EX-99.1 2 a18-36128_1ex99d1.htm EX-99.1

Exhibit 99.1

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Six Months Ended June 30, 2018 and June 30, 2017

 

The following presentation of management’s discussion and analysis of results of operations and financial condition should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes thereto which are included herein, the discussion included in our Annual Report on Form 20-F for the fiscal year ended December 31, 2017 filed with the U.S. Securities and Exchange Commission, or the SEC, on March 23, 2018, and other financial information appearing elsewhere in this report. We prepare our financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. We have a fiscal year end of December 31. The unaudited condensed consolidated financial statements as of June 30, 2018 and for the six months ended June 30, 2018 and 2017 have been prepared in accordance with International Accounting Standards 34, Interim Financial Reporting, or IAS 34. The unaudited condensed 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 report are at the rate applicable at the relevant date or the average rate during the applicable period or to the extent it relates to the balance sheet at the balance sheet date.

 

As used herein, “we,” “us,” “our” and “the Company” all refer to Scorpio Tankers Inc. and its subsidiaries. The term “Scorpio Group Pools” refers to the spot market-oriented pools of similarly sized vessels which are operated by companies affiliated with us.

 

Information on the Company

 

General

 

We are a provider of marine transportation of petroleum products worldwide. As of October 8, 2018, we own or finance lease 109 product tankers (38 LR2 tankers, 12 LR1 tankers, 45 MR tankers and 14 Handymax tankers) that have a weighted average age of 3.2 years and time or bareboat charter-in 13 product tankers (one LR2 tanker, five MR tankers and seven Handymax tankers), which we refer to collectively as our Operating Fleet.

 

The following table presents summary information concerning our Operating Fleet as of October 8, 2018:

 

1



 

 

 

Vessel Name

 

Year Built

 

DWT

 

Ice class

 

Employment

 

Vessel type

 

 

 

Owned or finance leased vessels

 

 

 

 

 

 

 

 

 

 

 

1

 

STI Brixton

 

2014

 

38,734

 

1A

 

SHTP (1)

 

Handymax

 

2

 

STI Comandante

 

2014

 

38,734

 

1A

 

SHTP (1)

 

Handymax

 

3

 

STI Pimlico

 

2014

 

38,734

 

1A

 

Time Charter (5)

 

Handymax

 

4

 

STI Hackney

 

2014

 

38,734

 

1A

 

SHTP (1)

 

Handymax

 

5

 

STI Acton

 

2014

 

38,734

 

1A

 

SHTP (1)

 

Handymax

 

6

 

STI Fulham

 

2014

 

38,734

 

1A

 

SHTP (1)

 

Handymax

 

7

 

STI Camden

 

2014

 

38,734

 

1A

 

SHTP (1)

 

Handymax

 

8

 

STI Battersea

 

2014

 

38,734

 

1A

 

SHTP (1)

 

Handymax

 

9

 

STI Wembley

 

2014

 

38,734

 

1A

 

SHTP (1)

 

Handymax

 

10

 

STI Finchley

 

2014

 

38,734

 

1A

 

SHTP (1)

 

Handymax

 

11

 

STI Clapham

 

2014

 

38,734

 

1A

 

SHTP (1)

 

Handymax

 

12

 

STI Poplar

 

2014

 

38,734

 

1A

 

Time Charter (5)

 

Handymax

 

13

 

STI Hammersmith

 

2015

 

38,734

 

1A

 

SHTP (1)

 

Handymax

 

14

 

STI Rotherhithe

 

2015

 

38,734

 

1A

 

SHTP (1)

 

Handymax

 

15

 

STI Amber

 

2012

 

49,990

 

 

SMRP (2)

 

MR

 

16

 

STI Topaz

 

2012

 

49,990

 

 

SMRP (2)

 

MR

 

17

 

STI Ruby

 

2012

 

49,990

 

 

SMRP (2)

 

MR

 

18

 

STI Garnet

 

2012

 

49,990

 

 

SMRP (2)

 

MR

 

19

 

STI Onyx

 

2012

 

49,990

 

 

SMRP (2)

 

MR

 

20

 

STI Fontvieille

 

2013

 

49,990

 

 

SMRP (2)

 

MR

 

21

 

STI Ville

 

2013

 

49,990

 

 

SMRP (2)

 

MR

 

22

 

STI Duchessa

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

23

 

STI Opera

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

24

 

STI Texas City

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

25

 

STI Meraux

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

26

 

STI San Antonio

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

27

 

STI Venere

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

28

 

STI Virtus

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

29

 

STI Aqua

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

30

 

STI Dama

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

31

 

STI Benicia

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

32

 

STI Regina

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

33

 

STI St. Charles

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

34

 

STI Mayfair

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

35

 

STI Yorkville

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

36

 

STI Milwaukee

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

37

 

STI Battery

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

38

 

STI Soho

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

39

 

STI Memphis

 

2014

 

49,990

 

 

SMRP (2)

 

MR

 

40

 

STI Tribeca

 

2015

 

49,990

 

 

SMRP (2)

 

MR

 

41

 

STI Gramercy

 

2015

 

49,990

 

 

SMRP (2)

 

MR

 

42

 

STI Bronx

 

2015

 

49,990

 

 

SMRP (2)

 

MR

 

43

 

STI Pontiac

 

2015

 

49,990

 

 

SMRP (2)

 

MR

 

44

 

STI Manhattan

 

2015

 

49,990

 

 

SMRP (2)

 

MR

 

45

 

STI Queens

 

2015

 

49,990

 

 

SMRP (2)

 

MR

 

46

 

STI Osceola

 

2015

 

49,990

 

 

SMRP (2)

 

MR

 

 

2



 

47

 

STI Notting Hill

 

2015

 

49,687

 

1B

 

Time Charter (6)

 

MR

 

48

 

STI Seneca

 

2015

 

49,990

 

 

SMRP (2)

 

MR

 

49

 

STI Westminster

 

2015

 

49,687

 

1B

 

Time Charter (7)

 

MR

 

50

 

STI Brooklyn

 

2015

 

49,990

 

 

SMRP (2)

 

MR

 

51

 

STI Black Hawk

 

2015

 

49,990

 

 

SMRP (2)

 

MR

 

52

 

STI Galata

 

2017

 

49,990

 

 

SMRP (2)

 

MR

 

53

 

STI Bosphorus

 

2017

 

49,990

 

 

SMRP (2)

 

MR

 

54

 

STI Leblon

 

2017

 

49,990

 

 

SMRP (2)

 

MR

 

55

 

STI La Boca

 

2017

 

49,990

 

 

SMRP (2)

 

MR

 

56

 

STI San Telmo

 

2017

 

49,990

 

1B

 

SMRP (2)

 

MR

 

57

 

STI Donald C Trauscht

 

2017

 

49,990

 

1B

 

SMRP (2)

 

MR

 

58

 

STI Esles II

 

2018

 

49,990

 

1B

 

SMRP (2)

 

MR

 

59

 

STI Jardins

 

2018

 

49,990

 

1B

 

SMRP (2)

 

MR

 

60

 

STI Excel

 

2015

 

74,000

 

 

SLR1P (3)

 

LR1

 

61

 

STI Excelsior

 

2016

 

74,000

 

 

SLR1P (3)

 

LR1

 

62

 

STI Expedite

 

2016

 

74,000

 

 

SLR1P (3)

 

LR1

 

63

 

STI Exceed

 

2016

 

74,000

 

 

SLR1P (3)

 

LR1

 

64

 

STI Executive

 

2016

 

74,000

 

 

SLR1P (3)

 

LR1

 

65

 

STI Excellence

 

2016

 

74,000

 

 

SLR1P (3)

 

LR1

 

66

 

STI Experience

 

2016

 

74,000

 

 

SLR1P (3)

 

LR1

 

67

 

STI Express

 

2016

 

74,000

 

 

SLR1P (3)

 

LR1

 

68

 

STI Precision

 

2016

 

74,000

 

 

SLR1P (3)

 

LR1

 

69

 

STI Prestige

 

2016

 

74,000

 

 

SLR1P (3)

 

LR1

 

70

 

STI Pride

 

2016

 

74,000

 

 

SLR1P (3)

 

LR1

 

71

 

STI Providence

 

2016

 

74,000

 

 

SLR1P (3)

 

LR1

 

72

 

STI Elysees

 

2014

 

109,999

 

 

SLR2P (4)

 

LR2

 

73

 

STI Madison

 

2014

 

109,999

 

 

SLR2P (4)

 

LR2

 

74

 

STI Park

 

2014

 

109,999

 

 

SLR2P (4)

 

LR2

 

75

 

STI Orchard

 

2014

 

109,999

 

 

SLR2P (4)

 

LR2

 

76

 

STI Sloane

 

2014

 

109,999

 

 

SLR2P (4)

 

LR2

 

77

 

STI Broadway

 

2014

 

109,999

 

 

SLR2P (4)

 

LR2

 

78

 

STI Condotti

 

2014

 

109,999

 

 

SLR2P (4)

 

LR2

 

79

 

STI Rose

 

2015

 

109,999

 

 

Time Charter (8)

 

LR2

 

80

 

STI Veneto

 

2015

 

109,999

 

 

SLR2P (4)

 

LR2

 

81

 

STI Alexis

 

2015

 

109,999

 

 

SLR2P (4)

 

LR2

 

82

 

STI Winnie

 

2015

 

109,999

 

 

SLR2P (4)

 

LR2

 

83

 

STI Oxford

 

2015

 

109,999

 

 

SLR2P (4)

 

LR2

 

84

 

STI Lauren

 

2015

 

109,999

 

 

SLR2P (4)

 

LR2

 

85

 

STI Connaught

 

2015

 

109,999

 

 

SLR2P (4)

 

LR2

 

86

 

STI Spiga

 

2015

 

109,999

 

 

SLR2P (4)

 

LR2

 

87

 

STI Savile Row

 

2015

 

109,999

 

 

SLR2P (4)

 

LR2

 

88

 

STI Kingsway

 

2015

 

109,999

 

 

SLR2P (4)

 

LR2

 

89

 

STI Carnaby

 

2015

 

109,999

 

 

SLR2P (4)

 

LR2

 

90

 

STI Solidarity

 

2015

 

109,999

 

 

SLR2P (4)

 

LR2

 

91

 

STI Lombard

 

2015

 

109,999

 

 

SLR2P (4)

 

LR2

 

92

 

STI Grace

 

2016

 

109,999

 

 

SLR2P (4)

 

LR2

 

 

3



 

93

 

STI Jermyn

 

2016

 

109,999

 

 

SLR2P (4)

 

LR2

 

94

 

STI Sanctity

 

2016

 

109,999

 

 

SLR2P (4)

 

LR2

 

95

 

STI Solace

 

2016

 

109,999

 

 

SLR2P (4)

 

LR2

 

96

 

STI Stability

 

2016

 

109,999

 

 

SLR2P (4)

 

LR2

 

97

 

STI Steadfast

 

2016

 

109,999

 

 

SLR2P (4)

 

LR2

 

98

 

STI Supreme

 

2016

 

109,999

 

 

SLR2P (4)

 

LR2

 

99

 

STI Symphony

 

2016

 

109,999

 

 

SLR2P (4)

 

LR2

 

100

 

STI Gallantry

 

2016

 

113,000

 

 

SLR2P (4)

 

LR2

 

101

 

STI Goal

 

2016

 

113,000

 

 

SLR2P (4)

 

LR2

 

102

 

STI Nautilus

 

2016

 

113,000

 

 

SLR2P (4)

 

LR2

 

103

 

STI Guard

 

2016

 

113,000

 

 

SLR2P (4)

 

LR2

 

104

 

STI Guide

 

2016

 

113,000

 

 

SLR2P (4)

 

LR2

 

105

 

STI Selatar

 

2017

 

109,999

 

 

SLR2P (4)

 

LR2

 

106

 

STI Rambla

 

2017

 

109,999

 

 

SLR2P (4)

 

LR2

 

107

 

STI Gauntlet

 

2017

 

113,000

 

 

SLR2P (4)

 

LR2

 

108

 

STI Gladiator

 

2017

 

113,000

 

 

SLR2P (4)

 

LR2

 

109

 

STI Gratitude

 

2017

 

113,000

 

 

SLR2P (4)

 

LR2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total owned or finance leased DWT

 

 

 

7,883,190

 

 

 

 

 

 

 

 

 

 

Vessel Name

 

Year
Built

 

DWT

 

Ice
class

 

Employment

 

Charter type

 

Vessel type

 

Daily
Base
Rate

 

Expiry (9)

 

 

 

Time or bareboat chartered-in vessels

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

110

 

Silent

 

2007

 

37,847

 

1A

 

SHTP (1)

 

Bareboat

 

Handymax

 

$

7,500

 

31-Mar-19

(10)

111

 

Single

 

2007

 

37,847

 

1A

 

SHTP (1)

 

Bareboat

 

Handymax

 

$

7,500

 

31-Mar-19

(10)

112

 

Star I

 

2007

 

37,847

 

1A

 

SHTP (1)

 

Bareboat

 

Handymax

 

$

7,500

 

31-Mar-19

(10)

113

 

Sky

 

2007

 

37,847

 

1A

 

SHTP (1)

 

Bareboat

 

Handymax

 

$

6,000

 

31-Mar-19

(10)

114

 

Steel

 

2008

 

37,847

 

1A

 

SHTP (1)

 

Bareboat

 

Handymax

 

$

6,000

 

31-Mar-19

(10)

115

 

Stone I

 

2008

 

37,847

 

1A

 

SHTP (1)

 

Bareboat

 

Handymax

 

$

6,000

 

31-Mar-19

(10)

116

 

Style

 

2008

 

37,847

 

1A

 

SHTP (1)

 

Bareboat

 

Handymax

 

$

6,000

 

31-Mar-19

(10)

117

 

Miss Benedetta

 

2012

 

47,499

 

 

SMRP (2)

 

Time charter

 

MR

 

$

14,000

 

16-Mar-19

(11)

118

 

STI Beryl

 

2013

 

49,990

 

 

SMRP (2)

 

Bareboat

 

MR

 

$

8,800

 

18-Apr-25

(12)

119

 

STI Le Rocher

 

2013

 

49,990

 

 

SMRP (2)

 

Bareboat

 

MR

 

$

8,800

 

21-Apr-25

(12)

120

 

STI Larvotto

 

2013

 

49,990

 

 

SMRP (2)

 

Bareboat

 

MR

 

$

8,800

 

28-Apr-25

(12)

121

 

Gan-Trust

 

2013

 

51,561

 

 

SMRP (2)

 

Time charter

 

MR

 

$

13,950

 

06-Jan-19

(13)

122

 

Densa Crocodile

 

2015

 

105,408

 

 

SLR2P (4)

 

Time charter

 

LR2

 

$

14,800

 

06-Dec-18

(14)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total time or bareboat chartered-in DWT

 

 

 

619,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Fleet DWT

 

 

 

8,502,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4



 


(1)                  This vessel operates in the Scorpio Handymax Tanker Pool, or SHTP. SHTP is a Scorpio Group Pool and is operated by Scorpio Commercial Management S.A.M., or SCM. SHTP and SCM are related parties to the Company.

 

(2)                  This vessel operates in the Scorpio MR Pool, or SMRP. SMRP is a Scorpio Group Pool and is operated by SCM. SMRP and SCM are related parties to the Company.

 

(3)                  This vessel operates in the Scorpio LR1 Pool, or SLR1P. SLR1P is a Scorpio Group Pool and is operated by SCM. SLR1P and SCM are related parties to the Company.

 

(4)                  This vessel operates in the Scorpio LR2 Pool, or SLR2P. SLR2P is a Scorpio Group Pool and is operated by SCM. SLR2P and SCM are related parties to the Company.

 

(5)                  This vessel is currently time chartered-out to an unrelated third-party for three years at $18,000 per day. This time charter is scheduled to expire in January 2019.

 

(6)                  This vessel is currently time chartered-out to an unrelated third-party for three years at $20,500 per day. This time charter is scheduled to expire in October 2018.

 

(7)                  This vessel is currently time chartered-out to an unrelated third-party for three years at $20,500 per day. This time charter is scheduled to expire in December 2018.

 

(8)                  This vessel is currently time chartered-out to an unrelated third-party for three years at $28,000 per day. This time charter is scheduled to expire in February 2019.

 

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

 

(10)           This agreement includes a purchase option which can be exercised through December 31, 2018.  If the purchase option is not exercised, the bareboat-in agreement will expire on March 31, 2019.

 

(11)           In January 2018, we entered into a time charter-in agreement for one year at $14,000 per day.  We have an option to extend the charter for an additional year at $14,400 per day.  We took delivery of this vessel in March 2018.

 

(12)           In April 2017, we sold and leased back this vessel, on a bareboat basis, for a period of up to eight years for $8,800 per day.  The sales price was $29.0 million and we have the option to purchase this vessel beginning at the end of the fifth year of the agreement through the end of the eighth year of the agreement, at market based prices. 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.

 

(13)           We have an option to extend this charter for an additional year at $15,750 per day.

 

(14)           In May 2018, we entered into a time charter-in agreement for six months at $14,800 per day.  We also have an option to extend the charter for an additional six months at $15,350 per day.

 

RECENT DEVELOPMENTS

 

Amendment of Minimum Interest Coverage Ratio

 

In September 2018, we entered into agreements with certain lenders who are party to credit facilities with us, to permanently remove the minimum interest coverage ratio financial covenant from the terms of each facility.  As a result, the Company is no longer required to maintain a ratio of EBITDA to net interest expense on any of its secured credit facilities or lease financing arrangements.

 

As part of these agreements, and for certain of the facilities, the minimum threshold for the aggregate fair market value of the vessels as a percentage of the then aggregate principal amount of each facility was revised to be no less than the following:

 

Facility

 

Minimum ratio

 

KEXIM Credit Facility

 

155%

 

2017 Credit Facility

 

155%

 

2016 Credit Facility

 

145% through June 30, 2019, 150% thereafter

 

ABN Credit Facility

 

145% through June 30, 2019, 150% thereafter

 

DVB Credit Facility

 

145% through June 30, 2019, 150% thereafter

 

 

Refinancing initiatives

 

In April 2018, we announced a series of initiatives to refinance the existing indebtedness on certain of the vessels in our fleet.  The status of these initiatives, as of October 8, 2018, is summarized in the below table:

 

5



 

 

 

In thousands of U.S. dollars

 

Closing
date (1)

 

Facility
amount

 

Existing debt
repayment

 

New liquidity

 

Number of
vessels to be
refinanced

 

1

 

ABN AMRO/SEB credit facility

 

June 2018

 

$

120,575

 

$

87,575

 

$

33,000

 

Five

 

2

 

$88.0 million sale and leaseback

 

Q3 2018

 

88,000

 

57,408

 

30,592

 

Four

 

3

 

ING credit facility upsize

 

Q3 2018

 

38,675

 

26,854

 

11,821

 

Two

 

4

 

$35.7 million term loan facility

 

Q3 2018

 

35,658

 

26,450

 

9,208

 

Two

 

5

 

China Huarong Shipping sale and leaseback

 

Q3 2018

 

144,000

 

92,729

 

51,271

 

Six

 

6

 

AVIC International sale and leaseback

 

Q3 2018

 

145,000

 

100,056

 

44,944

 

Five

 

7

 

CMB sale and leaseback

 

Q3 2018

 

141,600

 

87,491

 

54,109

 

Six

 

8

 

$116.0 million sale and leaseback

 

Q3 2018

 

116,000

 

73,020

 

42,980

 

Four

 

9

 

$157.5 million sale and leaseback (2)

 

Q4 2018

 

157,500

 

113,701

 

43,799

 

Seven

 

 

 

 

 

 

 

$

987,008

 

$

665,284

 

$

321,724

 

41 vessels

 

 


(1)                                                                           Represents the actual (if in Q2 or Q3 2018) or expected (if in Q4 2018) closing date of each facility.

 

(2)                                                                           Represents the approximate amount of new liquidity the Company expects to raise (depending on the closing date), after the repayment of the existing indebtedness.

 

See the section below entitled “Long-Term Debt Obligations and Credit Arrangements” for descriptions of these facilities.

 

Convertible Notes due 2019 Exchange

 

In July 2018, we exchanged $15.0 million in aggregate principal amount of our Convertible Senior Notes due 2019, or the Convertible Notes due 2019, for $15.0 million in aggregate principal amount of our Convertible Senior Notes due 2022, or the Convertible Notes due 2022.  The new notes issued in this exchange have identical terms, are fungible with and are part of the series of Convertible Notes due 2022, which were issued in May 2018.  This exchange was executed with certain holders of the Convertible Notes due 2019 pursuant to separate, privately negotiated agreements.

 

Reduction in Commercial Management Fees

 

In September 2018, we entered into an agreement with our commercial manager, Scorpio Commercial Management S.A.M., or SCM, whereby SCM will reimburse certain of the commissions that SCM charges the Company’s vessels to effectively reduce such to 0.85% of gross revenue per charter fixture, effective from September 1, 2018 and ending on June 1, 2019.

 

Dividend Declaration

 

In July 2018, our Board of Directors declared a quarterly cash dividend of $0.01 per share, which was paid on September 27, 2018 to all shareholders of record as of September 20, 2018.

 

Retrofitting of our Fleet

 

In September 2018, we announced that we expect to retrofit the substantial majority of our vessels with exhaust gas cleaning systems, or scrubbers, to comply with the IMO 2020 rules regarding sulfur emissions by the end of the first half of 2020.  We have entered into an agreement to retrofit 15 of our LR2s with such systems, which are expected to be installed throughout 2019.  The total estimated investment for these systems, including installation, is expected to be between $1.5 and $2.0 million per vessel and we are currently in preliminary discussions with potential lenders to finance a portion (60-70%) of these investments.

 

6



 

Overview

 

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

 

·                  Voyage charters, which are charters for short intervals that are priced on current, or “spot,” market rates.

·                  Time charters, which are chartered to customers for a fixed period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates, or current market rates.

·                  Commercial pools, whereby we participate with other 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. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and contracts of affreightment (described below), thus generating higher effective time charter equivalent, or 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, finance leased or bareboat chartered-in vessels and for the charterhire expense for vessels that we time charter-in.

 

The table below illustrates the primary distinctions among these different employment arrangements:

 

 

 

Voyage Charter

 

Time Charter

 

Bareboat
Charter

 

Commercial
Pool

Typical contract length

 

Single voyage

 

One year or more

 

One year or more

 

Varies

Hire rate basis(1)

 

Varies

 

Daily

 

Daily

 

Varies

Voyage expenses(2)

 

We pay

 

Customer pays

 

Customer pays

 

Pool pays

Vessel operating costs for owned, finance leased, or bareboat chartered-in vessels(3)

 

We pay

 

We pay

 

Customer pays

 

We pay

Charterhire expense for time or bareboat chartered-in vessels(3)

 

We pay

 

We pay

 

We pay

 

We pay

Off-hire(4)

 

Customer does not pay

 

Customer does not pay

 

Customer pays

 

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.

 

Please see our fleet list for a description of the employment arrangement for each of our vessels.

 

Our vessels are commercially managed by Scorpio Commercial Management S.A.M., or SCM, and technically managed by Scorpio Ship Management S.A.M., or SSM, pursuant to a Revised Master Agreement (defined below), as amended and restated from time to time. SCM and SSM are controlled by the Lolli-Ghetti family, of which Emanuele Lauro, our founder, Chairman and Chief Executive Officer, and Filippo Lauro, our Vice President, are members. We expect that additional vessels

 

7



 

that we may acquire in the future will also be managed under the Revised Master Agreement or on substantially similar terms as those contained in the Revised Master Agreement.

 

SCM’s commercial management services include securing employment, in the spot market and on time charters, for our vessels. SCM also manages the Scorpio Group Pools in which our vessels are employed.

 

SSM’s technical management 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 have also entered into an Amended Administrative Services Agreement with Scorpio Services Holding Limited, or SSH, an entity controlled by the Lolli-Ghetti family. The administrative services provided under this agreement primarily include the provision of administrative staff and office space, and administrative services, including accounting, legal compliance, financial and information technology services. We reimburse SSH for the reasonable direct or indirect expenses it incurs in providing us with the administrative services described above.  Further, SSH has agreed, on behalf of itself and other members of the Scorpio Group, that it will not directly own product or crude tankers ranging in size from 35,000 dwt to 200,000 dwt.

 

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 and bareboat 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 and bareboat 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 for these types of 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 time charter equivalent revenues.

 

Vessel operating costs. For our owned, finance leased or bareboat chartered-in vessels, we are responsible for vessel operating costs, which include crewing, repairs and maintenance, insurance, stores, lube oils, communication expenses, and technical management fees. The two largest components of our vessel operating costs are crew costs, 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.

 

Additionally, these costs include technical management fees that we paid to SSM, which is controlled by the Lolli-Ghetti family, a related-party. 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. 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.

 

8



 

·                                          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 vessels operating costs.

 

Drydocking. We periodically drydock each of our owned or finance leased 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 finance leased vessels (less an estimated residual value) over the estimated useful lives of the vessels; and

 

·                  charges related to the amortization of drydocking expenditures over the estimated number of years to the next scheduled drydocking.

 

9



 

Time charter equivalent (TCE) revenue or rates. We report time charter equivalent, or 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 measure, (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.

 

The following table reflects our daily TCE and operating expenses for the six months ended June 30, 2018 and 2017.  For a reconciliation of TCE revenue, deduct voyage expenses from revenue on our unaudited condensed consolidated statements of income or loss.  See the section below entitled “Results of Operations” for the reconciliation of these amounts.

 

 

 

For the six months ended June 30,

 

 

 

2018

 

2017

 

Average Daily Results

 

 

 

 

 

Time charter equivalent per day(1)

 

$

12,816

 

$

13,799

 

Vessel operating costs per day(2)

 

$

6,507

 

$

6,370

 

 

 

 

 

 

 

LR2

 

 

 

 

 

TCE per revenue day (1)

 

$

13,572

 

$

15,760

 

Vessel operating costs per day(2)

 

$

6,650

 

$

6,433

 

Average number of owned or finance leased vessels

 

38.0

 

21.9

 

Average number of time chartered-in vessels

 

1.7

 

1.1

 

 

 

 

 

 

 

LR1

 

 

 

 

 

TCE per revenue day (1)

 

$

10,608

 

$

10,986

 

Vessel operating costs per day(2)

 

$

6,805

 

$

5,316

 

Average number of owned or finance leased vessels

 

12.0

 

0.4

 

Average number of time chartered-in vessels

 

 

0.8

 

 

 

 

 

 

 

MR

 

 

 

 

 

TCE per revenue day (1)

 

$

13,049

 

$

13,254

 

Vessel operating costs per day(2)

 

$

6,384

 

$

6,224

 

Average number of owned or finance leased vessels

 

44.8

 

41.7

 

Average number of time chartered-in vessels

 

5.9

 

7.4

 

Average number of bareboat chartered-in vessels

 

3.0

 

1.1

 

 

 

 

 

 

 

Handymax

 

 

 

 

 

TCE per revenue day (1)

 

$

12,096

 

$

13,100

 

Vessel operating costs per day(2)

 

$

6,357

 

$

6,626

 

Average number of owned or finance leased vessels

 

14.0

 

14.0

 

Average number of time chartered-in vessels

 

1.1

 

2.1

 

Average number of bareboat chartered-in vessels

 

7.0

 

5.2

 

 

 

 

 

 

 

Fleet data

 

 

 

 

 

Average number of owned or finance leased vessels

 

108.8

 

77.9

 

Average number of time chartered-in vessels

 

8.7

 

11.4

 

 

10



 

Average number of bareboat chartered-in vessels

 

10.0

 

6.3

 

 

 

 

 

 

 

Drydock

 

 

 

 

 

Expenditures for drydock (in thousands of U.S. dollars)

 

$

2,136

 

$

357

 

 


(1)         Freight rates are commonly measured in the shipping industry in terms of time charter equivalent per day (or TCE per day), which is calculated by subtracting voyage expenses, including bunkers and port charges, from vessel revenue and dividing the net amount (time charter equivalent revenues) by the number of revenue days in the period. Revenue days are the number of days the vessel is owned or finance leased or chartered-in less the number of days the vessel is off-hire for drydock and repairs.

 

(2)         Vessel operating costs per day represent vessel operating costs divided by the number of operating days during the period. Operating days are the total number of available days in a period with respect to the owned, finance leased 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, finance leased or bareboat chartered-in vessels, not our time chartered-in vessels.

 

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 finance leased 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 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. When our vessels are employed on COAs, 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. 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, finance leased vessels 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, finance leased or bareboat chartered-in vessels, not our time chartered-in vessels.

 

11



 

Items You Should Consider When Evaluating Our Results

 

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

 

Our vessel revenues are affected by cyclicality in the tanker markets. The cyclical nature of the tanker industry causes significant increases or decreases in the revenue we earn from our vessels, particularly those vessels we trade in the spot market. 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 our 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 Group Pools.  When our vessels are operating in one of the Scorpio Group 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 1.50% commission on gross revenues per charter fixture.  For commercial management of our vessels that are not operating in any of the Scorpio Group 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.

 

On February 22, 2018, we entered into definitive documentation to memorialize the 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 per vessel 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 technical management fee charged prior to the amendment.

 

12



 

We also reimburse SSH for the reasonable direct or indirect expenses it incurs in providing us with the administrative services described above.

 

Our operating results for the six months ended June 30, 2018 reflect the acquisition of Navig8 Product Tankers Inc. In May 2017, we entered into definitive agreements to acquire Navig8 Product Tankers Inc., or NPTI, including its fleet of 12 LR1 and 15 LR2 product tankers for approximately 55 million common shares of the Company and the assumption of NPTI’s debt, or the Merger.  On June 14, 2017, we acquired part of NPTI’s business with the acquisition of four LR1 product tankers, or the NPTI Vessel Acquisition, through the acquisition of entities holding those vessels and related debt for an acquisition price of $42.2 million in cash. On September 1, 2017, all conditions precedent were lifted and we acquired NPTI’s remaining business including eight LR1 and 15 LR2 tankers, or the September Closing, when the Merger closed. We assumed NPTI’s aggregate outstanding indebtedness of $907.4 million upon the closing of these transactions.

 

Accordingly, our results of operations for the six months ended June 30, 2017 reflect only a partial period of the impact of the NPTI Acquisition whereas our results of operations for the six months ended June 30, 2018 reflect the full impact of both the NPTI Acquisition and September Closing.

 

Results of Operations

 

Results of operations for the six months ended June 30, 2018 compared to the six months ended June 30, 2017

 

 

 

For the six months ended June 30,

 

Change
favorable /

 

Percentage

 

In thousands of U.S. dollars

 

2018

 

2017

 

(unfavorable)

 

Change

 

Vessel revenue

 

$

298,241

 

$

241,219

 

$

57,022

 

24

%

Vessel operating costs

 

(139,904

)

(97,986

)

(41,918

)

(43

)%

Voyage expenses

 

(4,372

)

(3,444

)

(928

)

(27

)%

Charterhire

 

(35,169

)

(38,904

)

3,735

 

10

%

Depreciation

 

(87,547

)

(61,541

)

(26,006

)

(42

)%

General and administrative expenses

 

(26,972

)

(23,602

)

(3,370

)

(14

)%

Loss on sales of vessels and write-down of vessel held for sale

 

 

(23,352

)

23,352

 

100

%

Merger transaction related costs

 

(271

)

(32,530

)

32,259

 

99

%

Bargain purchase gain

 

 

5,417

 

(5,417

)

(100

)%

Financial expenses

 

(88,367

)

(46,694

)

(41,673

)

(89

)%

Loss on exchange of convertible notes

 

(16,968

)

 

(16,968

)

N/A

 

Realized loss on derivative financial instruments

 

 

(116

)

116

 

100

%

Financial income

 

730

 

489

 

241

 

49

%

Other income (expenses), net

 

(96

)

1,262

 

(1,358

)

(108

)%

Net loss

 

$

(100,695

)

$

(79,782

)

$

(20,913

)

(26

)%

 

Net loss. Net loss for the six months ended June 30, 2018 was $100.7 million, an increase of $20.9 million, or 26%, from net loss of $79.8 million for the six months ended June 30, 2017. The differences between the two periods are discussed below.

 

Vessel revenue. Vessel revenue for the six months ended June 30, 2018 was $298.2 million, an increase of $57.0 million, or 24%, from revenue of $241.2 million for the six months ended June 30, 2017.  The increase in vessel revenue was driven by an increase in revenue days to 22,930 from 17,231 days for the six months ended June 30, 2018 and 2017, respectively, which was primarily due to the Merger.  This was offset by a decrease in time charter equivalent revenue per day to $12,816 per day for the six months ended June 30, 2018 from $13,799 per day for the six months ended June 30, 2017. TCE revenue per day, by operating segment, is further discussed below.

 

13



 

The following table depicts the components of our revenue, our TCE per revenue day and revenue days for the six months ended June 30, 2018 and 2017.

 

 

 

For the six months

 

Change

 

 

 

 

 

ended June 30,

 

favorable /

 

Percentage

 

In thousands of U.S. dollars except daily

TCE and days data

 

2018

 

2017

 

(unfavorable)

 

Change

 

Pool revenue by operating segment

 

 

 

 

 

 

 

 

 

MR

 

$

117,171

 

$

111,886

 

$

5,285

 

5

%

LR2

 

90,689

 

60,877

 

29,812

 

49

%

Handymax

 

41,803

 

42,471

 

(668

)

(2

)%

LR1

 

22,772

 

2,215

 

20,557

 

928

%

Total pool revenue

 

272,435

 

217,449

 

54,986

 

25

%

Voyage revenue (spot market)

 

7,248

 

5,294

 

1,954

 

37

%

Time charter-out revenue

 

18,558

 

18,476

 

82

 

%

Gross revenue

 

298,241

 

241,219

 

57,022

 

24

%

Voyage expenses

 

(4,372

)

(3,444

)

(928

)

(27

)%

TCE revenue (1)

 

$

293,869

 

$

237,775

 

$

56,094

 

24

%

 

 

 

 

 

 

 

 

 

 

Daily pool TCE by operating segment (1)

 

 

 

 

 

 

 

 

 

MR pool

 

$

12,785

 

$

13,014

 

$

(229

)

(2

)%

LR2 pool

 

13,565

 

15,277

 

(1,712

)

(11

)%

Handymax pool

 

11,576

 

12,928

 

(1,352

)

(10

)%

LR1 pool

 

10,826

 

10,986

 

(160

)

(1

)%

Consolidated daily pool TCE

 

12,633

 

13,532

 

(899

)

(7

)%

Voyage (spot market) - daily TCE

 

7,725

 

9,656

 

(1,931

)

(20

)%

Time charter-out - daily TCE

 

19,930

 

19,868

 

62

 

%

Consolidated daily TCE

 

12,816

 

13,799

 

(983

)

(7

)%

 

 

 

 

 

 

 

 

 

 

Pool revenue days per operating segment

 

 

 

 

 

 

 

 

 

MR pool

 

9,151

 

8,587

 

564

 

7

%

LR2 pool

 

6,680

 

3,981

 

2,699

 

68

%

Handymax pool

 

3,607

 

3,284

 

323

 

10

%

LR1 pool

 

2,104

 

200

 

1,904

 

952

%

Total pool revenue days

 

21,542

 

16,052

 

5,490

 

34

%

Voyage (spot market) revenue days

 

486

 

282

 

204

 

72

%

Time charter-out revenue days

 

902

 

897

 

5

 

1

%

Total revenue days

 

22,930

 

17,231

 

5,699

 

33

%

 


(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 measure, (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.

 

14



 

Pool revenue. Pool revenue for the six months ended June 30, 2018 was $272.4 million, an increase of $55.0 million, or 25%, from $217.4 million for the six months ended June 30, 2017. The increase in pool revenue was due to an increase in pool revenue days to 21,542 for the six months ended June 30, 2018 from 16,052 for the six months ended June 30, 2017.  The increase was offset by a decrease in pool TCE per day across all of our operating segments as the product market continues to face adverse market conditions as a result of an unfavorable global supply and demand imbalance resulting primarily from weaker global refining margins and the continued absorption of an influx of prior year newbuilding deliveries.

 

MR pool revenue.  MR pool revenue for the six months ended June 30, 2018 was $117.2 million, an increase of $5.3 million, or 5% from $111.9 million for the six months ended June 30, 2017.  The increase in pool revenue was driven by an increase in pool revenue days to 9,151 from 8,587 during the six months ended June 30, 2018 and 2017, respectively.  This increase was primarily the result of an increase in the average number of owned and finance leased MRs to 44.8 during the six months ended June 30, 2018 from 41.7 MRs during the six months ended June 30, 2017, as we took delivery of six newbuilding MRs throughout 2017 and two newbuilding MRs in January 2018, representing a 1,253 increase in pool revenue days.  This increase in revenue days was partially offset by the sale of two MRs in June and July 2017, which were in the Scorpio MR Pool, or SMRP, for an aggregate of 352 days during the six months ended June 30, 2017, along with the redelivery of certain time chartered-in vessels, which were in the SMRP for an aggregate of 263 days during the six months ended June 30, 2017.  These vessels had no revenue days in the SMRP during the six months ended June 30, 2018.

 

The aggregate increase in revenue days was offset by a decrease in pool TCE per revenue day to $12,785 per day from $13,014 per day during the six months ended June 30, 2018 and 2017, respectively.  These rates reflect the challenging environment for MR product tankers operating in the spot market during those periods, as the influx of newbuilding vessel deliveries from prior years has resulted in a prolonged supply and demand imbalance, thus adversely affecting the spot rates earned.

 

LR2 pool revenue. LR2 pool revenue for the six months ended June 30, 2018 was $90.7 million, an increase of $29.8 million, or 49%, from $60.9 million for the six months ended June 30, 2017.  The increase in pool revenue was driven by an increase in pool revenue days to 6,680 from 3,981 days during the six months ended June 30, 2018 and 2017, respectively.  The increase in pool revenue days was the result of (i) the acquisition of 15 LR2 vessels from NPTI in September 2017 (resulting in 2,390 additional pool revenue days during the six months ended June 30, 2018) and (ii) the delivery of two LR2 tankers in the first quarter of 2017 (resulting in 194 additional pool revenue days during the six months ended June 30, 2018).

 

The aggregate increase in revenue days was offset by a decrease in pool TCE revenue per day to $13,565 from $15,277 during the six months ended June 30, 2018 and 2017, respectively.  In addition to the global supply and demand imbalance for product tankers in general, spot rates in the LR2 segment were negatively impacted by a reduction in the volume of light distillates shipped from Europe to the Far East during the six months ended June 30, 2018.

 

Handymax pool revenue.  Pool revenue from Handymax vessels for the six months ended June 30, 2018 was $41.8 million, a decrease of $0.7 million, or 2%, from $42.5 million for the six months ended June 30, 2017.  The decrease in pool revenue was primarily driven by a decrease in TCE revenue to $11,576 from $12,928 per day during the six months ended June 30, 2018 and 2017, respectively.  The aforementioned factors affecting the global demand for product tankers, across all vessel classes, had a consequential impact on Handymax spot TCE rates throughout 2018.

 

The decrease was partially offset by an increase in pool revenue days to 3,607 from 3,284 days during the six months ended June 30, 2018 and 2017, respectively. This was the result of an increase in the average number of time and bareboat chartered-in Handymax tankers to an average of 8.1 from 7.3 during the six months ended June 30, 2018 and 2017, respectively as we took delivery of seven Handymax product tankers under bareboat charter-in arrangements throughout the first quarter of 2017.  These vessels operated for a partial period during the six months ended June 30, 2017 whereas they operated for the entire six month period ended June 30, 2018.

 

15



 

LR1 pool revenue.  Pool revenue from LR1/Panamax vessels for the six months ended June 30, 2018 was $22.8 million, an increase of $20.6 million, or 928%, from $2.2 million for the six months ended June 30, 2017. The increase in pool revenue was primarily the result of an increase in pool revenue days to 2,104 days from 200 days during the six months ended June 30, 2018 and 2017, respectively, as we took delivery of four LR1 product tankers that were acquired from NPTI in June 2017 and eight LR1 product tankers that we acquired from NPTI in September 2017.  These vessels operated in the Scorpio LR1 pool for the entire six months ended June 30, 2018, resulting in 2,040 additional pool revenue days.  TCE per revenue day remained consistent, decreasing slightly to $10,826 from $10,986 during the six months ended June 30, 2018 and 2017, respectively.

 

Voyage revenue (spot market). Voyage revenue for the six months ended June 30, 2018 was $7.2 million, an increase of $2.0 million, or 37%, from $5.3 million for the six months ended June 30, 2017.  This increase was primarily the result of an increase in the number of days our vessels operated in the spot market, or on short-term time charter, during the six months ended June 30, 2018.  The mix of these employment types is summarized as follows:

 

·                  Spot market voyages:  Six LR2 and two LR1 product tankers operated in the spot market on voyage charters for an aggregate of 302 days during the six months ended June 30, 2018.  Seven of our Handymax bareboat chartered-in product tankers operated in the spot market for an aggregate of 155 days during the six months ended June 30, 2017.

 

·                  Short-term time charters:  We consider short-term time charters (less than one year) as spot market voyages. We had three MR and two LR2 product tankers employed on short-term time charters (ranging from 45 days to 120 days) for 184 aggregate revenue days during the six months ended June 30, 2018.  We had two MR product tankers employed on short-term time charters for 127 aggregate revenue days during the six months ended June 30, 2017.

 

Time charter-out revenue.  Time charter-out revenue (representing time charters with initial terms of one year or greater) for the six months ended June 30, 2018 was $18.6 million, an increase of $0.1 million, or 0%, from $18.5 million for the six months ended June 30, 2017. Time charter-out revenue, by operating segment, consists of the following:

 

 

 

For the six months ended June
30,

 

Change
favorable /

 

Percentage

 

In thousands of U.S. dollars

 

2018

 

2017

 

(unfavorable)

 

Change

 

MR

 

$

7,120

 

$

7,009

 

$

111

 

2

%

Handymax

 

6,434

 

6,453

 

(19

)

%

LR2

 

5,004

 

5,014

 

(10

)

%

LR1

 

 

 

 

N/A

 

Total time charter-out revenue

 

$

18,558

 

$

18,476

 

$

82

 

%

 

The following table summarizes the terms of our time chartered-out vessels during the six months ended June 30, 2018 and 2017, respectively.

 

 

 

Name

 

Year built

 

Type

 

Delivery Date
to the
Charterer

 

Charter
Expiration

 

Rate ($/ day)

 

1

 

STI Pimlico

 

2014

 

Handymax

 

February-16

 

February-19

(1)

$

18,000

 

2

 

STI Poplar

 

2014

 

Handymax

 

January-16

 

January-19

(1)

$

18,000

 

3

 

STI Notting Hill

 

2015

 

MR

 

November-15

 

October-18

(2)

$

20,500

 

4

 

STI Westminster

 

2015

 

MR

 

December-15

 

December-18

(2)

$

20,500

 

5

 

STI Rose

 

2015

 

LR2

 

February-16

 

February-19

(2)

$

28,000

 

 

16



 


(1)  Redelivery is plus 30 days or minus 10 days from the expiry date.

(2)  Redelivery is plus or minus 30 days from the expiry date.

 

Vessel operating costs. Vessel operating costs for the six months ended June 30, 2018 were $139.9 million, an increase of $41.9 million, or 43% from $98.0 million for the six months ended June 30, 2017. The overall increase was due to an increase in operating days to 21,502 from 15,382 for the six months ended June 30, 2018 and 2017, respectively, primarily as a result of the Merger.

 

The following table is a summary of our vessel operating costs by operating segment:

 

In thousands of U.S. dollars except costs per

 

For the six months ended June
30,

 

Change
favorable /

 

Percentage

 

day and days data

 

2018

 

2017

 

(unfavorable)

 

Change

 

Vessel operating costs

 

 

 

 

 

 

 

 

 

MR

 

$

55,224

 

$

48,243

 

$

(6,981

)

(14

)%

LR2

 

45,736

 

25,529

 

(20,207

)

(79

)%

Handymax

 

24,163

 

23,874

 

(289

)

(1

)%

LR1

 

14,781

 

340

 

(14,441

)

(4,247

)%

Total vessel operating costs

 

$

139,904

 

$

97,986

 

$

(41,918

)

(43

)%

 

 

 

 

 

 

 

 

 

 

Vessel operating costs per day

 

 

 

 

 

 

 

 

 

MR

 

$

6,384

 

$

6,224

 

$

(160

)

(3

)%

LR2

 

6,650

 

6,433

 

(217

)

(3

)%

Handymax

 

6,357

 

6,626

 

269

 

4

%

LR1

 

6,805

 

5,316

 

(1,489

)

(28

)%

Consolidated vessel operating costs per day

 

6,507

 

6,370

 

(137

)

(2

)%

 

 

 

 

 

 

 

 

 

 

Operating days

 

 

 

 

 

 

 

 

 

MR

 

8,651

 

7,747

 

904

 

12

%

LR2

 

6,878

 

3,968

 

2,910

 

73

%

Handymax

 

3,801

 

3,603

 

198

 

5

%

LR1

 

2,172

 

64

 

2,108

 

3,294

%

Total operating days

 

21,502

 

15,382

 

6,120

 

40

%

 

MR vessel operating costs.  Vessel operating costs for the MR operating segment for the six months ended June 30, 2018 were $55.2 million, an increase of $7.0 million, or 14%, from $48.2 million for the six months ended June 30, 2017. This was primarily due to an increase in operating days of 904 days to 8,651 days from 7,747 days during the six months ended June 30, 2018 and 2017, respectively.  This change was the result of the delivery of six newbuilding MR product tankers in 2017 and two newbuilding MR product tankers in January 2018 resulting in an additional 1,257 of operating days during the six months ended June 30, 2018.  This increase was offset by the sale of two MRs during the six months ended June 30, 2017, resulting in a reduction of 352 operating days.  Operating costs per day remained consistent, increasing slightly to $6,384 from $6,224, or 3%, for the six months ended June 30, 2018 and 2017 respectively.

 

LR2 vessel operating costs.  Vessel operating costs for the LR2 operating segment for the six months ended June 30, 2018 were $45.7 million, an increase of $20.2 million, or 79% from $25.5 million for the six months ended June 30, 2017.  The increase was primarily due to additional operating days of 2,910 to 6,878 days from 3,968 days during the six months ended June 30, 2018 and 2017, respectively.  This increase was the result of the delivery of 15 LR2 vessels acquired from NPTI in September 2017, in addition to the delivery of two newbuilding LR2 product tankers during 2017, which operated for a partial period during the six months ended June 30, 2017 and for the entire six month period ended June

 

17



 

30, 2018.  Also, vessel operating costs per day remained consistent, increasing slightly to $6,650 from $6,433, or 3%, during the six months ended June 30, 2018 and 2017, respectively.

 

Handymax vessel operating costs. Vessel operating costs for the six months ended June 30, 2018 were $24.2 million, an increase of $0.3 million, or 1%, from $23.9 million for the six months ended June 30, 2017.  Vessel operating days increased to 3,801 days from 3,603 days during the six months ended June 30, 2018 and 2017, respectively which was the result of the delivery of seven Handymax product tankers under bareboat charter-in agreements during the six months ended June 30, 2017 (resulting in a 198 day increase in operating days).  These vessels operated for a partial period during the six month period ended June 30, 2017 whereas they operated for the entire six months ended June 30, 2018.

 

The increase was offset by a decrease in vessel operating costs per day to $6,357 from $6,626 during the six months ended June 30, 2018 and 2017, respectively as we incurred additional operating costs in 2017 on these seven bareboat chartered-in Handymax product tankers upon delivery (in 2017) as they transitioned technical management.

 

LR1 vessel operating costs. Vessel operating costs for the six months ended June 30, 2018 were $14.8 million, an increase of $14.4 million, or 4,247% from $0.3 million for the six months ended June 30, 2017.  The increase in vessel operating costs was the result of the delivery of four and eight LR1 tankers that were acquired from NPTI in June and September 2017, respectively.  These LR1 tankers operated the entire six month period ended June 30, 2018 (2,172 days) as compared to a portion of the period during the six months ended June 30, 2017 (64 days).  In addition, vessel operating costs per day increased to $6,805 from $5,316 during the six months ended June 30, 2018 and 2017, respectively.  Vessel operating costs per day during the six months ended June 30, 2017 reflect the results of just 64 operating days, which does not provide for a meaningful comparison to the six months ended June 30, 2018.

 

Charterhire. Charterhire expense for the six months ended June 30, 2018 was $35.2 million, a decrease of $3.7 million, or 10%, from $38.9 million during the six months ended June 30, 2017. The decrease was driven by lower average daily base rates on our time and bareboat chartered-in fleet to an average of $10,629 per vessel per day from an average of $12,300 per vessel per day for the six months ended June 30, 2018 and 2017, respectively.  This decrease was offset by an increase in the average number of time and bareboat chartered-in vessels to 18.7 (8.7 time chartered-in vessels and 10.0 bareboat chartered-in vessels) from 17.7 (11.4 time chartered-in vessels and 6.3 bareboat chartered-in vessels) during the six months ended June 30, 2018 and 2017, respectively.

 

Depreciation. Depreciation expense for the six months ended June 30, 2018 was $87.5 million, an increase of $26.0 million, or 42% from $61.5 million during the six months ended June 30, 2017.  The increase was the result of an increase in the average number of owned and financed leased vessels to 108.8 from 77.9 vessels for the six months ended June 30, 2018 and 2017, respectively.  This increase was primarily the result of  the delivery of (i) four LR1 product tankers from NPTI in June 2017, (ii) 23 product tankers from NPTI in September 2017 and (iii) two newbuilding MRs during the six months ended June 30, 2018.  This increase was partially offset by the sale of two MRs during the six months ended June 30, 2017.

 

General and administrative expenses. General and administrative expenses for the six months ended June 30, 2018 were $27.0 million, an increase of $3.4 million, or 14% from $23.6 million during the six months ended June 30, 2017. This increase was primarily driven by an increase of $1.6 million in restricted stock amortization and an increase of $1.6 million of administrative fees charged by SSH, which increased as a result of the growth of the Company’s fleet following the merger with NPTI.

 

Loss on sales of vessels and write-down of vessel held for sale. Loss on sales of vessels and write-down of vessel held for sale for the six months ended June 30, 2017 was $23.4 million.  In April 2017, we recorded an aggregate loss of $14.2 million on the sales and operating leasebacks of STI Beryl, STI Le Rocher and STI Larvotto.  Furthermore, we recorded an aggregate loss of $9.1 million when we entered into agreements to sell STI Sapphire and STI Emerald during the six months ended June 30, 2017.  The sale of STI Emerald closed in June 2017, and the sale of STI Sapphire closed in July 2017.

 

Merger transaction related costs. Merger transaction related costs for the six months ended June 30, 2018 were $0.3 million, a decrease of $32.3 million or 99% from $32.5 million during the six months ended June 30, 2017.  Merger transaction

 

18



 

related costs represent costs incurred as part of the Merger with NPTI.  The costs recorded during the six months ended June 30, 2017 consisted of $15.2 million of advisory and other professional fees and $17.3 million of costs related to the early termination of NPTI’s existing service agreements.  Approximately $6.0 million of the termination costs were settled via the issuance of 1.5 million common shares of the Company.

 

Bargain purchase gain. Bargain purchase gain for the six months ended June 30, 2017 was $5.4 million.  The bargain purchase gain represents the results of the purchase price allocation, which was performed upon NPTI Vessel Acquisition in June 2017.  This transaction was accounted for as a business combination due to its connection with the Merger.

 

Financial expenses. Financial expenses for the six months ended June 30, 2018 were $88.4 million, an increase of $41.7 million, or 89% from $46.7 million during the six months ended June 30, 2017. The change was the result of an increase in interest payable on our outstanding borrowings and an increase in write-offs of deferred financing fees for the six months ended June 30, 2018 and 2017, respectively, which can be described as follows:

 

·                  The increase in our interest payable was the result of (i) an increase in our average debt outstanding to $2.8 billion from $2.0 billion, which was primarily driven by the assumption of $907.4 million of indebtedness as a result of the Merger and (ii) an increase in LIBOR rates during the six months ended June 30, 2018 as compared to the six months ended June 30, 2017.

 

·                  During the six months ended June 30, 2018, we wrote-off an aggregate of $7.0 million of deferred financing fees consisting of (i) $1.1 million related to the exchange of Convertible Notes due 2019 in May 2018 (as described below in the section entitled “Long-Term Debt Obligations and Credit Arrangements”), (ii) $3.3 million related to the refinancing of the existing indebtedness on five vessels into the ABN/SEB Credit Facility (as described below) and (iii) $2.6 million of acceleration of a portion of the deferred financing fees related to the credit facilities that were expected to be refinanced in the third and fourth quarters of 2018.

 

·                  During the six months ended June 30, 2017, we wrote-off an aggregate of $0.9 million of deferred financing fees as a result of (i) $0.5 million related to the repayment of our BNPP Credit Facility as a result of the sales of STI Sapphire and STI Emerald and (ii) $0.3 million related to the refinancing of the DVB 2016 Credit Facility.

 

Financial expenses for the six months ended June 30, 2018 consisted of interest expense of $66.8 million, non-cash accretion of our convertible notes of $6.4 million, write-offs and accelerations of deferred financing fees of $7.0 million, amortization of deferred financing fees of $6.2 million and non-cash accretion or amortization of the fair value adjustments recorded upon the assumption of indebtedness from NPTI of $1.9 million.

 

Financial expenses for the six months ended June 30, 2017 consisted of interest expense of $33.1 million, non-cash accretion of our convertible notes of $6.0 million, write-offs of deferred financing fees of $0.9 million and amortization of deferred financing fees $6.6 million.

 

Loss on exchange of convertible notes.  Loss on exchange of convertible notes for the six months ended June 30, 2018 was $17.0 million.  In May 2018, we exchanged $188.5 million in aggregate principal amount of the Convertible Notes due 2019 for $188.5 million in aggregate principal amount of the Company’s new Convertible Notes due 2022.  As a result of this exchange, we recorded a loss of $17.0 million on the exchange during the six months ended June 30, 2018.  This transaction is further described below in the section entitled “Long-Term Debt Obligations and Credit Arrangements”.

 

19



 

Liquidity and Capital Resources

 

Our primary source of funds for our short-term and long-term liquidity needs will be the cash flows generated from our vessels, which primarily operate in the Scorpio Group Pools or on time charter, in addition to cash on hand.  The Scorpio Group 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.

 

Current economic conditions in the product tanker market are challenging, with freight rates during the first half of 2018 at their lowest levels since 2009, resulting in the incurrence of significant losses during the six months ended June 30, 2018.  It is also likely that additional, currently uncommitted sources of financing will be required to meet the financial commitments relating to the scheduled maturities of our Senior Unsecured Notes due 2019 and Convertible Notes due 2019, which are scheduled to mature in June and July of 2019, respectively.  We could also pursue other means to raise liquidity, such as through the sale of vessels, to meet these obligations. There can be no assurance that these or other measures will be successful and a deterioration in economic conditions or a failure to refinance our debt that is maturing could cause us to breach our debt covenants and could have a material adverse effect on our business, results of operations, cash flows and financial condition.

 

Based on internal forecasts and projections, which assume the refinancing of the aforementioned debt that is maturing in 2019, and that take into account reasonably possible changes in our trading performance, in addition to our ability to sell or refinance certain vessels, we believe that we have adequate financial resources to continue in operation and meet our financial commitments (including but not limited to debt service obligations and charterhire commitments) for a period of at least twelve months from October 8, 2018.

 

As of June 30, 2018, our cash balance was $164.6 million, which was lower than our cash balance of $186.5 million as of December 31, 2017.

 

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 other 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.  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.

 

Our long-term liquidity needs as of June 30, 2018 consisted of our debt repayment obligations for our secured credit facilities, lease financing arrangements, Senior Unsecured Notes Due 2019 and 2020, Convertible Notes due 2019 and 2022, and obligations under our bareboat and time charter-in arrangements.

 

The table below summarizes our sources and uses of cash for the six months ended June 30, 2018 and 2017, respectively.

 

 

 

For the six months ended June 30,

 

In thousands of U.S. dollars

 

2018

 

2017

 

Cash flow data

 

 

 

 

 

Net cash inflow / (outflow)

 

 

 

 

 

Operating activities

 

$

52,728

 

$

59,874

 

Investing activities

 

(28,193

)

(86,856

)

Financing activities

 

(46,419

)

207,505

 

 

20



 

Cash flows from operating activities

 

Six Months Ended June 30, 2018 compared to 2017

 

The following table sets forth the components of our operating cash flows for the six months ended June 30, 2018 and June 30, 2017 along with descriptions of the significant changes thereunder.

 

 

 

For the six months ended June 30,

 

Change
favorable /

 

Percentage

 

In thousands of U.S. dollars

 

2018

 

2017

 

(unfavorable)

 

change

 

Vessel revenue (1)

 

$

298,241

 

$

241,219

 

$

57,022

 

24

%

Vessel operating costs (1)

 

(139,904

)

(97,986

)

(41,918

)

(43

)%

Voyage expenses (1)

 

(4,372

)

(3,444

)

(928

)

(27

)%

Charterhire (1)

 

(35,169

)

(38,904

)

3,735

 

10

%

General and administrative expenses - cash (2)

 

(13,792

)

(11,997

)

(1,795

)

(15

)%

Merger transaction related costs - cash (3)

 

(271

)

(26,557

)

26,286

 

99

%

Financial expenses - cash (4)

 

(66,797

)

(33,141

)

(33,656

)

(102

)%

Realized loss on derivative financial instruments

 

 

(116

)

116

 

100

%

Change in working capital (5)

 

14,158

 

29,049

 

(14,891

)

(51

)%

Financial income - cash

 

481

 

395

 

86

 

22

%

Other

 

153

 

1,356

 

(1,203

)

(89

)%

Operating cash flow

 

$

52,728

 

$

59,874

 

$

(7,146

)

(12

)%

 


(1)                                 See “Results of Operations” for information on these variations for the six months ended June 30, 2018 and 2017.

 

(2)                                 Cash general and administrative expenses are General and administrative expenses from our unaudited condensed consolidated statements of income or loss excluding the amortization of restricted stock of $13.2 million and $11.6 million for the six months ended June 30, 2018 and 2017, respectively.

 

(3)                                 Cash merger transaction related costs are transaction costs related to the Merger, from our unaudited condensed consolidated statements of income or loss, which exclude costs incurred of $5.9 million that were accrued at June 30, 2018 and subsequently settled via the issuance of 1.5 million common shares of the Company.

 

(4)                                 Cash financial expenses are Financial expenses from our unaudited condensed consolidated statements of income or loss excluding the following non-cash items: (i) the write-off and amortization of deferred financing fees of $13.2 million and $7.5 million for the six months ended June 30, 2018 and 2017, respectively, (ii) accretion of our convertible notes of $6.4 million and $6.0 million for the six months ended June 30, 2018 and 2017, respectively, (iii) accretion or amortization of the fair value measurement applied to the debt and finance lease obligations assumed in the Merger of $1.9 million and $37,067 for the six months ended June 30, 2018 and 2017, respectively.

 

21



 

(5)                                 The change in working capital for the six months ended June 30, 2018 was driven by decreases in accounts receivable, prepaid expenses and other current assets along with an increase in accounts payable, offset by an increase in other assets and a decrease in accrued expenses.  The decrease in accounts receivable was driven by overall decreases in daily TCE revenues earned across all of our operating segments during the six months ended June 30, 2018, which had a corresponding impact on amounts due from Scorpio Group Pools.  The increase in other assets was driven by an increase in pool working capital contributions as a result of additional LR2 vessels entering the Scorpio LR2 Pool during the six months ended June 30, 2018.  The decreases in prepaid expenses, other current assets and accrued expenses along with the increase in accounts payable were driven by the timing of payments affecting these accounts.

 

The change in working capital for the six months ended June 30, 2017 was primarily driven by an increase in accrued expenses and a decrease in accounts receivable.  The increase in accrued expenses relates to the accrual of Merger related transaction costs, which were accrued at June 30, 2017 and paid upon closing and the decrease in accounts receivable was the result of overall decreases in daily TCE revenues earned across all of our operating segments during the six months ended June 30, 2017, which had a corresponding impact on amounts due from Scorpio Group Pools.

 

Cash flows from investing activities

 

The following table depicts the components of our investing activities for the six months ended June 30, 2018 and June 30, 2017, along with descriptions of the significant changes thereunder.

 

 

 

For the six months ended
June 30,

 

Change
favorable /

 

Percentage

 

In thousands of U.S. dollars

 

2018

 

2017

 

(unfavorable)

 

change

 

Cash inflows

 

 

 

 

 

 

 

 

 

Proceeds from disposal of vessels (1)

 

$

 

$

99,909

 

$

(99,909

)

(100

)%

Cash outflows

 

 

 

 

 

 

 

 

 

Acquisition of vessels and payments for vessels under construction (2)

 

(26,057

)

(148,197

)

122,140

 

82

%

Net cash paid for the acquisition of the four LR1 vessels from NPTI (3)

 

 

(38,211

)

38,211

 

100

%

Drydock payments (owned and bareboat-in vessels) (4)

 

(2,136

)

(357

)

(1,779

)

(498

)%

Net cash outflow from investing activities

 

$

(28,193

)

$

(86,856

)

$

58,663

 

68

%

 


(1)                                 Net proceeds from disposal of vessels for the six months ended June 30, 2017 represents the net proceeds received for the sales and leasebacks of STI Beryl, STI Le Rocher and STI Larvotto along with the sale of STI Emerald.

 

(2)                                 Represents installment payments and other capitalized costs (including capitalized interest) associated with vessels that were under construction and/or delivered during the six months ended June 30, 2018 and 2017.

 

(3)                                 Net cash paid for the Merger with NPTI represents the $42.2 million paid to NPTI to acquire four vessel owning subsidiaries, offset by the $4.0 million cash on hand of such subsidiaries as part of the closing of the NPTI Vessel Acquisition on June 14, 2017.

 

(4)                                 Drydock payments represent the cash paid for certain vessels (both owned and bareboat chartered-in) that were drydocked in accordance with their scheduled, class required special surveys during these periods.

 

22



 

Cash flows from financing activities

 

The following table depicts the components of our financing activities for the six months ended June 30, 2018 and 2017 along with descriptions of the significant changes thereunder.

 

In thousands of U.S. dollars

 

For the six months ended
June 30,

 

Change
favorable /

 

Percentage

 

 

2018

 

2017

 

(unfavorable)

 

change

 

Cash inflows

 

 

 

 

 

 

 

 

 

 

 

 

Drawdowns from our secured credit facilities (1)

 

$

142,025

 

$

260,275

 

$

(118,250

)

(45

)%

Issuance of unsecured senior notes (1)

 

 

57,500

 

(57,500

)

(100

)%

Gross proceeds from the issuance of common stock (2)

 

 

200,000

 

(200,000

)

(100

)%

Total financing cash inflows

 

142,025

 

517,775

 

(375,750

)

(73

)%

 

 

 

 

 

 

 

 

 

 

Cash outflows

 

 

 

 

 

 

 

 

 

Repayments on our secured credit facilities (1)

 

(142,491

)

(277,213

)

134,722

 

49

%

Payments under our finance leases (1)

 

(25,000

)

 

(25,000

)

N/A

 

Payments under our unsecured senior notes (1)