Scorpio Tankers Inc. Q3 FY2023 Earnings Call

Thank you for joining us today. Welcome to the Scorpio Tankers, third quarter 2023 earnings conference call. On the call with me today are, Emmanuel Lauro, Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer; Chris Avella, Chief Financial Officer; Sean Hager, Head of US Chartering. Earlier today, we issued our third quarter earnings press release which is available on our website scorpiotankers.com. The information discussed on this call is based on information as of today, November 9, 2023 and may contain forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release as well as Scorpio Tankers' SEC filings which are available at scorpiotankers.com and sec.gov. Call participants are advised that the audio of this conference call is being broadcasted live on the internet and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days. We will be giving a short presentation today. The presentation is available at scorpiotankers.com on the Investor Relations page under Reports and Presentation. These slides will also be available on the webcast. After the presentation, please be patient as we will go to Q&A. For those asking questions, please limit the number of questions to two. If you have an additional question, please rejoin the queue. Now, I'd like to introduce our Chief Executive Officer, Emmanuel Lauro.

Thank you, James. And thanks, everybody for joining us today. We are pleased to report another quarter of strong financial results. In the third quarter, the company generated $200 million in adjusted EBITDA and despite the conclusion of summer driving season and refinery maintenance, we experienced a steady and sequential increase throughout the quarter. Today, this increase continues and is driven by the same factors which have led to an elevated rate environment for the last six quarters. These factors are strong global demand for refined products, dislocated refining capacity, and a constrained maritime supply. The cash flows have been significant and transformative for the company. The quality of Scorpio Tankers as an investment is improving each day; deleveraging and returning capital to shareholders is our primary focus. Our balance sheet continues to improve, and the company has today a net debt of $1.3 billion. We have reduced RSA leaseback financing from $2.3 billion in 2022 to EUR730 million as of today. In the fourth quarter, we expect to repay a further $460 million in these financings, of which EUR196 million have already been repaid. We have more than $100 million in liquidity consisting of EUR520 million in unrestricted cash and nearly $300 million available under our revolving credit facility. In the third quarter, we repurchased close to $80 million of company shares. Year to date, we have returned over $530 million to shareholders, of which EUR490 million in share repurchases and EUR40 million in dividends. Today, we have announced the renewal of our securities repurchase program for up to $250 million and we have increased our quarterly dividend from $0.25 to $0.35 per share. Looking forward, we expect low global inventories, robust demand, and limited fleet growth to support strong product tanker fundamentals. With this, I finished my remarks and I would like to turn the call to Robert. Thank you.

Hi, thank you Emmanuel. Good morning, everybody. It's really a fantastic start to the quarter. We're really happy with the way that the market has been shaping up. It's already a great springboard for the potential substantial rate improvement when the winter season kicks off in three to four weeks' time. And that's exactly what we expect. Rates have steadily improved since early July. Neither the OPEC cuts nor the weaker season have halted that; headline demand for products has improved steadily as well. Well demand for product crude is expected to continue to grow further. This is a result of post-COVID economic activity, low inventory, and is not currently a result of fears of, for example, war exploration in the Middle East; it is purely economic demand and activity. Present spot markets in all our categories according to Clarksons and indeed our own trading desks are above the guidance we have given today for the start of the fourth quarter. We are truly very optimistic that the developments through the next month as we enter the strongest season will continue to be a very consistent, strong, and broad rate increase. That's very important to note. July has been better than June, August better than July, September better than August, October better than September, and November better than October. When it comes to the strongest season coming, I am extremely confident that once again winter will come to the Northern Hemisphere; I base this confidence primarily on historical precedent. There is quite a lot of data going back a few years showing that winter has come every year. Furthermore, the scientific community and weather forecasts are generally in agreement that winter will come, therefore, increasing the rate of demand growth. There is much less certainty of product demand decline as a result of recession as the weather turns; fear of demand slowdown will, we believe, be minimal in the winter months. Just for those people who are new to the product tanker market or may have forgotten, as we've started winter nearly a year ago, winter is good. It's really good for the product market and product rates. Thank you very much again for your support. And I'll turn it over to James.

Thank you Robert. Slide 7, please. As Emmanuel said, cash flows from a strong rate environment have been significant and transformative for the company. Over the last seven quarters, we've generated $2.5 billion in EBITDA, reduced outstanding debt by $1.3 billion, and returned $710 million in share repurchases and dividends. Slide, please. We continue to reduce our expensive lease financing and have given notice to repurchase 76 vessels, of which 56 have been repurchased as of today. After repurchasing, these vessels are either encumbered or refinanced at lower interest margins in new facilities. Slide 9, please. While the year-to-date debt repayment has been slightly lower due to the timing of lease repurchases, in the fourth quarter we will repay $527 million in outstanding debt. As you can see from the graph on the left, our estimated December 31 debt balance is expected to be $1.55 billion. And on the right, we have refinanced a significant amount of lease financing, taking it down from $2.2 billion to $739 million today. Slide 10, please. Since December 2021, our net debt has improved by $1.6 billion and today is at $1.3 billion. With no new buildings on order, we have minimal CapEx. Today, we have $521 million in unrestricted cash and $280 million available under our revolver. The company is well positioned. Slide 11 please. The company has significant operating leverage. In Q3 so far, including time charters, the fleet is averaging close to $33,000 per day. At $30,000 per day, the company generates almost $800 million in free cash flow per year, and at $40,000 almost $1.2 billion. This would equate to $14 and $22 per share in free cash flow, a 26% or 41% free cash flow yield. Slide 13, please. For the last six quarters, rates have defied seasonality, refinery maintenance, and other short-term headwinds. As refinery maintenance concludes this month, we expect fundamentals and rates to improve. Over the last week, we have already started to see it. Today, spot rates for MRs are at $42,000 per day and larger vessels at $34,000 per day. Global inventories remain extremely low, requiring an increase in product exports for more immediate consumption in the U.S. and then the rest of the world. Distillate inventories are well below their five-year average which could create a very tight market as heating oil and jet fuel demand increase in Q4 and Q1. Slide 14, please. Year over year, we expect fourth quarter demand for refined products to be 2.6 million barrels a day higher than last year. And next year, on average, we expect demand to be 1.3 million barrels above 2020 levels. The increase in demand is leading to higher seaborne exports. Year to date, CPP exports have averaged 1.4 million barrels a day, about 2019 levels, and in September, averaged 1.8 million barrels. Given low global inventories, increased consumption will continue to be met through imports with product tankers reallocating barrels around the world. Not only have exports increased, but barrels are traveling longer distances. Slide 15, please. While demand is above pre-COVID levels, refining capacity is lower and more dislocated. The impact of new export-oriented refineries coming online has led to an increase in exports and ton miles. Since 2017, Middle East product exports have increased 30%, while ton miles have increased 78%. Refinery closures have also created the need to replace lost production in places like Australia, where product imports have increased 48% since closing two large refineries in 2020. All of these changes are driving an increase in ton miles as ton mile demand increases, vessel capacity is reduced, and supply tightens. Slide 16, please. And it's not just about refining capacity closing and opening. In each region, there are different refinery configurations, domestic needs, and regulatory requirements. Product tankers are the conduit for rebalancing surplus naphtha in the Middle East, surplus gasoline from Europe to Asia. In many cases, some of the largest product exporters are also the largest importers, like the U.S., UAE, and South Korea. This dynamic creates increased triangulation of the fleet, which leads to higher utilization and rates. We expect this to continue. Slide 17, please. Russian exports of refined products have declined to more normalized levels of around 1.4 million barrels a day. The grey fleet or vessels that are servicing Russia currently stands at 453 vessels. Many of these vessels which have moved into this trade are 13 years and older and will likely not return to the premium trades given their age and trading history. This has and will continue to benefit the supply of vessels servicing non-sanctioned trade lanes. Slide 18, please. Today, the order book is 10% of the current fleet, while the average age of the product tanker fleet is close to 13 years old. The strong spot market, healthy long-term time charter rates, constructive demand outlook, and aging fleet have led to more building orders. However, there are constraints to ordering; new builds are expensive, there are long lead times for delivery, and uncertainty about propulsion systems to satisfy future environmental regulations. That said, without new building orders, this year, the fleet is expected to shrink over the next few years. Starting next year, 8 million deadweight tons per year of product tankers will turn 20 each year, the equivalent of 160 MRs. By 2026, 9.3% of the fleet will be 20 years and older. The age of the fleet and upcoming environmental regulations will have a material impact on the fleet going forward. Slide 19, please. Next year’s fleet growth is expected to be 0.5%, the lowest fleet growth since 2000. Seaborne exports and ton-mile demand are expected to increase 3.5% and 12.1% respectively this year and 3.6% and 6.3% next year, vastly outpacing supply. Using minimal scrapping assumptions, on average, the fleet will grow less than 3% and 2% in '25 and '26 and less than 2% per year using higher scrapping assumptions. In addition, 1- and 3-year charter rates remain at high levels, evidence that our customers' outlook is one of increasing exports and ton miles against the constrained supply curve. The confluence of factors in today’s market are constructive individually: historically low inventories, increasing demand exports and ton miles, dislocations in the refining system, rerouting of global flows, limited fleet growth and environmental regulations. Collectively, they are unprecedented. With that, I would like to turn it over to Q&A.

We will now begin the question-and-answer session. Our first question comes from John Chappell with Evercore ISI. Please go ahead.

James, if I could pick up where you left off a little bit on the winter preparations and especially the inventories. I think a lot of people forget that the sanctions on Russian diesel didn't go into effect until February 5 of this year, so they effectively had access. Europe effectively had access to Russian diesel all through last winter, which was warm. It feels like the inventories are just as low entering this winter. You don't have access to Russia, and I'm not sure anyone can underwrite back-to-back warmer than normal winters. So have you started to see any sense of urgency from Europe as a continent as a whole to prepare for winter? Or is there perhaps a little bit of uncertainty that has the potential to make the market incredibly tight if there's an early cold snap this winter?

John, thank you. First of all, congratulations from all of us on your award for being the number one shipping analyst. Well done on that. So, look, I think we look generally across the landscape and there's quite a bit of complacency. Whether it's Europe or the rest of the world, despite the lower inventories and regardless of whether you believe in recession or not, everyone is still saying that oil and product tanker demand is going to grow. It's just an argument as to what the rate of growth will be. Inventories, as you point out, across the whole space are low, and we're sensing that everyone is pretty relaxed right now. Now we think what will happen is that they're acting as if it's like any other winter. What normally happens is that the first pulse will come, and then people wake up and start to do things. So they're denying the risk they have in their inventories and the global situation whether it's Russia, Ukraine, Israel, Palestine, or the little risk of that spreading. But I think everything comes home to roost the moment the weather turns cold. That's why we're very confident in this market; it is continually getting stronger without any kind of action from our side to ship products.

Got it. That makes complete sense. Just for my second question, shifting gears to Scorpio specifically, you have a lot of debt repayment coming up in the next couple of months. As we think about a target leverage, I know it's a number that you haven't identified in the past, but just watching the buyback activity accelerate, and looking at the dividend moving up again this quarter, perhaps unexpectedly. Do you feel that you have line of sight on a comfortable enough leverage position where maybe the focus shifts a little bit more away from deleveraging to capital return at this point in the cycle?

Yes, I think so. I think that we had said previously that once we've crossed September and in this earnings call, we would elaborate a little bit more on leverage targets, etc. Our thinking has evolved; we’d like to get the company's leverage down to around scrap value of the fleet. At that point, that's around $850 million to $900 million, and at that point, I think it would be arguable that the company would have very low leverage and be in a really safe position. And whatever it does at that point, whether it's buying stock, increasing dividends, it would truly be playing with our shareholders' money, and we wouldn't be risking bank loans, etc. The other thing is the tremendous benefits going forward if we were to get there due to these interest rates. If we were to halve our interest and principal repayments, we would end up not only having the newest product tankers out there but also possessing the lowest operating cash breakeven. I think that's great because we are getting even more for our shareholders. It's achievable with very moderate positions. It's not too far to go to drop down another $400 million by March 31. And we've already got $25 million from selling a ship. We'll get the net $25 million of that. So that's a $375 million to go. And we haven't excluded selling two or three other ships. Between earning approximately $35,000 to $40,000 a day, the market doesn't need to improve. If you ran your model and said the market will continue just as it is, and we sell a couple of assets, we'll be there by March 31. Now that can come earlier depending on if and what we sold. If rates do what we think they will do, which would be to accelerate higher.

As a follow-up to that line of discussion regarding debt reduction, it seems that that's top of mind here, and perhaps the buyback takes a bit of a backseat. Robert, you mentioned perhaps $850 million to $900 million of leverage at the company. Just to frame that, based on your commentary, with that March 31 target, is that a net debt target? Or is that just total debt outstanding?

That's a net debt target. The net debt should be backed by the scrap value of the fleet, and that is still relatively new, so we're pretty conservative at that point. With the debt facilities we're putting in, that would be at a very efficient rate. We would still have liquidity too. It's a net debt target for a company that's got a lot of liquidity.

Yes. And then, Robert, you mentioned the breakeven has come down. Are you able to venture an assumption, say, if you put down $400 million or $500 million from here, what kind of effect that will have on breakeven on a per day basis?

Well, on the interest, it's going to come down into a level, but I would think you'd be dropping the net cash breakeven between the debt and principal and interest somewhere in the region of $4,000 to $4,500 a day.

Yes, that's significant. So I guess maybe just one final one. In terms of once you finally get there, so today it's March 31, or perhaps in the spring, it definitely feels like it's sooner, much sooner rather than later. What happens once you get to that point? How do we think of the strategy of deploying capital? Is it buybacks? Is it acquisitions as you've got, obviously, the share price looks very attractively priced relative to NAV? Just give me a sense, if you don't mind, kind of what happens?

We’re not interested in speculative new buildings. We don't need to buy any ships to earn enough money. We’re making considerable cash flow, exitable earnings on the fleet we have. We don't have extraordinary maintenance CapEx or whatever. We've done all the scrubbers that we intend to put in, etc. The capital is going to go to shareholders at that point. It's pointless to anticipate what will happen later; I don't even think an NAV calculation would be relevant for a company that has a new fleet and very low leverage. You should be moving away from how do we close the NAV gap. The NAV gap is the least of our valuation worries; we should be looking to close some form of free cash flow valuation gap because you would expect that any multiple you want to put on free cash flow would increase as you lower or improve the actual investment itself. We've got a lot of work to do in that regard.

Great. So Robert, first, I wanted to check on the winter is going to come. Was that a scientific poll? I just want to check on the math there. But I just wanted to understand the phenomenal rates. If you think about scrapping activity still somewhat moderate, is there anything that drives scrapping or demolitions going forward just in this rate environment? Maybe is there anything different this cycle? Do we see them just sticking around longer? And I'm setting that up in the backdrop of a rising order book that's gone from 2%, 3% now to 10%, 11%. So I guess, ultimately, is maybe that's the winter that's kind of the overhang that is coming in a different kind of winter backdrop? Just want to understand your thoughts.

I think the first thing you want to do is to look at the order book in the perspective of that it was not always orders for LR2s are going to end up trading as LR2s, or even orders built as LR2. The contract has the ability to build an LR2 but some may not be coated, and many are likely to go into the Aframax trade anyway. But firstly, I don't think the order book in products is as high as 10% or 11%. And the order book is not for one year; it is stretched over a period of 2004, 5, and now pretty much three-quarters of 2006. So the order book is still very contained, even if it's around 2%, 3% average through that period. The exact point we know that James has been very conservative talking about the number of ships that turn 20, and that has been the point of scrapping. We also know that when these ships turn 16, 17, that they're not able really to be competitive in the premium clean petroleum fleet. So we think the order book is very contained at the moment, and that's essentially creating the prospect for multiple years of a good market. The proof of people's expectation and what they're willing to pay for secondhand modern ships has been rising a lot in the last month and follows the forward time charter book. So we're in pretty good shape. We haven't had a bull market like this in the last 30 or 40 years where there is so little yard capacity at this stage in prompt in the curve.

So let's flip that around then. Are you seeing vessels maybe actively leaving and going to dirty given the rates are higher over there?

Well, there are two things; they're not just because we've got an older product tanker; they're not just higher in certain cases. But it's easier to trade. The other reason we're seeing that is the whole of this Russian dark fleet, the Russian trade. People like us can't participate, and the people who we are buying should be buying the older ships because they don't have the same criteria to carry dirty trade or sanction trade. So much of the fleet that's being bought and removed from, let's say, the international market or free market has gone into those trades. But that has driven their prices up. What's interesting in the recent developments in the last three months has been a lot of activity from the practice of more modern product tankers, evidenced today by Tom's acquisition of their LR2s in the last 3 to 4 months of many vessels built 12, 13, 14, 15, 16; there has been a change in hands because buyers in the non-Russian trade have had more confidence in securing longer time charters for 2, 3, or 4 years and more confidence in the length of the stronger market, along with their ability, of course, to order new ships. I think older vessels represent an easier situation; you're getting enormous prices, record prices for these things. Your ships that are your modern ones, we have no problem serving customers, and you'll see us probably out of two or three time charters here. We do that quite regularly on a roster; we'll keep a lot of spot vessels but we're happy to keep 10% or so in the time charter market. But with the older vessels, it’s great, off you go. If the ship is already 11 or 12 years old, then fine, you're getting a great price and you can put the money to work brilliantly either reaching that deleverage target or as we’ve been doing in the past, buying back stock.

I wanted to discuss Slide 11 and the free cash flow, specifically for James. Regarding the right side of the slide and cash flow generation, what are the implications of dry-docking off-hires? Is everything accounted for, and are we viewing a slide for 2024 or just an illustrative example? If it is indeed for 2024, what assumptions are made regarding maintenance CapEx and ongoing CapEx? Is there a specific figure you can share?

Yes. So it's just going to be an illustrative slide; it's not going to factor in, for example, the time charters, right which would reduce breakevens or anything like that. It will take the next four quarters of debt but it doesn't factor in off-hire. It is something that we could show or with the maintenance CapEx maybe next quarter, we do plan to put it in the press release and in the presentation on a different slide, though.

No. I believe we purchased $490 million worth of stock in anticipation of strong market growth. Instead of using all that to pay down debt, we chose to invest in the stock due to its valuation. Over the past few months, we have been actively buying back stock as interest rates have significantly weakened. We are confident in the product tanker market, which shows strong fundamentals and a positive outlook even before the season starts. However, we recognize the uncertainties of the broader economic and geopolitical landscape and are aware of the associated risks. We are not focused on driving up the stock price; we've approached our stock buybacks with discipline, avoiding purchases at peak prices and seeking good value. Our primary goal is to reduce our net debt as quickly as possible, which will lower our operating cash breakeven and enhance our free cash flow. We expect this to lead to a better valuation of that cash flow over time. Furthermore, if Wall Street decides to sell off stock for various reasons—including recession fears or pessimistic views on oil—despite solid fundamentals, we will take the opportunity to buy and create value for our shareholders. Once we achieve our goals, we will focus on how to return the generated capital to our shareholders.

Just a quick market question for me. The Panama Canal, does that have any impact on the product tankers at all? Obviously, it's the larger ships in other segments that benefit directly, but I suppose that canal delays could impact the MR market in the U.S. and possibly the Atlantic in general. What’s your thought there?

Yes. Thank you for the question. It's certainly interesting times in the Panama Canal; it's very dynamic and fluid as things are evolving kind of every day. But to answer your question, is there an impact in the MR space, there absolutely will be, I think. You're seeing a reduction in the number of transits that can happen, and effectively, the economic impact for getting an MR through is going up substantially starting yesterday. So in the canal, there’s a reduction of water in the reservoirs that feed the lock system to move the ships through. Traditionally, you would move about 36 or 37 ships through the Panama Canal on any given day, and that's any type of asset class of ship. That's already reduced down to 24% today. Panama is ending the rainy season, which is what they need to replenish those reservoirs. October is generally the rainiest month on record historically for them, and this past October has been the driest month they've had since keeping records in the Panama Canal. The expectation is for those 24 current transit slots to continue to reduce down to a low of 18% starting February 1. You're looking at a couple of factors; one is the cost to charter a vessel through the Panama Canal is starting to rise, and two, the expectation on how long you wait to go through either in ballast or laden is, frankly, a bit uncertain, and can be quite expensive to get through. If you ballast from Quintero, Chile to Houston going through the Panama Canal without delay, that's a 14-day direct route. If you send that same boat down through the Magellan Strait, it's a 30-day route, or if you send that boat to load in the Med, that'd be 26 days, or transpacific, it would be 33 days. So there are many different factors here; there's an economic factor where Chile, Peru, Ecuador, West Coast Central America, and West Coast Mexico rely heavily on imports to stay supplied. Whether these imports come from Asia or continue to come from the U.S. Gulf, those types of things and how flat-price plays into it will evolve over the coming days, weeks, and months. But there will be an impact on the MR fleet, and the number of ships available will be less efficient than what we have today.

The EU is looking to enforce the Russian price cap. How do you expect that to affect your vessels?

There has been some leakage in enforcement, so it’s not a bright line between our market and the dark fleet. Anything that creates a stronger fence or moat between the two will certainly tighten up our market because you’ll have less tonnage toggling back and forth. So we welcome strict enforcement of sanctions and the price cap by the EU.

Great. During the prepared comments and in the Q&A, you talked about time chartering on the smaller vessels. Why do you think there's more interest by the shippers to lock in smaller vessels on longer terms? Is that a scarcity problem, or is it just something the operators need to do based on the age of the fleet?

Optically, it looks that way because there are many more smaller vessels than the larger LR2s. The LR2 owners are not necessarily stronger, but they're simply playing harder — they don’t feel the requirement. They see a lot of potential upside between what they can do in the product market and crude trade. So they're probably more reluctant in the LR2 market to fix out to these levels. In the product MRs, we've seen a lot of people buy modern ships and then fix them for 2-3 years for the cash flows they purchased.

I just have one question on Slide 18, where you indicated that 9% of ships will be more than 20 years old by 2026. To what extent do those ships sort of fall out of the supply and demand balance as far as Scorpio is concerned, once they cross that 20-year limit? Is that almost equivalent to those ships being scrapped, as far as rates are concerned?

That's a good way to put it. We've done some work looking at older vessels. We've seen that much of the older tonnage, around 20 years and older, is carrying crude oil or dirty products like fuel oil, where there are fewer strict requirements around coatings and things like that. There is a fair bit of coastal trade, so Indonesia, India, etc., but essentially, those vessels are not effectively competing with Scorpio Tankers vessels or our peers kind of in these premium trades. It's significant because while we're focusing on that 20-year mark, it's probably a little bit earlier, somewhere between 15 and 17 that these vessels begin to move out.

The amount of steel that needs to be replaced in a hull that gets past its third special survey starts taking your dry docking and maintenance costs not linearly up but almost parabolically up.

I think one thing to understand is that the new buildings are really stretched over a large amount of time. The supply side is very compelling. If you take all your assumptions and assume very unlikely that there are no scrappings or removals from the product trade during that period, you would still reach a pretty good balance between supply and demand. Next question, please.

I just wanted to go back to a follow-up on Omar's question around the breakevens. Could you comment on where the breakeven is today at least at the end of the quarter? And to confirm, could that come down by another $4,000 to $4,500 per day should you get to your earlier targets?

Chris, the breakevens today are probably in the $17,000 range per day. As Robert has been saying, we're still in the middle of this deleveraging cycle. We have a significant amount of debt to repay between now and the middle of the first quarter, and there are still some expensive leases on our books that we can target to further reduce this number. It’s a bit of a moving target that we're working on, but incrementally, yes.

But what Chris is saying is that you're looking at a final position once it's completed. And then the math gets simple; you're taking $1.3 billion worth of debt and chopping that down to $500 million. You'll be able to produce a model accurately. But the important thing isn't the accuracy because that's in the future; there's no way to create a model for this quarter or the start of next quarter because I've given so many caveats on how we get to that point around March next year. I'm confident you'll significantly reduce your daily breakeven number since your debt is currently high with legacy rates.

Yes, it makes a lot of sense. I guess final question for me, just turning back, sorry to dwell on the older ships. But it just sounds like it's really going to have more of an impact on the dirty trade on the crude fleet than anything. But just to drill down a little further. Is there anything owners can do today, or at least with the cash available that they have today at these rates, that can help maintain ships beyond the traditional 15 years of age?

A vessel is essentially a steel box girder subjected to corrosion and fatigue. Our clients, the oil majors, don’t count dollars spent on a time charter or a particular spot fixture; they focus on the liability from existential events. This type of risk has created an enormous structure around vetting and compliance within our customers. Thus, there is little that an owner can do to preemptively strengthen the steel or protect it from wear and tear. The technology around coatings, surveys, and intermediate inspections is advancing but doesn't make a material difference to the vessel's overall life expectancy.