI Brooklyn) and two LR2s
(STI Rose and STI Rambla). The upsized portion of the lease financing has a final maturity of three years after the first
drawdown, bears interest at LIBOR plus a margin of 4.20% per annum and is scheduled to be repaid in quarterly principal
payments of approximately $0.4 million, in aggregate, for all three vessels.
In February 2022, we repaid $17.2 million in connection with the sale of STI Fontvieille.
In September 2022, we gave notice to exercise the purchase option on the remaining four vessels. The carrying
value of the lease obligations related to these vessels has been classified as current on the consolidated balance sheet as of
December 31, 2022. The purchases closed in January 2023 (see Note 23 Subsequent Events).
We were subject to certain terms and conditions, including financial covenants, under this arrangement which are
summarized as follows:
• The ratio of net debt to total capitalization no greater than 0.70 to 1.00.
• Consolidated tangible net worth of no less than $650.0 million.
• The fair market value of each grouped vessels (MRs or LR2s) leased under the facility shall at all times be no
less than 110% of the outstanding balance for such grouped vessels (MRs or LR2s).
The outstanding amounts, which include the scrubber and non-scrubber portions, were $77.8 million and
$106.4 million as of December 31, 2022 and 2021, respectively, and we were in compliance with the financial covenants as
of those dates.
China Huarong Lease Financing
In August 2018, we closed on the sale and leaseback of six 2014 built MR product tankers, (STI Opera, STI Virtus,
STI Venere, STI Aqua, STI Dama, and STI Regina) to China Huarong Shipping Financial Leasing Co., Ltd. (the “China
Huarong Lease Financing”). The borrowing amount under the arrangement was $144.0 million in aggregate.
Each agreement was for a fixed term of eight years, bearing interest at LIBOR plus a margin of 3.50% per annum,
with options to purchase the vessels beginning at the end of the third year of each agreement. Each agreement also had a
purchase obligation at the end of the eighth year, which was equal to the outstanding principal balance at that date.
In September 2020 we received a commitment to upsize this arrangement by $2.0 million per vessel to partially
finance the purchase and installation of scrubbers on these vessels. In January 2021, we executed the agreements on five of
the vessels (STI Virtus, STI Venere, STI Aqua, STI Dama, and STI Regina) and drew down $10.0 million under the upsized
portion of this arrangement.
In August 2022, we exercised the purchase options on all six 2014 built MR product tankers under this arrangement
and repaid the aggregate outstanding lease obligation of $95.0 million (including the scrubber portion) as part of these
transactions.
F-43
The aggregate outstanding balances under this arrangement was $103.4 million as of December 31, 2021, and we
were in compliance with the financial covenants relating to this facility as of that date.
$157.5 Million Lease Financing
In October 2018, we sold and leased back six MR product tankers (STI San Antonio, STI Benicia, STI St. Charles,
STI Yorkville, STI Mayfair and STI Duchessa) and one LR2 product tanker (STI Alexis) to an international financial
institution (the “$157.5 Million Lease Financing”). The borrowing amount under the arrangement was $157.5 million in
aggregate, and these sales closed in October 2018.
Each agreement was for a fixed term of seven years, bearing interest at LIBOR plus a margin of 3.00% per annum
with options to purchase the vessels beginning at the end of the third year of each agreement. Each agreement also had a
purchase obligation at the end of the seventh year (which was equal to the outstanding principal balance at that date).
In July 2022, we closed on the sale of the MR tanker, STI Benicia. In advance of the closing of the sale, we repaid
the aggregate outstanding lease obligation of $14.2 million relating to this vessel in June 2022.
In December 2022, we exercised the purchase options on all of the vessels under this leasing arrangement and repaid
the aggregate outstanding lease obligation of $85.8 million as part of these transactions.
The amount outstanding was $109.7 million as of December 31, 2021, and we were in compliance with the financial
covenants as of that date.
COSCO Lease Financing
In September 2018, we executed an agreement to sell and leaseback two Handymax product tankers (STI Battersea
and STI Wembley) and two MR product tankers (STI Texas City and STI Meraux) to Oriental Fleet International Company
Limited (the “COSCO Lease Financing”). The amounts borrowed under the arrangement were $21.2 million for each of the
Handymax vessels and $22.8 million for each of the MR vessels ($88.0 million in aggregate).
Each agreement was for a fixed term of eight years, bearing interest at LIBOR plus a margin of 3.60% per annum
with options to purchase the vessels beginning at the end of the second year of each agreement. Each agreement also had a
purchase obligation at the end of the eighth year, which was equal to the outstanding principal balance at that date.
In December 2022, we exercised the purchase options on all vessels on the COSCO Lease Financing and repaid the
aggregate outstanding lease obligation of $55.3 million as part of these transactions.
The amount outstanding was $61.1 million as of December 31, 2021, and we were in compliance with the financial
covenants as of that date.
2020 CMBFL Lease Financing
In September 2020, we executed an agreement with CMB Financial Leasing Co., Ltd to sell and leaseback two MR
product tankers (STI Leblon and STI Bosphorus). The aggregate borrowing amount under the arrangement was $45.4 million,
which was drawn in September 2020 (the “2020 CMBFL Lease Financing”).
Each agreement is for a fixed term of seven years, and we have options to purchase the vessels beginning on the
third anniversary of the delivery date of each agreement. The leases bear interest at LIBOR plus a margin of 3.20% per
annum and are being repaid in equal quarterly principal installments of $0.4 million per vessel. Each agreement also has a
purchase option at the end of the seventh year (which is equal to the outstanding principal balance at that date). We are
subject to certain terms and conditions, including financial covenants, under this arrangement which are summarized as
follows:
• The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
• Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income
(on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net
proceeds of new equity issuances occurring on or after January 1, 2016.
• Minimum liquidity of not less than the greater of $25.0 million and $500,000 per each owned vessel plus
$250,000 per each time chartered-in vessel.
F-44
• The fair market value of each vessel leased under the facility shall at all times be no less than 120% of the
outstanding balance for such vessel.
The amounts outstanding were $38.1 million and $41.3 million as of December 31, 2022 and 2021, respectively, and
we were in compliance with the financial covenants as of those dates.
2020 TSFL Lease Financing
In November 2020, we executed an agreement with Taiping & Sinopec Financial Leasing Co., Ltd. (the “2020 TSFL
Lease Financing”) to sell and leaseback two MR product tankers (STI Galata and STI La Boca). The aggregate borrowing
amount under the arrangement was $47.3 million, which was drawn in November 2020.
Each agreement is for a fixed term of seven years and we have options to purchase the vessels beginning on the third
anniversary of the delivery date of each agreement. The leases bear interest at LIBOR plus a margin of 3.20% per annum and
will be repaid in equal quarterly principal installments of $0.4 million per vessel. Each agreement also has a purchase
obligation at the end of the seventh year (which is equal to the outstanding principal balance at that date). We are subject to
certain terms and conditions, including financial covenants, under this arrangement which are summarized as follows:
• The ratio of net debt to total capitalization no greater than 0.65 to 1.00.
• Consolidated tangible net worth of no less than $1.0 billion.
• The fair market value of each vessel leased under the facility shall at all times be no less than 115% of the
outstanding balance for such vessel.
The amounts outstanding were $40.6 million and $43.9 million as of December 31, 2022 and 2021, respectively, and
we were in compliance with the financial covenants as of those dates.
2020 SPDBFL Lease Financing
In November 2020, we executed an agreement with SPDB Financial Leasing Co., Ltd to sell and leaseback four MR
product tankers (STI Donald C Trauscht, STI Esles II, STI San Telmo, and STI Jardins). The aggregate borrowing amount
under the arrangement was $96.5 million, which was drawn in November and December 2020 (the “2020 SPDBFL Lease
Financing”).
The agreements for STI Donald C Trauscht and STI San Telmo are for a fixed term of seven years. The agreements
for STI Esles and STI Jardins are for a fixed term of eight years. Each of the agreements have options to purchase the vessels
beginning on the third anniversary of the delivery date of each agreement. The leases bear interest at LIBOR plus a margin of
3.05% per annum and will be repaid in equal quarterly principal installments of $0.4 million per vessel. Each agreement also
has a purchase obligation at the end of their term (which is equal to the outstanding principal balance at that date).
Additionally, coinciding with the first payment dates in the first quarter of 2021, we were required to deposit with the lessor
3% of the borrowing amount, or $2.9 million in aggregate. We are subject to certain terms and conditions, including financial
covenants, under this arrangement which are summarized as follows:
• The ratio of net debt to total capitalization no greater than 0.70 to 1.00.
• Consolidated tangible net worth of no less than $650.0 million.
• The fair market value of each vessel leased under the facility shall at all times be no less than 115% of the
outstanding balance for such vessel.
The carrying values of the amounts due under the arrangement (net of the deposits made during 2021) were
$80.6 million and $87.1 million as of December 31, 2022 and 2021, respectively, and we were in compliance with the
financial covenants as of those dates.
2021 AVIC Lease Financing
In February 2021, we closed on the sale and leaseback of two vessels (STI Memphis and STI Soho) with AVIC
International Leasing Co., Ltd. for aggregate proceeds of $44.2 million (the “2021 AVIC Lease Financing”). In March 2021,
we closed on the sale and leaseback of two additional vessels (STI Lombard and STI Osceola) under the 2021 AVIC Lease
Financing for aggregate proceeds of $53.1 million.
F-45
Under the 2021 AVIC Lease Financing, each vessel is subject to a nine-year bareboat charter-in agreement. The
lease financings bear interest at LIBOR plus a margin of 3.45% per annum and are scheduled to be repaid in equal aggregate
quarterly repayments of approximately $1.8 million. Each agreement contains purchase options to re-acquire each of the
subject vessels beginning on the second anniversary date from the delivery date of the respective vessel, with a purchase
obligation upon the expiration of each agreement. Additionally, we are required to deposit with the lessor 1% of the
borrowing amount, or $1.0 million in aggregate.
Our 2021 AVIC Lease Financing includes financial covenants that require us to maintain:
• The ratio of net debt to total capitalization no greater than 0.70 to 1.00.
• Consolidated tangible net worth shall always exceed $650.0 million.
• The aggregate of the fair market value of the vessels provided as collateral under the lease financing shall at all
times be no less than 115% of the then aggregate outstanding principal amount on or before the third
anniversary date of the delivery of the vessel and 120% thereafter.
The carrying values of the amounts due under the arrangement (net of the deposits made during 2021) were
$83.7 million and $90.9 million as of December 31, 2022 and 2021, respectively, and we were in compliance with the
financial covenants as of those dates.
2021 CMBFL Lease Financing
In March 2021, we received a commitment to sell and leaseback four Handymax vessels (STI Comandante, STI
Brixton, STI Pimlico and STI Finchley) and one MR (STI Westminster) from CMB Financial Leasing Co. Ltd, or CMBFL
(the “2021 CMBFL Lease Financing”). In March 2021, we closed on the sale and leaseback of the four aforementioned
Handymax vessels under the 2021 CMBFL Lease Financing for aggregate proceeds of $58.8 million. In April 2021, we
closed on the sale and leaseback of STI Westminster for aggregate proceeds of $20.25 million.
Under the 2021 CMBFL Lease Financing, each vessel is subject to a seven-year bareboat charter-in agreement. The
lease financings bear interest at LIBOR plus a margin of 3.25% per annum for the Handymax vessels and 3.20% per annum
for the MR vessel. Principal payments on the leases are being repaid in equal quarterly installments of $0.3 million per
Handymax vessel and $0.4 million for the MR vessel with each agreement having a purchase option at the end of each term
(which is equal to the outstanding principal balance at that date). Each agreement contains purchase options to re-acquire
each of the subject vessels beginning on the third anniversary date from the delivery date of the respective vessel, with a
purchase option for each vessel upon the expiration of each agreement.
Our 2021 CMBFL Lease Financing includes financial covenants that require us to maintain:
• The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
• Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income
(on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net
proceeds of new equity issuances occurring on or after January 1, 2016.
• Minimum liquidity of not less than the greater of $25.0 million and $500,000 per each owned vessel plus
$250,000 per each time chartered-in vessel.
• The fair market value of each vessel leased under the facility shall at all times be no less than 120% of the
outstanding balance for such vessel.
The amounts outstanding were $68.0 million and $74.6 million as of December 31, 2022 and 2021, respectively, and
we were in compliance with the financial covenants as of those dates.
2021 TSFL Lease Financing
In March 2021, we closed on the sale and leaseback of three MR vessels (STI Black Hawk, STI Notting Hill and STI
Pontiac) with Taiping & Sinopec Financial Leasing Co., Ltd. for aggregate proceeds of $57.7 million (the “2021 TSFL Lease
Financing”).
F-46
Under the 2021 TSFL Lease Financing, each vessel is subject to a seven-year bareboat charter-in agreement. The
lease financings bear interest at LIBOR plus a margin of 3.20% per annum and are scheduled to be repaid in equal quarterly
principal installments of approximately $0.4 million per vessel. Each agreement contains purchase options to re-acquire each
of the subject vessels beginning on the second anniversary date from the delivery date of the respective vessel, with a
purchase option for each vessel upon the expiration of each agreement.
Our 2021 TSFL Lease Financing includes financial covenants that require us to maintain:
• The ratio of net debt to total capitalization no greater than 0.65 to 1.00.
• Consolidated tangible net worth of no less than $1.0 billion.
• The fair market value of each vessel leased under the facility shall at all times be no less than 115% of the
outstanding balance for such vessel.
The amounts outstanding were $50.0 million and $54.4 million as of December 31, 2022 and 2021, respectively, and
we were in compliance with the financial covenants as of that date.
2021 CSSC Lease Financing
In May 2021, we closed on the sale and leaseback of two LR2 vessels (STI Grace and STI Jermyn) with CSSC
(Hong Kong) Shipping Company Limited (the “2021 CSSC Lease Financing”) for aggregate proceeds of $57.4 million.
Under the 2021 CSSC Lease Financing, each vessel is subject to a six-year bareboat charter-in agreement. The lease
financings bear interest at LIBOR plus a margin of 3.50% per annum and are scheduled to be repaid in equal principal
installments of approximately $0.2 million per vessel per month. Each agreement contains purchase options beginning on the
second anniversary date from the delivery date of the respective vessel, with a purchase obligation for each vessel upon the
expiration of each agreement.
Our 2021 CSSC Lease Financing includes a covenant that requires that the fair market value of each vessel leased
under the facility shall at all times be no less than 125% of the outstanding balance for such vessel.
The amounts outstanding were $48.6 million and $53.9 million as of December 31, 2022 and 2021, respectively and
we were in compliance with the financial covenants as of those dates.
2021 $146.3 Million Lease Financing
In November 2021, we closed on the sale and leaseback transactions for four LR2 product tankers (STI Connaught,
STI Winnie, STI Lauren and STI Broadway) and two Handymax product tankers (STI Rotherhithe and STI Hammersmith)
with an international financial institution (the “2021 $146.3 Million Lease Financing”). The borrowing amount under the
agreement was $146.3 million in aggregate.
Under this lease financing arrangement, each vessel is subject to a seven-year bareboat charter-in agreement. The
lease financings bear interest at LIBOR plus a margin of 3.30% per annum and are scheduled to be repaid in equal quarterly
principal installments of approximately $0.7 million on three LR2 vessels, $0.6 million on one LR2 vessel and $0.4 million
per Handymax vessel. Each agreement contains purchase options beginning at the end of the second year with a purchase
obligation for each vessel upon the expiration of each agreement.
We are subject to certain terms and conditions, including financial covenants, under this arrangement which are
summarized as follows:
• The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
• Consolidated tangible net worth of no less than $1.0 billion plus (i) 25% of the cumulative positive net income
(on a consolidated basis) for each fiscal quarter commencing on or after January 1, 2018 and (ii) 50% of the net
proceeds of new equity issuances occurring on or after January 1, 2018.
• Minimum liquidity of not less than the greater of $25.0 million and $500,000 per each owned vessel plus
$250,000 per each time chartered-in vessel.
• The fair market value of each vessel leased under the facility shall at all times be no less than 110% of the
outstanding balance for such vessel.
F-47
The amounts outstanding were $133.7 million and $146.3 million as of December 31, 2022 and 2021, respectively,
and we were in compliance with the financial covenants as of those dates.
2021 Ocean Yield Lease Financing
In December 2021, we closed on the sale and leaseback transactions for two LR2 product tankers (STI Gallantry and
STI Guard) with Ocean Yield ASA (the “2021 Ocean Yield Lease Financing”). The borrowing amount under the agreements
was $70.2 million in aggregate.
Under this lease financing arrangement, each vessel is subject to a ten-year bareboat charter-in agreement. The lease
financings bear interest at LIBOR plus a margin per annum and are scheduled to be repaid in equal monthly principal
installments of approximately $0.2 million per vessel. Each agreement contains purchase options to re-acquire each of the
subject vessels on the fourth, fifth, and seventh anniversary dates from the effective date of each agreement, with a purchase
obligation for each vessel upon the expiration of each agreement.
We are subject to certain terms and conditions, including financial covenants, under this arrangement which are
summarized as follows:
• The ratio of net debt to total capitalization no greater than 0.60 to 1.00.
• Consolidated tangible net worth no less than $1.0 billion plus (i) 25% of the cumulative positive net income (on
a consolidated basis) for each fiscal quarter commencing on or after January 1, 2016 and (ii) 50% of the net
proceeds of new equity issues occurring on or after January 1, 2016.
• Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and
$250,000 per each time chartered-in vessel.
The amounts outstanding were $63.9 million and $69.8 million as of December 31, 2022 and 2021, respectively, and
we were in compliance with the financial covenants as of those dates.
2022 AVIC Lease Financing
In May and June 2022, we closed on the sale and leaseback of two MR product tankers (STI Gramercy and STI
Queens) and two LR2 product tankers (STI Selatar and STI Oxford) with AVIC International Leasing Co., Ltd. for aggregate
proceeds of $118.4 million (the “2022 AVIC Lease Financing”). We repaid the outstanding indebtedness of $90.2 million
related to these vessels on the $116.0 Million Lease Financing as part of these transactions.
Under the 2022 AVIC Lease Financing, each vessel is subject to a nine-year bareboat charter-in agreement. The
lease financings bear interest at LIBOR plus a margin of 3.50% per annum and are scheduled to be repaid in equal aggregate
quarterly repayments of approximately $2.3 million. Each agreement contains purchase options to re-acquire each of the
subject vessels beginning on the second anniversary date from the delivery date of the respective vessel, with a purchase
obligation upon the expiration of each agreement. Additionally, we were required to deposit with the lessor 1% of the
borrowing amount, or $1.2 million in aggregate.
Our 2022 AVIC Lease Financing includes financial covenants that require us to maintain:
• Net debt to total capitalization shall not equal or exceed 70%.
• Net worth shall always exceed $650.0 million.
• The aggregate of the fair market value of the vessels provided as collateral under the lease financing shall at all
times be no less than 110% of the then aggregate outstanding principal amount.
The carrying value of the amount due under the arrangement (net of the deposits made during 2022) was
$112.6 million as of December 31, 2022, and we were in compliance with the financial covenants as of that date.
F-48
Unsecured debt
Senior Notes Due 2025
In May 2020, we issued $28.1 million aggregate principal amount of 7.00% senior unsecured notes due June 30,
2025, or our “Senior Notes Due 2025”, in an underwritten public offering. This amount includes $3.1 million related to the
partial exercise of the underwriters’ option to purchase additional Senior Notes due 2025 under the same terms and
conditions. The aggregate net proceeds were approximately $26.5 million after deducting underwriting commissions and
offering expenses.
In January 2021, we entered into a note distribution agreement (the “Distribution Agreement”) with B. Riley
Securities, Inc. as the sales agent (the “Agent”) under which we may offer and sell, from time to time, up to an additional
$75.0 million aggregate principal amount of our Senior Notes Due 2025 (the “Additional Notes”).
Any Additional Notes sold were issued under that certain indenture pursuant to which we previously issued
$28.1 million aggregate principal amount our Senior Notes Due 2025, on May 29, 2020 (the “Initial Notes”). The Additional
Notes have the same terms as the Initial Notes (other than date of issuance), form a single series of debt securities with the
Initial Notes and have the same CUSIP number and were fungible with the Initial Notes immediately upon issuance,
including for purposes of notices, consents, waivers, amendments and any other action permitted under the aforementioned
indenture. The Senior Notes Due 2025 are listed on the NYSE under the symbol “SBBA.”
During the year ended December 31, 2021, we issued $42.1 million aggregate principal amount of Senior Notes Due
2025 under the program, resulting in $41.2 million in aggregate net proceeds (net of underwriters commissions and expenses)
The Senior Notes Due 2025 bear interest at a coupon rate of 7.0% per year, payable quarterly in arrears on the 30th
day of March, June, September, and December of each year. Coupon payments commenced on June 30, 2020. We may
redeem the Senior Notes Due 2025 in whole or in part, at our option, at any time (i) on or after June 30, 2022 and prior to
June 30, 2023, at a redemption price equal to 102% of the principal amount to be redeemed, (ii) on or after June 30, 2023 and
prior to June 30, 2024, at a redemption price equal to 101% of the principal amount to be redeemed, and (iii) on or after June
30, 2024 and prior to maturity, at a redemption price equal to 100% of the principal amount to be redeemed, in each case plus
accrued and unpaid interest to, but excluding, the redemption date.
The Senior Notes Due 2025 are a senior unsecured obligation and rank equally with all of our existing and future
senior unsecured and unsubordinated debt, are effectively subordinated to our existing and future secured debt, to the extent
of the value of the assets securing such debt, and are structurally subordinated to all existing and future debt and other
liabilities of our subsidiaries. No sinking fund is provided for the Senior Notes Due 2025. The Senior Notes Due 2025 were
issued in minimum denominations of $25.00 and integral multiples of $25.00 in excess thereof.
The Senior Notes Due 2025 require us to comply with certain covenants, including financial covenants, restrictions
on consolidations, mergers or sales of assets and prohibitions on paying dividends or returning capital to equity holders if a
covenant breach or an event of default has occurred or would occur as a result of such payment.
The financial covenants under our Senior Notes Due 2025 include:
• Net borrowings shall not equal or exceed 70% of total assets.
• Net worth shall always exceed $650.0 million.
The carrying values of the Senior Notes Due 2025 (net of unamortized net discount on the Additional Notes issued
at market price during 2021) were $70.5 million and $70.1 million as of December 31, 2022 and 2021, respectively, and we
were in compliance with the financial covenants relating to the Senior Notes Due 2025 as of those dates.
Convertible Notes Due 2022
In May 2018 and July 2018, we exchanged $188.5 million and $15.0 million, respectively, in aggregate principal
amount of our 3.00% senior Convertible Notes due 2019 for $188.5 million and $15.0 million, respectively, in aggregate
principal amount of newly issued unsecured Convertible Notes due 2022 bearing interest at 3.00%, or our “Convertible Notes
Due 2022”. The Convertible Notes Due 2022 issued in July 2018 had identical terms, were fungible with and were part of the
series of Convertible Notes Due 2022 issued in May 2018. Interest was payable semi-annually in arrears on November 15
and May 15 of each year, beginning on November 15, 2018. The Convertible Notes Due 2022 matured on May 15, 2022, and
the aggregate outstanding principal amount was repaid in cash upon maturity.
F-49
Upon the May and July 2018 issuances, we determined the initial carrying values of the liability components of the
Convertible Notes Due 2022 to be $154.3 million and $12.2 million, respectively, based on the fair value of a similar liability
that does not have any associated conversion feature. We utilized recent pricing (with adjustments made to align the tenor) on
our (i) unsecured senior unsecured notes due 2019 bearing interest at 8.25% (which were repaid in March 2019), (ii) Senior
Notes Due 2020 and (iii) the pricing on recently issued unsecured bonds in the shipping sector as the basis for this
determination. The difference between the fair value of the liability component and the face value of the Convertible Notes
Due 2022 was amortized over the term of the Convertible Notes Due 2022 under the effective interest method and recorded
as part of financial expenses. The residual values (the conversion feature) of $34.2 million and $2.8 million, respectively,
were recorded to Additional paid-in capital upon issuance.
Between July 1, 2020 and September 30, 2020, we repurchased $52.3 million face value of our Convertible Notes
Due 2022 at an average price of $894.12 per $1,000 principal amount, or $46.7 million. As a result of these repurchases, we
reduced the liability component of the Convertible Notes Due 2022 by $47.7 million and we recorded a $1.0 million gain on
repurchase of Convertible Notes within the consolidated statement of income or loss.
In March 2021 and June 2021, we completed the exchange of approximately $62.1 million and $19.4 million,
respectively, in aggregate principal amount of Convertible Notes Due 2022 for approximately $62.1 million and
$19.4 million, respectively in aggregate principal amount of new 3.00% Convertible Notes due 2025 (the “Convertible Notes
Due 2025”, which are described below) pursuant to separate, privately negotiated, agreements with certain holders of the
Convertible Notes Due 2022, which we refer to as the 2021 Convertible Notes Exchanges.
We accounted for the 2021 Convertible Notes Exchanges as extinguishments of the original financial liability and
the recognition of a new liability on the basis that the terms of the Convertible Notes Due 2022 were substantially different to
the terms of the Convertible Notes Due 2025. We recorded an aggregate loss on the extinguishment of the Convertible Notes
Due 2022 of $5.5 million as a result of the 2021 Convertible Notes Exchanges, which primarily arose from (i) the difference
between the carrying value and the face value of the Convertible Notes Due 2022 on the date of the exchange, and (ii)
transaction costs directly attributable to the 2021 Convertible Notes Exchanges. We also determined that the fair value of the
equity component of the exchanged portion of the Convertible Notes Due 2022 was approximately $1.5 million. This amount
was recorded as a reduction to additional paid-in capital as a result of the 2021 Convertible Notes Exchanges
The carrying value of the liability component of the Convertible Notes Due 2022 as of December 31, 2021 was
$68.3 million. We incurred $0.8 million of coupon interest and $1.4 million of non-cash accretion during the year ended
December 31, 2022. We incurred $2.8 million of coupon interest and $4.7 million of non-cash accretion during the year
ended December 31, 2021. We were in compliance with the covenants related to the Convertible Notes Due 2022 as of
December 31, 2021.
Convertible Notes Due 2025
As mentioned above, we completed the 2021 Convertible Notes Exchanges in March 2021 and June 2021.
Additionally, in March 2021 and June 2021, we issued and sold $76.1 million and $42.4 million, respectively, in aggregate
principal amount of Convertible Notes Due 2025 pursuant to separate, privately negotiated, agreements with certain investors
in a private offering, which we refer to as the 2021 Convertible Notes Offerings. The Convertible Notes Due 2025 that were
issued and sold in June 2021 as part of the 2021 Convertible Notes Offerings were issued at 102.25% of par, or $43.3 million,
plus accrued interest.
The Convertible Notes Due 2025 that were issued in June 2021 had the same terms as (other than date of issuance),
formed a single series of debt securities with, had the same CUSIP number and were fungible with, the Convertible Notes
Due 2025 that were issued in March 2021, including for purposes of notices, consents, waivers, amendments and any other
action permitted under the Indenture.
Upon the March 2021 and June 2021 issuances, we determined the initial carrying value of the liability component
of the Convertible Notes Due 2025, to be $132.9 million and $60.8 million, respectively. This determination was based on
the fair value of a similar liability that does not have any associated conversion feature. We utilized the market pricing on
unsecured bonds in the shipping sector as the basis for this determination. The residual value, attributable to the conversion
feature, of $5.3 million and $2.4 million, was recorded to Additional paid-in capital upon the March 2021 and June 2021
issuances, respectively. The difference between the fair value of the liability component and the face value of the Convertible
Notes Due 2025 was accreted over the term of the Convertible Notes Due 2025 under the effective interest method and
recorded as part of financial expenses.
F-50
The Convertible Notes Due 2025 were our senior, unsecured obligations bearing coupon interest at a rate of 3.00%
per annum. Interest was payable semi-annually in arrears on May 15 and November 15 of each year, beginning on May 15,
2021. Additionally, commencing in March 2021, principal accreted on the principal amount, compounded semi-annually, at a
rate equal to approximately 5.5202% per annum, which principal amount, together with any accretions thereon, is the
“Accreted Principal Amount”. The Accreted Principal Amount at maturity was expected equal 125.3% of par, which together
with the 3.00% coupon interest rate, compounds to a yield-to-maturity of approximately 8.25%. The Accreted Principal
Amount feature accreted over the term of the Convertible Notes Due 2025 under the effective interest method and was
recorded as part of financial expenses.
In May 2022, we repurchased an aggregate $10.8 million face value of our Convertible Notes Due 2025 in the open
market at an average price of $1,158.94 per $1,000 principal amount, or $12.6 million. The consideration paid included the
Accreted Principal Amount, which accrued since the issuance date and equaled approximately 106% of par at the May
repurchase dates.
In July 2022, we repurchased $1.5 million face value of our Convertible Notes Due 2025 in the open market at an
average price of $1,145.00 per $1,000.00 principal amount, or $1.7 million. The consideration paid includes the Accreted
Principal Amount, which has accrued since the issuance date and equaled approximately 107% as of the repurchase date.
As a result of these transactions, we reduced the liability and equity (the value of the conversion feature)
components of the Convertible Notes Due 2025 by $12.8 million and $2.0 million, respectively, and recorded a gain of
$0.5 million.
Pursuant to section 16.01 of the indenture dated March 25, 2021, we may, subject to certain exceptions, redeem the
Convertible Notes Due 2025 for cash, if at any time the per share volume-weighted average price of our common shares
equals or exceeds 125.4% of the conversion price then in effect on (i) each of at least 20 trading days (whether or not
consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the
applicable redemption date; and (ii) the trading day immediately before such date of the redemption notice.
In November 2022, we sent a notice of redemption to all holders of the Convertible Notes Due 2025 pursuant to
Section 16.01. Holders were entitled to convert their notes into shares of common stock of the Company at any time prior to
the Redemption Date (of December 1, 2022), at a conversion rate equal to 30.6806 common shares per $1,000 principal
amount of each note. This conversion rate consisted of (i) the conversion rate then in effect of 27.5281 common shares per
$1,000 principal amount of each note (after giving effect to a recently declared dividend of $0.10 per common share with a
record date of November 17, 2022), plus (ii) 3.1525 additional common shares per $1,000 principal amount pursuant to
Section 14.03 of the indenture which increases the conversion rate in the event of a make-whole fundamental change as
defined in the indenture.
All of the holders of the Convertible Notes Due 2025 fully converted their notes prior to the Redemption Date,
resulting in the issuance of 5,757,698 common shares to settle all amounts outstanding, including accrued but unpaid interest.
As it was expected that all holders would convert their notes into shares, the economic substance of the exercise of
the early redemption feature was a forced conversion. Therefore, no adjustments to the carrying amounts were made on the
announcement of the early redemption. In accordance with IAS 32, we de-recognized the liability component and recognized
it as equity, without any gain or loss recorded in profit or loss. The carrying value of the debt at the time of conversions was
$198.9 million comprised of: (i) principal (which included the par value and the Accreted Principal Amount which had
accrued since the March 2021 issuance date) of $205.1 million; (ii) less, unamortized deferred financing costs of
$2.1 million; (iii) less, unamortized value attributable to the conversion feature, net of unamortized premium, of $4.2 million;
and (iv) accrued coupon interest of $0.1 million.
The Convertible Notes Due 2025 were scheduled mature on May 15, 2025. The conversion rate of the Convertible
Notes Due 2025 was initially 26.6617 common shares per $1,000 principal amount of Convertible Notes Due 2025
(equivalent to an initial conversion price of approximately $37.507 per common share), and was subject to adjustment upon
the occurrence of certain events as set forth in the indenture governing the Convertible Notes Due 2025 (such as the payment
of dividends).
F-51
The table below details the dividends issued during the years ended December 31, 2022 and 2021 and the
corresponding effect on the conversion rate of the Convertible Notes Due 2025:
Record Date
March 2, 2021 ..................................... $
May 21, 2021 ...................................... $
September 9, 2021 .............................. $
December 3, 2021 ............................... $
March 2, 2022 ..................................... $
May 20, 2022 ...................................... $
August 11, 2022 .................................. $
November 17, 2022 ............................ $
Dividends
per share
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
Share Adjusted
Conversion Rate(1)
26.6617
26.7879
26.9419
27.1571
27.3142
27.4083
27.4723
27.5281
(1) Per $1,000 principal amount of the Convertible Notes.
The carrying value of the liability component of the Convertible Notes Due 2025 as of December 31, 2021 was
$202.4 million and we were in compliance with the covenants related to the Convertible Notes Due 2025 as of that date. We
incurred $4.1 million of coupon interest and $8.6 million of non-cash accretion (inclusive of the Accreted Principal Amount
of $8.1 million) during the year ended December 31, 2021. We incurred $5.2 million of coupon interest and $11.3 million of
non-cash accretion (inclusive of the Accreted Principal Amount of $9.8 million) during the year ended December 31, 2022.
13. Segment reporting
Information about our reportable segments for the years ended December 31, 2022, 2021 and 2020 is as follows:
For the year ended December 31, 2022
Handymax
MR
LR1
In thousands of U.S. dollars
Vessel revenue ............................................................. $ 11,196 $
(9,076)
Vessel operating costs .................................................
—
Voyage expenses .........................................................
(1,593)
Depreciation - owned or sale and leaseback vessels ...
—
Depreciation - right of use assets ................................
(335)
General and administrative expenses ..........................
—
Reversal of previously recorded impairment ..............
(44,701)
Net loss on sale of vessels ...........................................
—
Financial expenses .......................................................
—
Gain on repurchase of convertible notes .....................
Financial income .........................................................
20
1,577
Other income, net ........................................................
(42,912)
Segment income or loss .............................................
243,951 $
(36,507 )
(44,996 )
(20,874 )
—
(1,367 )
—
—
—
—
—
—
140,207
LR2
570,668 $
(112,407)
(26,641)
(75,360)
(8,297)
(4,134)
—
(12,446)
—
—
—
—
331,383
Reportable
segments
subtotal
Corporate
and
eliminations Total
737,058 $ 1,562,873 $
(323,725)
(165,735)
(92,698)
(21,061)
(168,008)
(70,181)
(38,827)
(30,530)
(12,066)
(6,230)
12,708
12,708
(66,486)
(9,339)
—
—
—
—
657
637
1,577
—
876,005
447,327
— $ 1,562,873
(323,725)
—
(92,698)
—
(168,008)
—
(38,827)
—
(88,131)
(76,065)
12,708
—
(66,486)
—
(169,795)
(169,795)
481
481
6,884
6,227
1,975
398
637,251
(238,754)
For the year ended December 31, 2021
LR1
In thousands of U.S. dollars
Vessel revenue ............................................................. $ 47,053 $
(29,883)
Vessel operating costs .................................................
Voyage expenses .........................................................
24
(20,970)
Depreciation - owned or sale and leaseback vessels ...
—
Depreciation - right of use assets ................................
(1,158)
General and administrative expenses ..........................
—
Financial expenses .......................................................
—
Loss on exchange of convertible notes .......................
2
Financial income .........................................................
—
Other income and (expenses), net ...............................
(4,932) $
Segment income or loss ............................................. $
Handymax
MR
Reportable
segments
subtotal
Corporate
and
eliminations Total
262,678 $
(161,086)
(2,756)
(74,315)
(32,510)
(6,148)
—
—
602
—
(13,535) $
540,786 $
(334,840)
(3,455)
(197,467)
(42,786)
(12,820)
—
—
599
—
(49,983) $
— $ 540,786
(334,840)
—
(3,455)
—
(197,467)
—
(42,786)
—
(52,746)
(39,926)
(144,104)
(144,104)
(5,504)
(5,504)
3,623
3,024
2,058
2,058
(184,452) $ (234,435)
LR2
180,912 $
(105,714)
(246)
(81,062)
(8,503)
(4,050)
—
—
(5)
—
(18,668) $
50,143 $
(38,157 )
(477 )
(21,120 )
(1,773 )
(1,464 )
—
—
—
—
(12,848 ) $
F-52
For the year ended December 31, 2020
Handymax
MR
LR1
In thousands of U.S. dollars
Vessel revenue ............................................................. $ 87,026 $
(30,396)
Vessel operating costs .................................................
(60)
Voyage expenses .........................................................
(20,557)
Depreciation - owned or sale and leaseback vessels ...
Depreciation - right of use assets ................................
—
—
Impairment of vessels ..................................................
(2,639)
Impairment of goodwill ...............................................
(1,180)
General and administrative expenses ..........................
—
Financial expenses .......................................................
—
Gain on repurchase of convertible notes .....................
104
Financial income .........................................................
—
Other income and (expenses), net ...............................
Segment income or loss ............................................. $ 32,298 $
105,353 $
(47,791 )
(402 )
(21,359 )
(12,017 )
—
—
(1,960 )
—
—
9
—
21,833 $
LR2
375,594 $
(107,710)
(3,479)
(79,208)
(8,583)
—
—
(4,029)
—
—
51
—
172,636 $
Reportable
segments
subtotal
Corporate
and
eliminations Total
347,919
(147,851)
(4,018)
(73,144)
(30,950)
(14,207)
—
(6,060)
—
—
520
—
72,209 $
915,892 $
(333,748)
(7,959)
(194,268)
(51,550)
(14,207)
(2,639)
(13,229)
—
—
684
—
298,976 $
— $ 915,892
(333,748)
—
(7,959)
—
(194,268)
—
(51,550)
—
(14,207)
—
(2,639)
—
(66,187)
(52,958)
(154,971)
(154,971)
1,013
1,013
1,249
565
1,499
1,499
94,124
(204,852) $
Revenue from customers representing greater than 10% of total revenue during the years ended December 31, 2022,
2021 and 2020, within their respective segments was as follows:
In thousands of U.S. dollars
Segment
MR ..................................... Scorpio MR Pool Limited(1)
LR2 .................................... Scorpio LR2 Pool Limited(1)
Handymax .......................... Scorpio Handymax Tanker Pool Limited(1)
Customer
$
For the year ended December 31,
2020
2021
2022
340,937
256,874 $
639,743 $
369,476
180,912
456,002
105,355
50,143
79,636
815,768
487,929 $
$ 1,175,381 $
(1) These customers are related parties as described in Note 15.
14. Common shares
2013 Equity Incentive Plan
In April 2013, we adopted an equity incentive plan, which was amended in March 2014 and which we refer to as the
2013 Equity Incentive 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 initially reserved a total of 500,000 common
shares for issuance under the 2013 Equity Incentive Plan which was increased by an aggregate of 5,094,277 common shares
through December 31, 2019 and subsequently revised as follows:
•
•
•
•
In June 2020, we reserved an additional 362,766 common shares, par value $0.01 per share, for issuance
pursuant to the 2013 Equity Incentive Plan. All other terms of the 2013 Equity Incentive Plan remained
unchanged.
In December 2020, we reserved an additional 367,603 common shares, par value $0.01 per share, for issuance
pursuant to the 2013 Equity Incentive Plan. All other terms of the 2013 Equity Incentive Plan remained
unchanged.
In June 2021, we reserved an additional 386,883 common shares, par value $0.01 per share, for issuance
pursuant to the 2013 Equity Incentive Plan. All other terms of the 2013 Equity Incentive Plan remained
unchanged.
In October 2021, we reserved an additional 693,864 common shares, par value $0.01 per share, for issuance
pursuant to the 2013 Equity Incentive Plan. All other terms of the 2013 Equity Incentive Plan remained
unchanged.
Under the terms of the 2013 Equity Incentive Plan, stock options and stock appreciation rights granted under the
2013 Equity Incentive 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
conditions as determined by the plan administrator, but in no event will they be exercisable later than ten years from the date
of grant.
F-53
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 administrator. 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 common 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 2013 Equity Incentive 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 2013 Equity Incentive 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 2013 Equity Incentive Plan will expire ten
years from the date the plan was adopted.
The following paragraphs summarize our grants of restricted stock during the years ended December 31, 2022,
2021, and 2020. The vesting periods of these grants are determined by the plan administrator and generally range from one to
five years. Additionally, vesting of these grants is generally subject to a grantee’s continued employment with the Company
through the vesting date unless the grantee is terminated without cause or due to the grantee’s death or disability.
In January 2020, we issued 469,680 shares of restricted stock to certain of our employees for no cash consideration.
The share price on the issuance date was $36.73 per share. The vesting schedule for these restricted shares is (i) one-third of
the shares vested on September 8, 2022, (ii) one-third of the shares vest on September 7, 2023, and (iii) one-third of the
shares vest on September 5, 2024.
In September 2020, we issued 220,500 shares of restricted stock to certain of our employees for no cash
consideration. The share price on the issuance date was $11.15 per share. The vesting schedule for these restricted shares is
(i) one-third of the shares vest on June 5, 2023, (ii) one-third of the shares vest on June 4, 2024, and (iii) one-third of the
shares vest on June 4, 2025.
In September 2020, we issued 141,900 shares of restricted stock to certain SSH employees for no cash
consideration. The share price on the issuance date was $11.15 per share. The vesting schedule of the restricted stock issued
to SSH employees is (i) one-third of the shares vest on June 5, 2023, (ii) one-third of the shares vest on June 4, 2024, and (iii)
one-third of the shares vest on June 4, 2025.
In December 2020, we issued 90,000 shares of restricted stock to our independent directors and 3,000 to an SSH
employee for no cash consideration. The share price on the issuance date was $11.36 per share. The vesting schedule of the
restricted stock issued to independent directors is (i) one-third of the shares vested on December 3, 2021, (ii) one-third of the
shares vested on December 2, 2022, and (iii) one-third of the shares vest on December 1, 2023. The vesting schedule of
restricted stock issued to the SSH employee is (i) one-third of the shares vest on June 5, 2023, (ii) one-third of the shares vest
on June 4, 2024, and (iii) one-third of the shares vest on June 4, 2025.
In April 2021, we issued 276,369 shares of restricted stock to certain of our employees for no cash consideration.
The share price on the issuance date was $18.38 per share. The vesting schedule for these restricted shares is (i) one-third of
the shares vest on March 1, 2024, (ii) one-third of the shares vest on March 3, 2025, and (iii) one-third of the shares vest on
March 2, 2026.
In April and May 2022, we issued an aggregate of 1,047,997 shares of restricted stock to certain of our employees,
SSH employees, and independent directors for no cash consideration. The share price on the issuances dates was $21.33 and
$26.11 per share, respectively. The vesting schedule for these restricted shares for employees and SSH employees is (i) one-
third of the shares vest on September 3, 2024, (ii) one-third of the shares vest on September 2, 2025, and (iii) one-third of the
shares vest on September 1, 2026. The vesting schedule for these restricted shares for independent directors is (i) one-third of
the shares vested on December 1, 2022, (ii) one-third of the shares vest on December 1, 2023, and (iii) one-third of the shares
vest on December 1, 2024.
F-54
There were 35,250 shares eligible for issuance under the 2013 Equity Incentive Plan as of December 31, 2022.
The following is a summary of activity for awards of restricted stock during the years ended December 31, 2022 and
2021:
Outstanding and non-vested, December 31, 2020 .....................................
Granted ...............................................................................................
Vested .................................................................................................
Forfeited .............................................................................................
Outstanding and non-vested, December 31, 2021 .....................................
Granted ...............................................................................................
Vested .................................................................................................
Forfeited .............................................................................................
Outstanding and non-vested, December 31, 2022 .................................
Number of
Shares
3,806,773 $
276,369
(1,085,150)
—
2,997,992
1,047,997
(1,337,500)
(2,500)
2,705,989 $
Weighted
Average
Grant Date
Fair Value
24.19
18.38
25.27
—
23.27
21.39
25.11
16.66
21.63
Compensation expense is recognized ratably over the vesting periods for each tranche using the straight-line
method.
Assuming that all the restricted stock will vest, the stock compensation expense in future periods, including that
related to restricted stock issued in prior periods will be:
In thousands of U.S. dollars
For the year ending December 31, 2023 .........................................................
For the year ending December 31, 2024 .........................................................
For the year ending December 31, 2025 .........................................................
For the year ending December 31, 2026 .........................................................
Employees
13,198
7,910
3,427
1,095
25,630
$
Directors
Total
703
222
—
—
925
$
13,901
8,132
3,427
1,095
26,555
$
Dividend Payments
The following dividends were paid during the years ended December 31, 2022, 2021 and 2020.
Dividends
per share
$0.100
$0.100
$0.100
$0.100
$0.100
$0.100
$0.100
$0.100
$0.100
$0.100
$0.100
$0.100
Date Paid
March 13, 2020
June 15, 2020
September 29, 2020
December 14, 2020
March 15, 2021
June 15, 2021
September 29, 2021
December 15, 2021
March 15, 2022
June 15, 2022
September 15, 2022
December 15, 2022
Convertible Notes Due 2025
In December 2022, all of the holders of the Convertible Notes Due 2025 converted their notes into an aggregate
5,757,698 of our common shares, as described in Note 12.
F-55
2015 Securities Repurchase Program
In May 2015, our Board of Directors authorized a new Securities Repurchase Program to purchase up to an
aggregate of $250 million of our securities.
During the year ended December 31, 2020, we acquired an aggregate of 1,170,000 of our common shares at an
average price of $11.18 per share for a total of $13.1 million.
Between July 1, 2020 and September 30, 2020 we repurchased $52.3 million face value of our Convertible Notes
Due 2022 at an average price of $894.12 per $1,000 principal amount, or $46.7 million and we recorded a $1.0 million gain
on repurchase of Convertible Notes within the consolidated statements of income or loss.
2020 $250 Million Securities Repurchase Program
In September 2020, our Board of Directors authorized a new securities repurchase program to purchase up to an
aggregate of $250 million of securities, which, in addition to our common shares, consisted of our Senior Notes Due 2025
(NYSE: SBBA), Convertible Notes Due 2022, and Convertible Notes Due 2025 at the date of authorization. The
aforementioned repurchases of common stock and our convertible notes were executed under the 2015 Securities Repurchase
Program, which was terminated upon the authorization of the 2020 $250 Million Securities Repurchase Program. We had the
following activity under our 2020 $250 Million Securities Repurchase Program during the year ended December 31, 2022:
•
In May and July 2022, we repurchased $10.8 million and $1.5 million, respectively, in aggregate principal
amount of our Convertible Notes Due 2025 in the open market for $12.6 million and $1.7 million.
• Through October 2022, we repurchased an aggregate of 3,120,341 of our common shares at an average price of
$38.66 per share. These repurchases include the repurchase of 1,293,661 of our common shares from Eneti Inc.,
a related party, for $38.65 per share and 1,826,680 common shares in the open market for an average price of
$38.66 per share.
2022 $250 Million Securities Repurchase Program
In October 2022, our Board of Directors authorized a new securities repurchase program to purchase up to an
aggregate of $250 million of securities, which, in addition to our common shares, consisted of our Senior Notes Due 2025
(NYSE: SBBA), and Convertible Notes Due 2025 at the date of authorization. The 2020 $250 Million Securities Repurchase
Program was terminated upon the authorization of the 2022 $250 Million Securities Repurchase Program.
In December 2022, we repurchased 789,532 of our common shares in the open market at an average price of $51.61
per share under the 2022 $250 Million Securities Repurchase Program.
There were 11,429,197 and 7,519,324 common shares held in treasury at December 31, 2022 and 2021, respectively.
We had $209.3 million remaining under our 2022 $250 Million Securities Repurchase Program as of December 31,
2022. This program was terminated in February 2023 and replaced with a new securities repurchase program as described in
Note 23. We expect to repurchase any securities in the open market, at times and prices that are considered to be appropriate,
but we are not obligated under the terms of the program to repurchase any securities.
Shares outstanding
We currently have 175,000,000 registered shares authorized of which 150,000,000 are designated as common shares
with a par value of $0.01 and 25,000,000 are designated as preferred shares with a par value of $0.01.
As of December 31, 2022, we had 61,262,838 common shares outstanding. These shares provide the holders with
rights to dividends and voting rights.
15. Related party transactions
Our vessels are commercially managed by SCM and technically managed by SSM pursuant to the terms and
conditions set forth under a revised master agreement which was effective as from January 1, 2018 (the “Revised Master
Agreement”).
The Revised Master Agreement may be terminated by either party upon 24 months’ notice, unless terminated earlier
in accordance with the provisions of the Revised Master Agreement. In the event of the sale of one or more vessels, a notice
period of three months and a payment equal to three months of management fees will apply, provided that the termination
does not amount to a change in control, including a sale of all or substantially all of our vessels, in which case a payment
F-56
equal to 24 months of management fees will apply. SCM and SSM are related parties of ours. We expect that any additional
vessels that we may acquire in the future will also be managed under the Revised Master Agreement or on substantially
similar terms.
Transactions with entities controlled by the Lolli-Ghetti family (herein referred to as related parties) in the
consolidated statements of income or loss and balance sheets are as follows:
In thousands of U.S. dollars
Pool revenue(1)
For the year ended December 31,
2020
2021
2022
Scorpio MR Pool Limited .............................................................................
Scorpio LR2 Pool Limited ............................................................................
Scorpio Handymax Tanker Pool Limited .....................................................
Scorpio LR1 Pool Limited ............................................................................
Voyage revenue(2) ................................................................................................
Time charter-out revenue (3) .................................................................................
Voyage expenses(4) ..............................................................................................
Vessel operating costs(5) .......................................................................................
Administrative expenses(6) ...................................................................................
$ 639,743
456,002
79,636
11,196
5,657
2,358
(9,194)
(33,084)
(13,175)
$ 256,874
180,912
50,143
47,053
—
—
(1,461)
(35,427)
(13,557)
$ 340,937
369,476
105,355
87,028
2,334
—
(3,507)
(33,896)
(13,876)
Purchases of bunkers(7) ........................................................................................
(45,957)
(2,561)
(3,556)
(1) These transactions relate to revenue earned in the Scorpio Pools. The Scorpio Pools are related parties. When our vessels are in the Scorpio Pools, SCM,
the pool manager, charges fees of $300 per vessel per day with respect to our LR1/Panamax and Aframax vessels, $250 per vessel per day with respect
to our LR2 vessels, and $325 per vessel per day with respect to each of our Handymax and MR vessels, plus a commission of 1.50% on gross revenue
per charter fixture. These are the same fees that SCM charges other vessels in these pools, including third party vessels.
(2) These transactions relate to revenue earned in the spot market on voyages chartered through SSH, a related party.
(3) These transactions relate to revenue earned for certain vessels on time charter, which have been time chartered out through SSH to the end customer.
(4) Related party expenditures included within voyage expenses in the consolidated statements of income or loss consist of the following:
• Expenses due to SCM, a related party, for commissions related to the commercial management services provided by SCM under the commercial
management agreement for vessels that are not in one of the Scorpio Pools. SCM’s services include securing employment, in the spot market and on
time charters, for our vessels. When not in one of the Scorpio Pools, each vessel pays (i) flat fees of $250 per day for LR1/Panamax and
LR2/Aframax vessels and $300 per day for Handymax and MR vessels and (ii) commissions of 1.25% of their gross revenue per charter fixture.
• Voyage expenses also consist of $2.4 million, $19,175 and $4,925 charged by related party port agents during the years ended December 31, 2022,
2021 and 2020. SSH has a majority equity interest in port agents that provide supply and logistical services for vessels operating in the regions.
(5) Related party expenditures included within vessel operating costs in the consolidated statements of income or loss consist of the following:
• Technical management fees of $29.8 million, $32.7 million, and $31.9 million charged by SSM, a related party, during the years ended
December 31, 2022, 2021 and 2020 respectively. SSM’s services include day-to-day vessel operations, performing general maintenance, monitoring
regulatory and classification society compliance, 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 providing technical support. SSM administers the payment of salaries
to our crew on our behalf. The crew wages that were administered by SSM (and disbursed through related party subcontractors of SSM) were
$141.2 million, $152.0 million, and $146.0 million during the years ended December 31, 2022, 2021, and 2020 respectively. SSM’s annual technical
management fee is a fixed fee of $175,000 per vessel plus certain itemized expenses pursuant to the technical management agreement.
• Vessel operating expenses of $3.3 million, $2.7 million, and $2.0 million charged by a related party port agent during the years ended December 31,
2022, 2021 and 2020, respectively.
(6) We have an Amended Administrative Services Agreement with SSH for the provision of administrative staff and office space, and administrative
services, including accounting, legal compliance, financial and information technology services. SSH also administers the payroll for certain of our
employees. SSH is a related party to us. The services provided to us by SSH may be sub-contracted to other entities within Scorpio. The expenses
incurred under this agreement were recorded in general and administrative expenses in the consolidated statement of income or loss and were as follows:
• The expense for the year ended December 31, 2022 of $13.2 million included (i) administrative fees of $11.0 million charged by SSH, (ii) restricted
stock amortization of $2.0 million, which relates to the issuance of an aggregate of 493,300 shares of restricted stock to SSH employees for no cash
consideration pursuant to the 2013 Equity Incentive Plan, and (iii) the reimbursement of expenses of $81,762 to SSH and $36,869 to SCM.
• The expense for the year ended December 31, 2021 of $13.6 million included (i) administrative fees of $12.2 million charged by SSH, (ii) restricted
stock amortization of $1.3 million, which relates to the issuance of an aggregate of 315,950 shares of restricted stock to SSH employees for no cash
consideration pursuant to the 2013 Equity Incentive Plan and (iii) the reimbursement of expenses of $51,962 to SSH and $14,726 to SCM.
• The expense for the year ended December 31, 2020 of $13.9 million included (i) administrative fees of $12.6 million charged by SSH, (ii) restricted
stock amortization of $1.2 million, which relates to the issuance of an aggregate of 315,950 shares of restricted stock to SSH employees for no cash
consideration pursuant to the 2013 Equity Incentive Plan and (iii) the reimbursement of expenses of $19,772 to SSH and $45,539 to SCM.
(7) These amounts represent bunkers purchased from a related party which, for vessels operating in the spot market, are initially recorded as part of
inventory on the balance sheet prior to being consumed.
F-57
We had the following balances with related parties, which have been included in the consolidated balance sheets:
In thousands of U.S. dollars
Assets:
Accounts receivable (due from the Scorpio Pools)(1) ...................................................................
Prepaid expenses (SSM)(2) ...........................................................................................................
Accounts receivable (SSH) ..........................................................................................................
Prepaid expenses (related party port agent) .................................................................................
Prepaid expenses (SCM) ..............................................................................................................
Other assets (pool working capital contributions)(3) ....................................................................
Liabilities:
Accounts payable and accrued expenses (owed to the Scorpio Pools)(4) .....................................
Accounts payable and accrued expenses (related party bunker supplier) ....................................
Accounts payable and accrued expenses (related party port agent) .............................................
Accounts payable and accrued expenses (SSM) ..........................................................................
Accounts payable and accrued expenses (SCM) .........................................................................
Accounts payable and accrued expenses (SSH) ..........................................................................
As of December 31,
2021
2022
$
$ 236,389
5,450
4,976
98
84
53,161
10,090
2,380
955
823
540
287
36,216
3,426
—
—
—
73,161
2,548
—
674
9,844
25
1,888
(1) Accounts receivable due from the Scorpio Pools relate to hire receivables for revenues earned and receivables from working capital contributions. The
amounts as of December 31, 2022 included $0.6 million of working capital contributions made on behalf of our vessels to the Scorpio Pools. Upon
entrance into such pools, all vessels are required to make working capital contributions of both cash and bunkers. Additional working capital
contributions can be made from time to time based on the operating needs of the pools. These amounts are accounted for and repaid as follows:
• For vessels in the Scorpio LR2 Pool, Scorpio LR1 Pool, Scorpio MR Pool and Scorpio Handymax Tanker Pool, the initial contribution amount is
repaid, without interest, upon a vessel’s exit from the pool no later than six months after the exit date. Bunkers on board a vessel exiting the pool are
credited against such repayment at the actual invoice price of the bunkers. For all owned or lease financed vessels we assume that these
contributions will not be repaid within 12 months and are thus classified as non-current within other assets on the consolidated balance sheets.
• For time or bareboat chartered-in vessels we classify the initial contributions as current (within accounts receivable) or non-current (within other
assets) according to the expiration of the contract. Any additional working capital contributions are repaid when sufficient net revenues become
available to cover such amounts.
(2) Accounts receivable and prepaid expenses from SSM primarily relate to advances made for vessel operating expenses (such as crew wages) that will
either be reimbursed or applied against future costs.
(3) Represents the non-current portion of working capital receivables as described above.
(4) Accounts payable and accrued expenses owned to the Scorpio Pools relate to expenses incurred by the Scorpio Pools on behalf of certain of our vessels.
Other transactions
Starting in October 2019, we provided guarantees in respect of the payment obligations of a related party bunker
provider (who is engaged in the procurement of bunkers on behalf of the Company and the Scorpio Pools) toward its physical
suppliers. These guarantee agreements expired during the year ended December 31, 2021 and no amounts were paid to this
provider under these guarantees during the years ended December 31, 2021 and 2020.
As described in Note 8, in August 2021, we acquired a minority interest in a portfolio of nine product tankers,
consisting of five dual-fuel MR methanol tankers (built between 2016 and 2021) along with four ice class 1A LR1 product
tankers. Two of the LR1 tankers that are part of this joint venture are commercially and technically managed by SCM and
SSM, respectively.
During the year ended December 31, 2022, we sold 18 vessels, consisting of three LR2s, 12 LR1s and three MRs.
Pursuant to the Revised Master Agreement with SCM and SSM, in the event of the sale of one or more vessels, a notice
period of three months and a payment equal to three months of commercial and technical management fees would be due and
payable upon the sales of these vessels.
Termination fees of $2.5 million and $1.4 million were paid to SCM and SSM respectively, during the year ended
December 31, 2022 as a result of these sales.
SSH also owns a non-controlling 7.5% interest in the buyer of one of the MR product tankers. SSH also has an
interest in the entity that bareboat chartered-in one of the MR product tankers that we sold in 2022. During 2022, we received
an insurance claim of $1.7 million for certain repairs that this vessel required but were not yet undertaken. As part of the sale
of this vessel, we forwarded these funds to SSH in August 2022.
F-58
In August 2022, we repurchased 1,293,661 of our common shares from Eneti Inc., a related party, for $38.65 per
share.
Key management remuneration
The table below shows key management remuneration for the years ended December 31, 2022, 2021, and 2020:
In thousands of U.S. dollars
Short-term employee benefits ..............................................................................
Share-based compensation(1) ................................................................................
Total ....................................................................................................................
For the year ended December 31,
2020
2021
2022
$
$
32,663
13,777
46,440
$
$
5,488
17,476
22,964
$
$
10,989
22,217
33,206
(1) Represents the amortization of restricted stock issued under our 2013 Equity Incentive Plan as described in Note 14.
For the purpose of the table above, key management are those persons who have authority and responsibility for
making strategic decisions, and managing operating, financial and legal activities.
We have entered into employment agreements with the majority of our executives. These employment agreements
remain in effect until terminated in accordance with their terms upon not less than between 24 months’ and 36 months’ prior
written notice, depending on the terms of the employment agreement applicable to each executive. Pursuant to the terms of
their respective employment agreements, our executives are prohibited from disclosing or unlawfully using any of our
material confidential information.
Upon a change in control of us, the annual bonus provided under the employment agreement becomes a fixed bonus
of between 150% and 250% of the executive’s base salary, and the executive may receive an assurance bonus equal to the
fixed bonus, depending on the terms of the employment agreement applicable to each executive.
Any such executive may 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 payments and benefits, including additional
bonus payments, otherwise due to him, to the extent permitted by applicable law, for the remaining balance 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 reimbursements beyond those accrued through the date of his termination, unless he
voluntarily terminated his employment in connection with certain conditions. Those conditions include a change in control
combined with a significant geographic relocation of his office, a material diminution of his duties and responsibilities, and
other conditions identified in the employment agreement.
There are no material post-employment benefits for our executive officers or directors. By law, our employees in
Monaco are entitled to a one-time payment of up to two months salary upon retirement if they meet certain minimum service
requirements.
16. Vessel revenue
During the years ended December 31 2022, we had 14 vessels that earned revenue through long-term time-charter
contracts (with initial terms of one year or greater), respectively. There were no vessels that earned revenue through long-
term time-charter contracts during the years ended December 31, 2021 and 2020. The remaining vessels earned revenue from
the Scorpio Pools or in the spot market. The following table sets forth our revenue, by employment type, for these periods:
In thousands of U.S. dollars
Pool revenue .................................................................................................
Voyage revenue (spot market) ......................................................................
Time charter revenue ....................................................................................
F-59
For the year ended December 31,
2021
2022
$ 1,186,577 $ 534,982 $ 902,796
13,096
—
$ 1,562,873 $ 540,786 $ 915,892
328,087
48,209
5,804
—
2020
IFRS 16 Lease Revenue
In accordance with IFRS 16 - Leases, we are required to identify the lease and non-lease components of revenue and
account for each component in accordance with the applicable accounting standard. In time charter-out or pool arrangements,
we have determined that the lease component is the vessel and the non-lease component is the technical management services
provided to operate the vessel. Each component is quantified on the basis of the relative stand-alone price of each lease
component and on the aggregate stand-alone price of the non-lease components.
These components are accounted for as follows:
• All fixed lease revenue earned under these time charter-out arrangements is recognized on a straight-line basis
over the term of the lease.
• Lease revenue earned under our pool arrangements is recognized as it is earned, since it is 100% variable.
• The non-lease component is accounted for as services revenue under IFRS 15. This revenue is recognized “over
time” as the customer (i.e. the pool or the charterer) is simultaneously receiving and consuming the benefits of
the service.
The following table summarizes the lease and non-lease components of revenue from time charter-out and pool
revenue during the years ended December 31, 2022, 2021 and 2020. These figures are not readily quantifiable as the
Company’s contracts (with the Scorpio pools or under time charter-out arrangements) do not separate these components. We
do not view pool and time charter-out revenue as two separate streams of revenue. Nevertheless, we have estimated these
amounts by reference to (i) third party, published time charter rates for the lease component, and (ii) an approximation of the
fair market value of vessel operating expenses for the non-lease component.
In thousands of U.S. dollars
Lease component of revenue from time charter-out and pool revenue ............. $ 879,168 $ 280,633 $ 548,988
353,808
Non-lease component of revenue from time charter-out and pool revenue ......
$ 1,234,786 $ 534,982 $ 902,796
254,349
355,618
For the year ended December 31,
2020
2021
2022
We entered into time charter-out agreements on 14 vessels during the year ended December 31, 2022. The terms of
the agreements, including the dates of commencement are summarized as follows:
Vessel
STI Gratitude
STI Guard
STI Gladiator
STI Guide
STI Marshall
STI Magnetic
STI Miracle
STI Memphis
STI Goal
STI Lombard
STI Gauntlet
STI Duchessa
STI Lavender
STI Grace
Vessel
class
LR2
LR2
LR2
LR2
MR
MR
MR
MR
LR2
LR2
LR2
MR
LR2
LR2
Term
Rate ($/day)
(1)
Three years $ 28,000
$ 28,000
Five years
Three years $ 28,000
Three years $ 28,000
Three years $ 23,000
Three years $ 23,000
Three years $ 21,000
Three years $ 21,000
Three years $ 30,000
Three years $ 32,750
Three years $ 32,750
Three years $ 25,000
Three years $ 35,000
Three years $ 37,500
Commencement
date
May-22
July-22
July-22
July-22
July-22
July-22
August-22
June-22
(2)
(3)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
August-22
September-22
November-22
October-22
December-22
(10) December-22
(1) This vessel commenced a time charter in May 2022 for three years at an average rate of $28,000 per day. The charterers have the option to extend the
term of this agreement for an additional year at $31,000 per day. If this option is declared, the charterers have the option to further extend the term of
this agreement for an additional year at $33,000 per day.
(2) This vessel commenced a time charter in July 2022 for five years at a rate of $28,000 per day. The charterers have the option to convert the term of this
agreement to three years at $30,000 per day, which must be declared within 30 months after the delivery date.
(3) This vessel commenced a time charter in July 2022 for three years at an average rate of $28,000 per day. The charterers have the option to extend the
term of this agreement for an additional year at $31,000 per day. If this option is declared, the charterers have the option to further extend the term of
this agreement for an additional year at $33,000 per day.
F-60
(4) This vessel commenced a time charter in July 2022 for three years at a rate of $23,000 per day. The charterers have the option to extend the term of this agreement
for an additional year at $24,000 per day. If this option is declared, the charterers have the option to further extend the term of this agreement for an additional year
at $25,000 per day. If this second option is declared, the charterers have the option to further extend the term of this agreement for an additional year at $26,000
per day.
(5) This vessel commenced a time charter in July 2022 for three years at an average rate of $23,000 per day. The daily rate is the average rate over the three
years period, which is payable in years one, two, and three at $30,000 per day, $20,000 per day, and $19,000 per day, respectively. The charterers have
the option to extend the term of this agreement for an additional year at $24,500 per day. If this option is declared, the charterers have the option to
further extend the term of this agreement for an additional year at $26,000 per day.
(6) This vessel commenced a time charter in August 2022 for three years at an average rate of $21,000 per day. The daily rate is the average rate over the
three years period, which is payable during the first six months at $30,000 per day, the next six months are payable at $20,000 per day, and years two
and three are payable at $19,000 per day. The charterers have the option to extend the term of this agreement for an additional year at $22,500 per day. If
this option is declared, the charterers have the option to further extend the term of this agreement for an additional year at $24,000 per day.
(7) This vessel commenced a time charter in June 2022 for three years at an average rate of $21,000 per day. The daily rate is the average rate over the three
years period, which is payable during the first six months at $30,000 per day, the next 6 months are payable at $20,000 per day, and years two and three
are payable at $19,000 per day. The charterers have the option to extend the term of this agreement for an additional year at $22,500 per day. If this
option is declared, the charterers have the option to further extend the term of this agreement for an additional year at $24,000 per day.
(8) This vessel commenced a time charter in August 2022 for three years at a rate of $30,000 per day. The charterers have the option to extend the term of
this agreement for an additional year at $32,000 per day. If this option is declared, the charterers have the option to further extend the term of this
agreement for an additional year at $34,000 per day.
(9) This vessel commenced a time charter in September 2022 for three years at an average rate of $32,750 per day. The charterer has the option to extend
the term of this agreement for an additional year at $34,750 per day. If this option is declared, the charterer has the option to further extend the term of
this agreement for an additional year at $36,750 per day.
(10) This vessel commenced a time charter in December 2022 for three years at an average rate of $37,500 per day. The daily rate is the average rate over the
three years period, which is payable during the first six months at $47,000 per day, the next 6 months are payable at $28,000 per day, and years two and
three are payable at $37,500 per day.
IFRS 15 Revenue from Contracts with Customers
Given the changes in trading patterns for refined petroleum products brought on by the conflict in Ukraine beginning
in March 2022, we had an increased number of vessels trading in the spot market during the year ended December 31, 2022.
For vessels operating in the spot market, we recognize revenue ‘over time’ as the customer (i.e. the charterer) is
simultaneously receiving and consuming the benefits of the vessel. Under IFRS 15, the performance obligation has been
identified as the transportation of cargo from one point to another. Therefore, in a spot market voyage under IFRS 15,
revenue is recognized on a pro-rata basis commencing on the date that the cargo is loaded and concluding on the date of
discharge. We also consider short-term time charters (with initial terms of less than one year) as spot market voyages. These
voyages are accounted for under IFRS 16 – Leases (given the contractual nature of the agreements), but are disclosed as spot
market voyages in the table above given their short term nature, and greater exposure to spot market volatility.
Under spot market voyage charters, we pay voyage expenses, and therefore this increase in spot market revenue
during the year ended December 31, 2022 also resulted in an increase in voyage expenses. Voyage expenses for the year
ended December 31, 2022 consisted of bunker consumption of $50.2 million, port and agency expenses of $23.2 million,
voyage related insurance of $7.7 million, and other voyage related expenses (including commissions) of $11.6 million.
17. Crewing costs
The following table sets forth the components of our crew expenses, including crew benefits, during the years ended
December 31, 2022, 2021 and 2020, respectively.
In thousands of US dollars
Short term crew benefits (i.e. wages, victualing, insurance) ................................
Other crewing related costs ..................................................................................
For the year ended December 31,
2020
2022
2021
173,912
171,546
155,782
24,375
24,743
26,311
$ 198,287
$ 197,857
$ 180,525
There are no material post-employment benefits for our crew.
18. General and administrative expenses
General and administrative expenses primarily represent employee benefit expenses, professional fees and
administrative fees payable to SSH under our administrative services agreement (as described in Note 15).
F-61
Employee benefit expenses (excluding crew) consist of:
In thousands of U.S. dollars
Short term employee benefits ..............................................................................
Share based compensation (see Note 14) .............................................................
For the year ended December 31,
2020
2021
2022
$
$
46,678
20,397
67,075
$
$
10,841
22,931
33,772
$
$
18,099
28,506
46,605
There are no material post-employment benefits for our executive officers or directors. By law, our employees in
Monaco are entitled to a one-time payment of up to two months salary upon retirement if they meet certain minimum service
requirements.
19. Financial expenses
The following table sets forth the components of our financial expenses for the years ended December 31, 2022,
2021 and 2020:
In thousands of U.S. dollars
Interest expense on debt, net of capitalized interest(1) ..........................................
Accretion of convertible notes (as described in Note 12) ....................................
Amortization of deferred financing fees ..............................................................
Loss on extinguishment of debt and write-off of deferred financing fees(2) ........
Accretion of premiums and discounts on debt(3) ..................................................
Total financial expenses .....................................................................................
For the year ended December 31,
2020
2022
2021
$ 132,423
$ 115,983
$ 137,123
8,413
13,265
12,718
6,657
7,570
6,385
4,056
3,604
11,463
3,422
3,682
2,106
$ 154,971
$ 144,104
$ 169,795
(1) The increase in interest expense, net of capitalized interest during the year ended December 31, 2022 is primarily attributable to higher average LIBOR
rates compared to the year ended December 31, 2021. As a result of the easing of COVID-19 restrictions, the related economic recovery and
corresponding inflationary pressures, LIBOR rates increased significantly throughout 2022. The increases in LIBOR rates were partially offset by the
overall reductions in the our indebtedness arising from the sales of 18 vessels (and repayments of the related debt or lease financing obligations) along
with the exercise of purchase options on 22 lease financed vessels, the maturity of the Convertible Notes Due 2022 in May 2022, and the conversion of
the Convertible Notes Due 2025 in December 2022. The combination resulted in higher interest expense for the year ended December 31, 2022
compared to December 31, 2021 despite the decrease in the average carrying value of our debt to $2.69 billion during the year ended December 31, 2022
compared to $3.14 billion for the year ended December 31, 2021.
The decrease in interest expense during the year ended December 31, 2021 is primarily attributable to lower LIBOR rates. As a result of the COVID-19
pandemic, LIBOR rates decreased significantly during the year ended December 31, 2020. Given the timing of when interest rates are fixed on our
variable rate borrowings, this increase primarily impacted our interest expense in the second half of that year and throughout 2021. The average carrying
value of our debt was relatively unchanged at $3.14 billion compared to $3.13 billion for the years ended December 31, 2021 and 2020, respectively.
Interest payable during those periods was offset by interest capitalized of $0.2 million, $0.2 million and $1.4 million, during the years ended
December 31, 2022, 2021, and 2020 respectively.
(2) The loss on extinguishment of debt and write-off of deferred financing fees during the year ended December 31, 2022 include (i) $6.6 million of write-
offs of deferred financing fees related to the repayments of debt for the 18 vessels sold during the year along with the notifications to exercise purchase
options on certain lease financed vessels during the year, (ii) $4.9 million in costs related to the extinguishment of debt, (iii) $0.9 million of write-offs of
the discounts related to the payment of indebtedness on certain vessels sold and to the notifications to exercise purchase options on certain vessels, and
(iv) a gain of $0.9 million related to the adjustment of the carrying values of certain sale and leaseback arrangements related to the notifications to
exercise purchase options.
The loss on extinguishment of debt and write-off of deferred financing fees during the year ended December 31, 2021 include (i) $3.0 million of write-
offs of deferred financing fees related to the refinancing of existing indebtedness on certain vessels and (ii) $0.6 million of write-offs of the premium and
discounts related to the refinancing of existing indebtedness on certain vessels.
The loss on extinguishment of debt and write-off of deferred financing fees during the year ended December 31, 2020 include write-offs of deferred
financing fees of (i) $2.7 million related to the refinancing of existing indebtedness on certain vessels, (ii) $2.0 million of cash prepayment fees,
primarily from CSSC Lease Financing (as described in Note 12), offset by (iii) $0.7 million of the premium and discounts related to the refinancing of
existing indebtedness on certain vessels.
(3) The accretion of premiums and discounts primarily represents the accretion or amortization of the fair value adjustments relating to the indebtedness
assumed as part of the 2017 acquisition of Navig8 Product Tankers Inc.
F-62
20. Tax
Scorpio Tankers Inc. and its vessel-owning or leasing subsidiaries are incorporated in either the Republic of the
Marshall Islands or in Singapore. We are not subject to Marshall Islands’ income tax in accordance with the income tax laws
of the Marshall Islands, and we are eligible for tax exemptions in accordance with the income tax laws of Singapore. Based
upon review of applicable laws and regulations, and after consultation with counsel, we do not believe we are subject to
material income taxes in any jurisdiction, including the United States of America. Therefore, we did not have any income tax
charges, benefits, or balances as of or for the periods ended December 31, 2022, 2021 and 2020.
21. Earnings / (loss) per share
The calculation of both basic and diluted loss per share is based on net loss attributable to equity holders of the
parent and weighted average outstanding shares of:
In thousands of U.S. dollars except for share data
Net income/(loss) attributable to equity holders of the
parent - basic .................................................................................... $
Convertible notes interest expense, accretion, and deferred
For the year ended December 31,
2021
2020
2022
637,251 $
(234,434) $
94,124
financing amortization ..................................................................
19,584
—
—
Net income/(loss) attributable to equity holders of the
parent - diluted ................................................................................. $
656,835 $
(234,434) $
94,124
Basic weighted average number of shares ...........................................
Effect of dilutive potential basic shares:
Restricted stock ................................................................................
Convertible notes ..............................................................................
Diluted weighted average number of shares ........................................
55,455,277
54,718,709
54,665,898
2,610,544
5,445,455
8,055,999
63,511,276
—
—
—
54,718,709
1,726,413
—
1,726,413
56,392,311
Earnings/(Loss) Per Share:
Basic ................................................................................................. $
Diluted .............................................................................................. $
11.49 $
10.34 $
(4.28) $
(4.28) $
1.72
1.67
During the year ended December 31, 2022, the inclusion of potentially dilutive shares relating to unvested restricted
stock and our Convertible Notes Due 2022 and Convertible Notes Due 2025 were included in the computation of diluted
earnings per share because their effect was dilutive. The inclusion of potentially dilutive shares of unvested restricted stock
reflects the dilutive impact of 2,705,989 unvested shares of restricted stock. The inclusion of potentially dilutive shares
relating to our Convertible Notes Due 2022 and Convertible Notes Due 2025 represents the potentially dilutive shares arising
from these instruments for an aggregate of 7,661,365 shares. The Convertible Notes Due 2022 matured in May 2022 and
were repaid in cash upon maturity. Accordingly, the potentially dilutive impact of this instrument is included in the weighted
average number of shares for a portion of the period, through the maturity date. In December 2022, all of the holders of the
Company’s Convertible Notes Due 2025 converted their notes into an aggregate of 5,757,698 common shares of the
Company. Accordingly, the potentially dilutive impact of this instrument was included in the weighted average number of
shares for a portion of the period, through the conversion date.
During the year ended December 31, 2021, we incurred a net loss and as a result, the inclusion of potentially dilutive
shares relating to unvested shares of restricted stock and our Convertible Notes Due 2022 and Convertible Notes Due 2025
were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.
Accordingly, interest expense, deferred financing amortization, and the potentially dilutive securities relating to the
conversion of the Convertible Notes Due 2022 and Convertible Notes Due 2025 (representing 7,324,132 shares of common
stock for the year ended December 31, 2021) along with the potentially dilutive impact of 2,997,992 unvested shares of
restricted stock were excluded from the computation of diluted loss per share for the year ended December 31, 2021.
During the year ended December 31, 2020, the inclusion of potentially dilutive shares relating to our Convertible
Notes Due 2022 (representing an aggregate of 4,004,702 shares of common stock) were excluded from the computation of
diluted earnings per share because their effect under the if-converted method would have been anti-dilutive.
F-63
22. Financial instruments - financial and other risks
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.
IFRS 13 requires classifications 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). Level 3 fair value measurements are those
derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The fair values and carrying values of our financial instruments at December 31, 2022 and 2021, respectively, are
shown in the table below.
Categories of Financial Instruments
Amounts in thousands of U.S. dollars
Financial assets
Cash and cash equivalents(1) ...............................................
Restricted cash(2) .................................................................
Accounts receivable(3) .........................................................
Investment in BWTS(4) .......................................................
Working capital contributions to Scorpio Pools(5) ..............
Seller’s credit on sale leaseback vessels(6) ..........................
Financial liabilities
Accounts payable(7) .............................................................
Accrued expenses(7) ............................................................
Secured bank loans(8) ..........................................................
Sale and leaseback liability(9) ..............................................
IFRS 16 - lease liability(10) ..................................................
Unsecured Senior Notes Due 2025(11) .................................
Convertible Notes Due 2022(12) ..........................................
Convertible Notes Due 2025(12) ..........................................
As of December 31, 2022
Carrying
Value
Fair value
As of December 31, 2021
Fair value
Carrying
Value
$
376,870 $
783
276,700
1,751
53,161
11,430
376,870 $
783
276,700
1,751
53,161
11,430
230,415 $
4,791
38,069
1,751
73,161
10,793
230,415
4,791
38,069
1,751
73,161
10,793
$
28,748 $
91,508
226,896
1,139,877
495,234
69,639
—
—
28,748 $
91,508
226,896
1,140,614
495,875
70,571
—
—
35,080 $
24,906
566,310
1,648,993
575,834
69,366
69,059
195,438
35,080
24,906
566,310
1,639,991
575,377
70,209
69,695
208,133
(1) Cash and cash equivalents are considered Level 1 items as they represent liquid assets with short-term maturities.
(2) Restricted cash are considered Level 1 items due to the liquid nature of these assets.
(3) We consider that the carrying amount of accounts receivable approximate their fair value due to the relative short maturity of these instruments.
(4) We consider the fair value of our minority interest in our BWTS supplier (as described in Note 8) to be a Level 3 fair value measurement, as this
supplier is a private company and the value has been determined based on unobservable market data (i.e. the proceeds that we would receive if we
exercised the put option set forth in the agreement in full). Moreover, we consider that its carrying value approximates fair value given that the value of
this investment is contractually limited to the strike prices set forth in the put and call options prescribed in the agreement and the difference between
the two prices is not significant. The difference in the aggregate value of the investment, based on the spread between the exercise prices of the put and
call options is $0.6 million.
(5) Non-current working capital contributions to the Scorpio Pools are repaid, without interest, upon a vessel’s exit from the pool. For all owned vessels,
excluding those under long-term time charters, we assume that these contributions will not be repaid within 12 months and are thus classified as non-
current within Other Assets on the consolidated balance sheets. We consider that their carrying values approximate fair value given that the amounts
due are contractually fixed based on the terms of each pool agreement.
(6)
The seller’s credit on lease financed vessels represents the present value of the deposits of $4.35 million per vessel ($13.1 million in aggregate) that
was retained by the buyer as part of the sale and operating leasebacks of STI Beryl, STI Le Rocher and STI Larvotto. This deposit will either be applied
to the purchase price of the vessel if a purchase option is exercised or refunded to us at the expiration of the agreement. This deposit has been recorded
as a financial asset measured at amortized cost. The present value of this deposit has been calculated based on the interest rate that is implied in the
lease, and the carrying value will accrete over the life of the lease using the effective interest method, through interest income, until expiration. We
consider that its carrying value approximates fair value given that its value is contractually fixed based on the terms of each lease.
(7) We consider that the carrying amounts of accounts payable and accrued expenses approximate the fair value due to the relative short maturity of these
instruments.
F-64
(8) The carrying value of our secured bank loans are measured at amortized cost using the effective interest method. We consider that their carrying value
approximates fair value because the interest rates on these instruments change with, or approximate, market interest rates and the credit risk of the
Company has remained stable. Accordingly, we consider their fair value to be a Level 2 measurement. These amounts are shown net of $2.8 million
and $6.4 million of unamortized deferred financing fees as of December 31, 2022 and 2021, respectively.
(9)
The carrying value of our obligations due under sale and leaseback arrangements are measured at amortized cost using the effective interest method.
With the exception of our fixed rate sale and leaseback arrangements (as denoted in Note 12), we consider that their carrying value approximates fair
value because the interest rates on these instruments change with, or approximate, market interest rates and the credit risk of the Company has
remained stable. The fair value of leases with fixed payments are measured at the net discounted value of the remaining minimum lease payments
using our incremental borrowing rate at December 31, 2022. Accordingly, we consider their fair value to be a Level 2 measurement. These amounts are
shown net of $8.2 million and $13.1 million of unamortized deferred financing fees as of December 31, 2022 and 2021, respectively.
(10) The carrying value of our lease obligations that are being accounted for under IFRS 16 are measured at the present value of the minimum lease
payments under each contract. These leases are mainly comprised of the leases acquired as part of the Trafigura Transaction. We consider that their
carrying value approximates fair value because the interest rates on these leases change with, or approximate, market interest rates and the credit risk of
the Company has remained stable. The fair value of leases with fixed payments are measured at the net discounted value of the remaining minimum
lease payments using our incremental borrowing rate at December 31, 2022 and 2021. Accordingly, we consider their fair value to be a Level 2
measurement.
(11) The carrying value of our Senior Notes Due 2025 is measured at amortized cost using the effective interest method. The carrying value of our Senior
Notes Due 2025 shown in the table above is their face value. The Senior Notes due 2025 are shown net of $1.7 million of deferred financing fees and
$0.1 million of unamortized discount on our consolidated balance sheet as of December 31, 2022. The Senior Notes due 2025 are shown net of $2.3
million of deferred financing fees and $0.2 million of unamortized discount on our consolidated balance sheet as of December 31, 2021. Our Senior
Notes Due 2025 are quoted on the NYSE under the symbol ‘SBBA’. We consider their fair value to be a Level 1 measurement due to their quotation
on an active exchange.
(12) The Convertible Notes due 2022 matured on May 15, 2022 and the aggregate outstanding principal amount was repaid in cash upon maturity. In
December 2022, all of the holders of the Company’s Convertible Notes due 2025 converted their notes into an aggregate of 5,757,698 common shares
of the Company.
The carrying values of our Convertible Notes due 2022 and 2025 shown in the table above are their face value as of December 31, 2021. The liability
components of the Convertible Notes due 2022 and 2025 were recorded within Long-term debt on the consolidated balance sheet as of December 31,
2021. The equity components of the Convertible Notes due 2022 and 2025 were recorded within Additional paid-in capital on the consolidated balance
sheet as of December 31, 2021. These instruments were quoted in inactive markets and are valued based on their quoted prices on the recent trading
activity. Accordingly, we consider their fair value to be a Level 2 measurement as of December 31, 2021.
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, liquidity risk and foreign exchange
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 risks inherent with the tanker industry, which has historically been volatile, and
financial risks of changes in interest rates.
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 operate in the spot market or participate in pools that are concentrated in the spot
market such as the Scorpio Pools. Additionally, we have the ability to remove our vessels from the pools on relatively short
notice if attractive time charter opportunities arise. A $1,000 per day increase or decrease in spot rates for all of our vessel
classes operating in the spot market or in the Scorpio Pools would have increased or decreased our operating income by
$40.3 million, $46.9 million and $46.2 million for the years ended December 31, 2022, 2021, and 2020, respectively.
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.
If interest rates had been 1% higher/lower and all other variables were held constant, our net income for the year
ended December 31, 2022 would have decreased/increased by $22.8 million. This is mainly attributable to our exposure to
interest rate movements on our variable interest rate credit facilities, lease financing arrangements and leases being accounted
for under IFRS 16 as described in Notes 6 and 12.
F-65
If interest rates had been 1% higher/lower and all other variables were held constant, our net loss for the year ended
December 31, 2021 would have decreased/increased by $26.5 million. This is mainly attributable to our exposure to interest
rate movements on our variable interest rate credit facilities, lease financing arrangements and leases being accounted for
under IFRS 16 as described in Notes 6 and 12.
If interest rates had been 1% higher/lower and all other variables were held constant, our net income for the year
ended December 31, 2020 would have decreased/increased by $26.7 million. This is mainly attributable to our exposure to
interest rate movements on our variable interest rate credit facilities, lease financing arrangements and leases being accounted
for under IFRS 16 that were in place during that year.
Interest in most of our financing agreements has been based on published rates for LIBOR. The ICE Benchmark
Administration (“IBA”), the administrator of LIBOR, with the support of the United States Federal Reserve and the United
Kingdom’s Financial Conduct Authority, announced the publication of all U.S. Dollar LIBOR tenors will cease on June 30,
2023. As such, we will need to transition our existing loan and lease financing agreements from U.S. Dollar LIBOR to an
alternative reference rate prior to June 2023.
In response to the anticipated discontinuation of LIBOR, working groups are converging on alternative reference
rates. The Alternative Reference Rate Committee, a committee convened by the Federal Reserve that includes major market
participants, has proposed an alternative rate to replace U.S. Dollar LIBOR: the Secured Overnight Financing Rate, or
“SOFR.”
Since the initial publication of SOFR, daily changes in the rate have, on occasion, been more volatile than daily
changes in comparable benchmark or market rates, and SOFR over time may bear little or no relation to the historical
indicative data. Additionally, our credit facilities or lease financing arrangements may include a credit adjustment on SOFR
due to LIBOR representing an unsecured lending rate while SOFR represents a secured lending rate. The possible volatility
of and uncertainty around SOFR as a LIBOR replacement rate and the applicable credit adjustment could result in higher
borrowing costs for us, which may adversely affect our liquidity, financial condition, and results of operations.
As described in Note 23, we have executed credit facilities in 2023 that are based on SOFR. We have also
commenced discussions with our existing financing institutions and expect to execute amendments to our loan and leasing
agreements changing the reference rate to SOFR.
Credit risk
Credit risk is the potential exposure of loss in the event of non-performance by customers and derivative instrument
counterparties.
We only place cash deposits with major banks covered with strong and acceptable credit ratings.
Accounts receivable are generally not collateralized; however, we believe that the credit risk is partially offset by the
creditworthiness of our counterparties including the commercial manager. We did not experience any material credit losses
on our accounts receivables portfolio in the years ended December 31, 2022, 2021, and 2020.
The carrying amount of financial assets recognized on our consolidated financial statements represents the
maximum exposure to credit risk without taking into account the value of any collateral obtained. We did not experience any
impairment losses on financial assets in the years ended December 31, 2022, 2021, and 2020.
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. Liquidity risks can manifest themselves when economic conditions
deteriorate or when we have significant maturities of our financial instruments.
F-66
Financing risks
During 2023, and in addition to our regularly scheduled debt and lease repayments, we have committed to the
following:
• The exercise of the purchase options on two MR product tankers (STI Brooklyn and STI Ville) and two LR2
product tankers (STI Rose and STI Rambla) under our AVIC Lease Financing. These purchases closed in
January 2023 resulting in a reduction of the related lease liability of $77.8 million.
• The exercise of the purchase options on three LR2 product tankers (STI Sanctity, STI Steadfast and STI
Supreme) that are currently financed under our Ocean Yield sale and leaseback arrangement. The purchase of
STI Sanctity closed in March 2023 for $27.8 million and the remaining purchases are expected to occur in the
second, and third quarters of 2023 and result in an aggregate reduction of the related lease liability of
$55.6 million.
• The exercise of the purchase options on STI Grace and STI Jermyn which are financed under the 2021 CSSC
Lease Financing. These purchases are expected to result in an aggregate reduction of the lease liability of
$46.9 million and are expected to occur in May 2023.
• The exercise of the purchase options on STI Lavender, STI Magnetic, STI Marshall and STI Miracle which are
financed under the IFRS 16 - Leases - $670.0 Million lease financing. These purchases are expected to result in
an aggregate reduction of the lease liability of $102.9 million and are expected to occur in May 2023.
We do not have any other debt or leasing financing arrangements that are scheduled to mature or expire within
twelve months from the date of these financial statements.
While we believe our current financial position is adequate to address these cash outflows, a deterioration in
economic conditions could cause us to breach the covenants under our financing arrangements and could have a material
adverse effect on our business, results of operations, cash flows and financial condition. These circumstances could cause us
to seek covenant waivers from our lenders and to pursue other means to raise liquidity, such as through the sale of vessels or
in the capital markets, to meet our obligations.
COVID-19 risks
Since the beginning of calendar year 2020, the outbreak of the COVID-19 virus has resulted in a significant
reduction in global economic activity and extreme volatility in the global financial markets, the effects of which continued
throughout 2021 and 2022. The easing of restrictive measures that were put in place to combat the spread of the virus, and the
successful roll-out of vaccines, has served as a catalyst for an economic recovery in many countries throughout the world,
which has, in part, led to a vastly improved financial performance starting in the second quarter of 2022. Nevertheless, we
expect that the COVID-19 virus will continue to cause volatility in the commodities markets in the future. In particular, the
spread of more contagious and vaccine resistant variants, along with the continued implementation of restrictive measures by
governments in certain parts of the world, have hampered a full re-opening of the global economy. The scale and duration of
these circumstances is unknowable but could have a material impact on our earnings, cash flow and financial condition. An
estimate of the impact on our results of operations, financial condition, and future performance cannot be made at this time.
Conflict in Ukraine
The ongoing military conflict in Ukraine has had a significant direct and indirect impact on the trade of refined
petroleum products. This conflict has resulted in the United States, United Kingdom, and the European Union, among other
countries, implementing sanctions and executive orders against citizens, entities, and activities connected to Russia. Some of
these sanctions and executive orders target the Russian oil sector, including a prohibition on the import of oil from Russia to
the United States or the United Kingdom, and the European Union’s recent ban on Russian crude oil and petroleum products
which took effect in December 2022 and February 2023, respectively. We cannot foresee what other sanctions or executive
orders may arise that affect the trade of petroleum products. Furthermore, the conflict and ensuing international response has
disrupted the supply of Russian oil to the global market, and as a result, the price of oil and petroleum products has
experienced significant volatility. We cannot predict what effect the higher price of oil and petroleum products will have on
demand, and it is possible that the current conflict in Ukraine could adversely affect our financial condition, results of
operations, and future performance.
F-67
We currently project that we will have adequate financial resources to continue in operation and meet our financial
commitments (including but not limited to debt service obligations, obligations under sale and leaseback arrangements,
commitments under other leasing arrangements, and commitments under our scrubber and BWTS contracts) for a period of at
least 12 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 and unsecured credit facilities, sale and leaseback liabilities and IFRS-16
lease liabilities
The following table details our remaining contractual maturity for our secured and unsecured credit facilities, sale
and leaseback, and IFRS-16 lease liabilities. The amounts represent the future undiscounted 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.
As of December 31,
2021
2022
In thousands of U.S. dollars
100,660
Less than 1 month ................................................................................................................. $
87,811
1-3 months ............................................................................................................................
3 months to 1 year .................................................................................................................
315,035
1-3 years ...............................................................................................................................
764,028
3-5 years ...............................................................................................................................
766,150
5+ years ................................................................................................................................
421,816
Total ...................................................................................................................................... $ 2,455,500
20,172
98,407
477,055
914,599
1,359,473
880,531
$ 3,750,237
$
All other current liabilities fall due within less than one month.
Foreign Exchange Rate Risk
Our primary economic environment is the international shipping market. This market utilizes the U.S. Dollar as its
functional currency. 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 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 relative to other currencies will increase the U.S. dollar cost of us paying 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 contracts 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 fluctuation risk in the future.
23. Subsequent events
Time charter-out
In March 2023, we entered into a time charter-out agreement on an LR2, STI Jermyn, for three years at an average
rate of $40,000 per day. This charter is expected to commence in April 2023.
Declaration of dividend
On February 15, 2023, our Board of Directors declared a quarterly cash dividend of $0.20 per common share, which
is expected to be paid on March 31, 2023 to all shareholders of record as of March 7, 2023.
F-68
Securities repurchase program
From January 1, 2023 through February 15, 2023, we have repurchased an aggregate of 1,891,303 of our common
shares in the open market at an average price of $50.27 per share.
On February 15, 2023, our Board of Directors authorized a new securities repurchase program (the “2023 Securities
Repurchase Program”) to purchase up to an aggregate of $250 million of our securities which, in addition to our common
shares also currently consist of our Senior Unsecured Notes Due 2025. The aforementioned repurchases of common stock
were executed under the previous securities repurchase program, which was terminated and any future repurchases of our
securities will be made under the 2023 Securities Repurchase Program.
From February 16 through the date of the issuance of these financial statements, we have repurchased an aggregate
of 332,659 of our common shares in the open market at an average price of $53.49 per share.
As of the date of this report, there is $232.2 million available under the 2023 Securities Repurchase Program.
AVIC Lease Financing
In January 2023, we exercised the purchase options on STI Brooklyn, STI Rambla, STI Rose and STI Ville on the
AVIC Lease Financing and repaid the aggregate outstanding lease obligation of $77.8 million as part of these transactions.
2021 CSSC Lease Financing
In March 2023, we gave notices to exercise the purchase options on STI Grace and STI Jermyn which are financed
on the 2021 CSSC Lease Financing. These purchases are expected to occur in May 2023 and the aggregate outstanding lease
liability is expected to be $46.9 million at the date of purchase.
Ocean Yield Lease Financing
In March 2023, we exercised the purchase option on STI Sanctity on the Ocean Yield Lease Financing for a
purchase option price $27.8 million.
IFRS 16 - Leases - $670.0 Million
In March 2023, we gave notices to exercise the purchase options on STI Lavender, STI Magnetic, STI Marshall and
STI Miracle which are financed on the IFRS 16 - Leases - $670.0 Million lease financing. These purchases are expected to
occur in May 2023 and the aggregate outstanding lease liability is expected to be $102.9 million at the date of purchase.
2023 $225.0 Million Credit Facility
In January 2023, we executed the 2023 $225.0 Million Credit Facility with a group of European financial
institutions. In February 2023, we drew down $184.9 million and eleven product tankers (ten MRs and one LR2) were
collateralized under this facility as part of the initial drawdown. The remaining amount available is expected to finance two
product tankers (one MR and one LR2) and is expected to be drawn before the end of the first quarter of 2023.
The credit facility has a final maturity of five years from the signing date and bears interest at SOFR plus a margin
of 1.975% per annum. The borrowings for the MRs are expected to be repaid in equal quarterly installments of $0.63 million
per vessel for the first two years, and $0.33 million per vessel for the remaining term of the loan. The borrowings for the
LR2s are expected to be repaid in equal quarterly installments of $0.8 million per vessel for the first two years, and
$0.45 million per vessel for the remaining term of the loan.
Our 2023 $225.0 Million Credit Facility includes financial covenants that require us to maintain:
• The ratio of net debt to total capitalization no greater than 0.65 to 1.00.
• Consolidated tangible net worth of no less than $1.5 billion.
• Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and
$250,000 per each time chartered-in vessel.
F-69
• The aggregate of the fair market value of the vessels provided as collateral under the facility shall at all times be
no less than 140% of the then aggregate outstanding principal amount of the loans outstanding
2023 $49.1 Million Credit Facility
In February 2023, we executed the 2023 $49.1 Million Credit Facility with a North American financial institution.
In March 2023, we drew down $49.1 million to finance two LR2 product tankers, (STI Rose and STI Rambla). The credit
facility has a final maturity of five years from the drawdown date and bears interest at SOFR plus a margin of 1.90% per
annum. The borrowing is expected to be repaid in 20 equal quarterly installments of $1.2 million, in aggregate, and a balloon
payment upon maturity.
Our 2023 $49.1 Million Credit Facility includes financial covenants that require us to maintain:
• The ratio of net debt to total capitalization no greater than 0.65 to 1.00.
• Consolidated tangible net worth of no less than $1.6 billion plus (i) 25% of the cumulative positive net income
(on a consolidated basis) for each fiscal quarter commencing on or after October 1, 2022 and (ii) 50% of the net
proceeds of new equity issues occurring on or after December 31, 2022.
• Minimum liquidity of not less than the greater of $25.0 million or $500,000 per each owned vessel and
$250,000 per each time chartered-in vessel.
• The aggregate of the fair market value of the vessels provided as collateral under the facility shall at all times be
no less than 150% of the then aggregate outstanding principal amount of the loans outstanding
F-70
This page intentionally left blank
This page intentionally left blank