Scorpio Tankers Inc

NYSE:STNG

Earnings Call Transcript 2022-Q4

[Operator]

Hello, and welcome to the Scorpio Tankers Inc. Fourth Quarter 2022 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the call over to James Doyle, Head of Corporate Development and Investor Relations. Please go ahead.

[James Doyle, Head of Corporate Development and IR]

Thank you for joining us today. Welcome to the Scorpio Tankers Fourth Quarter 2022 Earnings Conference Call.

On the call with me today are, Emanuele Lauro, Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer; Brian Lee, Chief Financial Officer, Lars Dencker Nielsen, Commercial Director.

Earlier today, we issued our fourth 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, February 16, 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 the 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. That presentation is available at scorpiotankers.com on the investor relations page under Reports and Presentations. The slides will also be available on the webcast. After the presentation, we will go to Q&A. For those asking questions, please limit the number of questions to two. If you have any question, please rejoin the queue.

Now, I’d like to introduce our Chief Executive Officer, Emanuele Lauro.

[Emanuele Lauro, Chief Executive Officer]

Thank you very much, James. Good morning, or afternoon, everyone and thanks for taking the time to join us today. So the fourth quarter was a strong finish to the best year in the company’s history. In 2022, the company generated $1.1 billion in EBITDA. It would have been very, very difficult to imagine this only 12 months ago since the first quarter of 2022 was actually a loss making quarter for the company.

So considering this and considering that we are often asked whether 2023 could be better than 2022. So it’s yes, we do expect this year to be better than 2022. The market fundamentals which created a strong rate environment remain intact and our outlook has not really changed if anything it has improved with recession fears easing and the reopening of the world’s second largest economy.

The company enters 2023 with its strongest financial position in its history and while our capital allocation is prioritize the balance sheet and results after reducing our debt by more than $1.2 billion in 2022, we have increased our ability and flexibility to allocate capital. Since July, we have repurchased 5.8 million of our common shares for $256 million.

Today we announced the renewal of our securities repurchase program for up to $250 million and we announced also the doubling of our quarterly dividend from $0.10 to $0.20 per share.

I'd like to look at the actual press release itself and just go through the table related to rates quickly. I think it's very important. On the left-hand side, we see the rates that we booked so far this quarter. And those by themselves are -- they are a confirmation really of what we were saying in October. They're solid. They are going to beat most analysts' expectations and beat consensus, but they may not by themselves show what is actually going on out there in the market right now, and what could happen. As we can see that basically, there's about 10% of open days left.

And on the right-hand side, up until, let's say, last Friday, these are the fixtures between December 1 and last Friday, we can see a tremendous gain in rates. But right now those rates themselves, up until Friday have been surpassed by what we're fixing in the market and what we're seeing in the market. So that last 10% could have quite a high delta. And that could be so high that it could materially affect those bookings for fourth quarter, even though the actual fixtures that we're doing at this time of year are starting to really be put in the book for the first quarter.

So what you have here is a market that's strengthening beyond what we've got here on the table, and we have a market and we have fixtures that are closing fourth quarter higher than the averages you're seeing here, and opening the first quarter at simply extraordinary outstanding numbers that we are already at all-time highs. And these numbers that are coming in for the first quarter right now are huge. There's no other way to say that, and which you'll see through the presentation, we don't see this market backing off at the moment. We're in a real seasonal strength. We've got real coal [ph] coming into the Northern Hemisphere and we have very strong underlying fundamentals that are being respected by increases in the time charter rates. The one year charter rates have moved very strongly.

And that's how I'd like to introduce this, pass it to James to start going through the details and then we'll get into some Q&A with Lars. Thank you very much.

[James Doyle, Head of Corporate Development and IR]

Thanks, Robert. Well, not as exciting as LR2s at $90,000 per day, but it's been an exciting year for the company, and we wanted to provide a brief update on recent events before the commercial discussion.

So if we could please go to Slide 6. Strong cash flows are transforming the balance sheet of the company and improving the quality of Scorpio Tankers as an investment. In December, we gave notice to exercise purchase options on six more vessels under sale leaseback. And in total, since August, we have given notice to exercise the purchase option on 29 vessels under sale leaseback financing, which when completed will reduce debt by close to $500 million.

So far, lease repurchases have been financed with cash flow, but with two new credit facilities for up to $166.5 million that were announced today, we can accelerate the repurchasing of more expensive lease financing and replace it with less expensive commercial bank financing. The new facilities bear interest at SOFR plus a margin of 1.9% to 1.925%, which is substantially lower than the 3.2% to 5.4% lease financing it's replacing.

In December, we repurchased $28.6 million of the company's shares at an average price of $51.20. And since July, we have repurchased $3.7 million of the company's shares for approximately $149.3 million. And lastly, we entered into a time charter agreement for an LR2 at $37,500 per day, which is subject to final customer approval but reflects the continued improvement in outlook and rates from our customers.

Slide 7, please. Well, with the conversion of the convertible bond and six additional lease repurchases, the company will reduce its indebtedness by approximately $1.3 billion this year. And the last time the company's debt was below $2 billion was December 2017 with a fleet of 78 owned vessels. So we're very excited with the progress we're making.

Slide 8, please. So far in the fourth quarter, the fleet has booked an average TCE rate of over $45,000 a day. On an annual basis, this would equate to $1.3 billion in free cash flow or a little over $22 a share. Despite extending this sensitivity churn to $60,000 per day, as you can tell from the December fixtures, current rates are well above that. But in the event rates would average, say 60,000 for the year, the company would generate almost $2 billion in free cash or $39 per share.

Slide 10, please. Since March, the refined product tanker market has been resilient. Rates have oscillated between $30,000 and $60,000 per day, even during seasonally weaker periods such as refinery maintenance. Recently, we've seen a substantial increase in rates. The confluence of factors and degree to which those factors are impacting our markets is unprecedented.

Slide 11, please. Global inventories remain at record lows with demand continuing to outpace supply. Over the last two years, the U.S. has drawn over 471 million barrels of crude oil and refined products. At the same time, globally distillate inventories have decreased over 240 million barrels. Post refinery maintenance runs have increased. And over the last two weeks, U.S. Gulf refineries have operated at 98.2% and 97.3% utilization, and these barrels are very much needed. Higher refinery runs are needed both now, as winter approaches and as Robert mentioned, but also next year with demand expected to increase through 2023.

Slide 12, please. Seaborne refined product exports have reached record levels. Product exports are averaging 25.3 million barrels per day over the first two weeks of December. With inventories near historic lows, refining capacity closures and demand increasing, product tankers now more than ever are being used to supply more immediate demand and from further afar. The impact of refinery closures in places like Europe and Australia is apparent. Both regions are experiencing record levels of refined product imports as you can see in the graph.

Since lifting its export quotas, China's refined product exports have increased significantly. However, as COVID restrictions ease and domestic demand increases, it's unclear if China will be able to maintain the current levels. What is clear is that the barrels are needed. Trade routes are changing, exports are at record levels and ton miles are increasing. The incremental barrel continues to become more difficult to find.

Next year, new Middle Eastern refining capacity additions will be critical to meet incremental demand, especially if there's an impact to a change in Russian refined product flows.

Slide 13, please. Last week, the EU implemented its Russian crude oil import ban, stating that any vessel transporting Russian crude sold at a price above the $60 price cap is prohibited from European insurance and finance. While 1 week is a small sample size so far, seaborne Russian crude exports have declined by almost 50%. China and India have been the incremental buyers since the invasion of Ukraine.

On February 5, the EU will implement a similar ban for refined products. So far we have yet to see a major shift in refined product flows. And actually, over the last two months, Russian product exports have increased, and most of the imports have gone to Europe. In the event Russian exports are rerouted to different regions after February 5, there would be a substantial increase in ton-mile demand. If Russian exports decline, refined products will need to be sourced from further afield, leading to a substantial increase in ton-mile demand. Every replacement scenario requires sending a barrel longer distance, tightening vessel supply and increasing ton miles.

Slide 14, please. Next year, we expect yearly quarter-over-quarter increases in refined product demand, driven by increases in gasoline, jet fuel and naphtha with regional imbalances expected to persist due to refinery dislocation, demand increasing and the potential impacts from Russia's invasion of Ukraine. Seaborne product exports are expected to increase almost 1 million barrels a day and ton-mile demand over 9% next year. Since 2000, seaborne exports of refined products have increased in 19 of the last 22 years, even during the global financial crisis.

Lower freight rate environments have typically been due to oversupply. Today, this is much different. Supply could be the most attractive part of the equation.

Slide 15, please. The order book is at a record well with 4.8% of the fleet on order. Yards are booked until 2025 and using minimal scrapping assumptions, the fleet will grow less than 1% over the next three years. Using higher scrapping assumptions due to the fleet age and upcoming environmental regulation, the fleet will shrink over the next three years. Seaborne exports and ton-mile demand are expected to increase 3.6% and 9.7% next year, outpacing fleet growth.

The confluence of factors in today's market are constructed individually, historically low inventories, increasing demand exports and ton miles, structural dislocation in the refinery system, potential changes to Russian product flows, limited fleet growth and upcoming environmental regulations. However, collectively, together, they are unprecedented.

With that, I'd like to turn it over to Q&A.

[Operator]

Ladies and gentlemen, at this time we will begin the question-and-answer session [Operator Instructions]. Our first question today comes from Omar Nokta from Jefferies. Please go ahead with your question.

[Omar Nokta, Jefferies]

Thank you. Hey guys. Good morning. Thanks for the update. Clearly, a lot of positive things are happening, both in the market and your earnings and your balance sheet. And as you highlighted, Robert, 4Q now looks to be the top quarter of the year and 1Q starting off here at an exceptional or extraordinary level.

I wanted to ask basically, if you could just maybe frame what's been going on in the product market recently, especially the six weeks or so since you reported earnings. What's happened to cause rates to get to this point where LR2s are earning, as you show here, $90,000 a day and $75,000 on the MRs?

[Lars Dencker Nielsen, Commercial Director]

Yes. I'll give a good stab here. Hi, Omar. To be honest, the market back then was also very strong. What we have seen is just a continued improvement of this sustainable strength. And one of the things that we can see now as a ship owner is that we enjoy front-haul economics even on backhauls as well. So when you look at the TC1 Index as a market, it will probably print today at $70,000, $75,000 a day. And at that time, it was probably $55,000 to $60,000 a day. But the fact of the matter is that because of these huge exports out of North Asia, where the destination optionality has really kind of presented itself with a lot of kind of chances and options for the owners.

So we are moving LR2s now out of North Asia down to Singapore at, let's call it, $100,000 a day. We're moving it at $110,000 a day or $120,000 a day into Australia. We can reload out of Australia with condensate, which is also a nifty thing for the LR2s, which with backhaul economics into the AG is also presenting itself with about $80,000 a day. What we've also seen as we moved into the back end of the fourth quarter has been an increase in exports as well coming out of the Mediterranean.

So there has been an active market of light ends moving from the Med going back to Asia. So as we have been fixing our ships with distillate into the Continental, into Mediterranean we have been able to quite successfully being loading vessels as well out of the Mediterranean and the Continent back to Asia.

What we're seeing here is an elongation of positions. So if you look at the position is today on the 14 of December in the Middle East on LR2s, you are seeing probably the tightest position is that we have seen for a very long time. And it is my view that we're going to start seeing that market to react as well even more positively. So today, it's probably printing at Worldscale 305, trading $85,000 on pure round voyage. But in reality, because of all this capacity that we can see in terms of triangulation, rates are going to be substantially higher from that.

[Omar Nokta, Jefferies]

Thanks Lars. Yes, it sounds like that $90,000 and $75,000 are low relative to what you're seeing today. And I guess I wanted to make sure, James mentioned this, but any of what we're seeing today coming as a result of the Russian ban at least on products coming in February? Or is that still a catalyst to come?

[Lars Dencker Nielsen, Commercial Director]

I believe it's a catalyst that's going to really show itself as we move past the 5th of February. We have obviously seen a lot of the same molecules moving from the Baltic and the Black Sea into the same European destinations, and that is still continuing. And as James said, we've seen an increase in volumes as we're ramping up the stocks as much as Europe can do up to the 5th of February.

But the fact of the matter is, and this is really important, is that it doesn't matter what market you're in. You can be in the Far Eastern market, you can be in the Middle Eastern market, you can be in South America or in the U.S. Gulf. All markets on all sizes are ramping up. So you don't have any weaknesses where you could say that positions are being moved from that area to another area. You've got good market or very, very good markets in all areas at the moment, irrespective of what's happening with Russia.

Now clearly, what we have been seeing over the last couple of months has been this increase in imports into Europe of distillates in particular. But as we go past that fifth of February deadline, replacement products will ultimately have to travel further. And the ton miles will certainly also increase for the LRs and also for the MR product carriers. So one thing, of course, you've got refineries that are running even harder. You've got high utilization rates across the board. The potential of some of these tripping over will increase due to the way they run them so hard, which, of course, will also increase the dislocations and the arbitrages start moving up even further.

So there's certainly plenty of product that we've seen to move. We can see increase in volumes both in China and also in the Middle East and also products out of West Coast India, all of it going long-haul and it's not necessarily only going to Europe. But we're seeing also stuff going to West Africa, to South America and so on. Again, we're seeing this optionality on destination, which certainly for a ship owner who wishes to triangulate very effectively is very good news.

[Omar Nokta, Jefferies]

Got it. Yes. Thanks for that additional color, Lars. And one final one for me, just on the three year charter, on the LR2, the $37,500 is the new high, at least, I think, from what we've seen in the market recently. You noted that this is on a forward delivery basis. Just wanted to get a sense from you guys, how far forward is that deployment? And any thoughts on why the charterer doesn't take that ship today.

[Lars Dencker Nielsen, Commercial Director]

I think -- well, I think we -- that one is still a subject position, I think, we'll just say for the first quarter somewhere first quarter. And the why is not the charterer the why is partly too as well. I mean, obviously when the market is hot, you're not necessarily, even if it's a great rate like $37,500 for three years, you're still not anxious to -- we're not very anxious to fix our tonnage out. We've got a very high spot position. We're very confident to the present market. I would leave it at that.

A - Robert Bugbee

I think I'll just add to that, Omar, that in terms of activity in the time charter market and the inquiry levels that we're seeing in our project department, it certainly has not abated. I mean there's plenty of interest from top tier customers wanting to take long-term charters going forward.

[Omar Nokta, Jefferies]

Very good. Well, thanks guys. I will turn it over.

[Operator]

Our next question comes from Frode Morkedal from Clarksons Securities. Please go ahead with your question.

[Frode Morkedal, Clarksons Platou Securities]

Thank you. Hi guys. The market's really strong. Yes, it is strong. It is strong, yes. So $90,000 per day for LR2s in December. Considering that the market is improving by the day, could you tell me what's the outlook in the next future?

[Robert Bugbee, President]

Hold on, just want to say. Lars has already said that he's fixed me a higher than the $90,000, now fixing in the $100,000 on the LR2s. I'd first sort of -- I know you stuck your neck out and said that a while back when it was quite controversial at the time that we would see $150,000, $200,000 a day on LR2s this winter. I would just like to comment that you're going to see $150,000, $200,000 a day on most probably this winter, but you're probably actually going to see that on Handysize vessels first.

That will give you credit for your, what was at the time, thought to be by some as a very extravagant call. So Lars, I don't know if you want to add to that.

[Lars Dencker Nielsen, Commercial Director]

It would not surprise me that this winter, we will see over $100,000 on Handies or MRs or LR2s, which obviously LRs is already doing. I think all segments are on fire.

[Frode Morkedal, Clarksons Platou Securities]

Perfect. That's great. I guess my next question is, in order to explain this because February 5 hasn't happened yet, right? So have you seen any unusual product arbitrage movements in recent months? And in connection with that, are maybe ballast lengths increasing?

[Lars Dencker Nielsen, Commercial Director]

I would say Frode, to answer your last question, ballast lengths at the moment are decreasing. We're seeing a lot more triangulation on LR2s than we've ever seen. We're seeing a lot of triangulations on MRs as well. So -- it certainly is not increasing. When it comes to the first part of the question, we're seeing a lot of product, as I mentioned earlier, coming out of the Middle East. They're certainly ramping up in Jizan. They're ramping up in Azure. They've also kind of increased their production in West Coast India.

And of course, with the high processing that we've seen in China, I think the exports going to Europe that has trebled just this year alone. So we're seeing a lot of volume. It's not only going to Europe. It's also a lot of it's going down to Australia, as we mentioned before, a lot of it is also going to South America. We're seeing volumes going long-haul longer haul than we've seen before going into Western Africa as well. So in terms of ton miles, it's not only is it defined by the fact of preparing ourselves for the ban post 5th of February, but it is fundamentals around the globe that there is kind of pushing this market into this great strength.

[Frode Morkedal, Clarksons Platou Securities]

Yes. That's good color. I guess on the ballast length, I guess at least the Russian products could be argued to be -- have to be moving on more inefficient round voyage basis. What do you think?

[Lars Dencker Nielsen, Commercial Director]

Well, come the 5th of February, and obviously, this is what we assume is that the dark fleet as what's been called now, will be moving this product further afield as well. They would -- because they're only going to be doing Russian, they'll be ballasting back. So that is inefficient utilization of that particular fleet, which, of course, certainly means that your utilization of the normal fleet will increase and will fundamentally contract the supply overall.

[Frode Morkedal, Clarksons Platou Securities]

Perfect. Thank you. That's all.

[Operator]

Our next question comes from Ben Nolan from Stifel. Please go ahead with your question.

[Benjamin Nolan, Stifel]

Hey, guys. Good update. Appreciate it. Robert, you had mentioned that at this point, you guys are already beginning to fix spot into 1Q. Just curious if you can maybe frame in how much of 1Q you already have booked, and are they the kind of the rate levels that you have laid out in the press release there?

[Robert Bugbee, President]

Well, the rate -- we haven't guided to how much, so I can't do that. But the rate, what I could say is we could infer that they would be at the -- up until Friday we closed down on Friday that you would infer that basically a lot of the fixtures that were done between December 1 and last Friday at those averages, you can see of $90,000, $75,000, $55,000 would be the, let's say, the starting rates of Q1.

Right now, this week, if you're talking about an LR2 that fits kind of longer voyages further forward, they're going to be starting -- you're starting now putting fixes in the books for this week that aren't in those calculations there. Those calculations only went up to last Friday, as Lars is saying some of the fixes are going in at plus $100,000.

So and as you chop through each week, more and more of the voyages go into Q1. So basically, by the end of December, end of this year, you would have definitely had, let's say, the first three weeks of Q1 booked which on the present rates, just think what those first three weeks could be at present rates, those three weeks, you could virtually earn what you earned in the third and the fourth quarter in the first three weeks. By the time you get to everyone comes back on January 10, you'll have 33% to 35% of the entire first quarter book.

That I think, is what's super exciting is that these rates are so high and have such depth and breadth that they have an immediate effect related to your earnings and your cash position on your balance sheet. So I would just say you can count it backwards. If it's 33% by, let's say, January 10, then if you chop back a week, then take away 8% from that, chop back a week again, another 7%, 8%, that's how to approximately calculate bookings forward.

[Benjamin Nolan, Stifel]

Okay. That's helpful color. And then as it relates to just sort of the market and appreciating that as Lars you laid out, the February sanctions that could be a catalyst or create inefficiencies that effectively shrink the size of the fleet. How should we think about next year's refinery maintenance season or turnaround season, that sort of coincides with -- we're pretty close to when the sanctions are coming in. I mean how does that -- I don't know, how do you square the circle on how all of those things are going to operate simultaneously.

[Lars Dencker Nielsen, Commercial Director]

Well, if we look at 2022 in terms of what that seasonality meant, when it comes to refinery turnarounds, we had full steam ahead in the second quarter, the third quarter, which tends to be the strongest part of refinery maintenance period. I think we're down to 2.2 million barrels. That outage in December for this month compared to October was 7.6% and in October, the market was also just as strong. I think that the underlying element of what we're seeing today with capacity utilization, theoretically is so high now that with no kind of extenuating type of bottlenecks. So this is structural.

So in terms of saying that there's a refiner that has to go into turnaround, they will have to supply them with a smaller fleet of ships available to them and take that further afield. And I only see that this market will kind of ride through any kind of seasonality in terms of refinery maintenance and maintain its strength.

[Benjamin Nolan, Stifel]

Okay, all right. Appreciate. Thanks Lars.

[Operator]

Our next question comes from Ken Hoexter from Bank of America Merrill Lynch. Please go ahead with your question.

[Ken Hoexter, Bank of America Merrill Lynch]

Hey, Great. Congrats on finally getting to this point working through what was certainly a longer downturn than you thought. I guess, Robert, does the interest -- if you're getting so much interest in time charter outs and you keep pushing it off, and rates keep going up too, does that ever turn into orders from the major? Maybe talk about the cost of newbuild details? I know there's not much of an order book, but what's going on in the market now? I guess I'm -- in our analytical view, when things are too good, something typically goes wrong.

[Robert Bugbee, President]

Yes, I think that's a great question. I think at the moment, it's in an okay place. It's actually in an okay place for a major -- they've been able to take -- there's enough of the discount in the time charter rate, whether it's one year. I mean one year LR2, I think Lars was telling me this morning is in $50,000, $55,000 a day. So at all points, the $50,000, $55,000 or the three year rates, et cetera. The charterer is getting kind of a profit on the first part of it. So that's kind of a comforting thing, to secure tonnage for a period while getting a profit on an extremely strong market.

So they're able to get coverage when they are short tonnage at some kind of present cash flow. Whereas, if they were to translate that into a newbuilding, they're not doing anything. They're not getting that ship for years. It doesn't do anything to alleviate the problem at the present, and they have cash out. The further down the curve, you get the more uncertain, or everyone were discounted, and they've just left themselves massively exposed to the front.

So unless Lars has anything else to add, having worked for a major, the calculation right now is what we're happy to do a three year charter if we can. And why would we go upstairs and order something at record prices for something in the future that does not help an extremely stressed position in the present.

[Ken Hoexter, Bank of America Merrill Lynch]

Yes. Makes a lot of sense. James, you talked about the opportunity to take down debt faster, obviously. I think you originally were, I think something like $300 million, now you're talking the cash flow can be up to $1.3 billion. Are there any constraints as you look into next year on what you can draw down? And then Robert, we typically -- you always tell us to wait until Thanksgiving and see what's going on with rates. Obviously, this looks just completely different than a normal calendar. So maybe is there anything on the horizon that seasonally switches this? Or is it just going into refinery maintenance that you were just talking about? What changes the kind of run here seasonally?

[Robert Bugbee, President]

James, if you want to go first and Lars and I play the second…?

[James Doyle, Head of Corporate Development and IR]

Sure. So Ken, we did six more leases for the end of this year. We still have probably 60 vessels or more that are under leases. So there's definitely more to do. Recently, we've been doing it through cash flow. And obviously, over the next year, we'll have new loans as these vessels are unencumbered, and we can draw down on those loans and then accelerate those repurchases. Obviously, the financing in terms of the commercial bank loans are really attractive. And so we're going to continue to look to do that. And then at some point next year, you'll start to see the impact on kind of lower interest and principal breakevens, which we're really looking forward to.

[Robert Bugbee, President]

When it comes to the rates right now, when I look at it, it's very hard to -- you can think of things that are going to push the rates even higher, such as the February 5 situation because in products, it's kind of maybe even more wacky than crude because there isn't so much of a dark fleet in products. And even if in the dark fleet itself is likely to be -- it's not like they're going to be taking products to China or products to India in the same way the crude oil market is. They're going to be taking products to South America or points in Africa, so huge long distances that's going to occur.

But these are all things that we can just create even more bullish constructs. And you can see from what we're talking about now, we kind of don't need that. The market is already -- it's moved from, I mean bullish is now too weak a word for it. I mean, I don't know how to describe something that's moved from bullish to very bullish to red hot. I mean, white hot. I don't know what's after that. And it's very hard now you've got winter. We actually got a winter now in the Northern Hemisphere.

And I think that that's putting a check into because we've seen the attempt to inventory building. We've seen gas being built. We've seen some form of energy complacency despite the fact that world inventories are low. And then suddenly, you're getting this shock coming in with extreme cold. So because of the season itself, nothing to do with Russia, because of the season itself and the actual capacity of the supply side capacity at the moment, it is hard to think that this market is going to be anything but strong for this sort of -- during its normal seasonal period, which would normally last all the way through to -- with a little bit of a hiccup with refinery maintenance through tell, let's say, early mid-June.

[Ken Hoexter, Bank of America Merrill Lynch]

Wonderful. Hey, Robert and James. Thanks so much for that. Appreciate it.

[Operator]

Our next question comes from Greg Lewis from BTIG. Please go ahead with your question.

[Greg Lewis, BTIG]

Hey, thank you, and good morning everybody, and thanks for the update. James, I did have a question around the fourth quarter percent of days fixed -- and kind of really what I'm looking for are like as we think about plan days and maybe some unplanned days for the quarter, is there any kind of guidance you can give us there in terms of as we think about total revenue days for the quarter? And then also with that, sometimes we see like a ballast leg of a vessel. We see that a lot in crude where maybe it's not -- ends up being like some zero revenue days. Could you provide us any color around that just as -- I think that would be helpful?

[James Doyle, Head of Corporate Development and IR]

Yes. So there was some additional off-hire days and those were updated in the MRs. So those came down, and that's because the dry docks are taking a little bit longer due to COVID restrictions in China.

In terms of rates generally, I think what we see, which is probably a little bit different than crude and probably mutes this a little bit more is the triangulation. And the triangulation on the MRs is obviously pretty well known, where it's very surprising now is what Lars and his team has been able to do on the LR2s. And I'll let him speak to that. But what you have is an incredible amount of distillate that needs to go from Asia to the West. And so it's creating some very, very nice backhauls. And it's also benefiting the MRs as well.

And that's really when you look at kind of benchmark rates and where we are, how we're benefiting from that. I think if you look at what we're doing now in the current update, you're seeing the benefit of that triangulation. And that's probably the biggest difference compared to crude.

[Greg Lewis, BTIG]

Great. And then I did have a question. As we see more realizing that the MR market in the Atlantic Basin tends to really be, we fix it and we get to work. As we see more cargoes or loadings out of the Middle East, as those refinery runs -- as their refinery volumes increase. is there any way and I think, Robert, you touched on it a little bit, the way to leg [ph] as we think about fixing forward, i.e. or we look at today on -- today's mid-December, is kind of the actual loading time for that vessel that's fixed today? Is that kind of 7 to 10 days? Is that like a 7 to 10 days ahead of its actual loading and starting to realize that rate? Is that kind of a fair or a rough way to think about it?

[Robert Bugbee, President]

So Lars, why don't you discuss a little bit now…?

[Lars Dencker Nielsen, Commercial Director]

Yes. I'll start with -- look, Greg, on an MR, it's 7 to 10 days. It can be -- it can vary a little bit depending if it's east or west or it's the U.S. Gulf and the U.S. Gulf tends to be even shorter than that, could be 3 to 5 days. When it comes to MR2s, it tends to be anywhere between two weeks to three weeks out, depending on where that particular low port is, but mainly for the Middle East, it will be two, three weeks out, probably two weeks when it comes for North Asia, and it is a little bit more tricky when it comes to loading out of Australia with the condensates where that can be also even further out, and you need to make sure that you have enough ships there to kind of maintain the late cans. But that's about right.

[Greg Lewis, BTIG]

Okay. Great. And then I just did have one other question, just as we think about it, everybody is seeing the impact of the crude oil embargo in the Turkish rates and the locking up or I guess the authorities are trying to prove out where that crude on those vessels was originated from. As we think about the product market and the upcoming embargo of -- that's taking hold in early February. Everyone knows the headline numbers of Russian refined products, seaborne exports. Any kind of rough guidance or you could talk about in terms of what's coming from that region as opposed to what's coming out of the Baltic?

[Robert Bugbee, President]

First of all, there's more product coming out of the Baltic than out of the Black Sea. My first point -- the first point in terms of the issues around Turkish Straits, it is -- at least to my knowledge, now has been sorted out here with the P&I clubs with a wording that has been adapted or adopted by the different players, and ships are now transiting through.

And the funny thing is, it was more because of the vessels loading out of kind of CPC with the Kazakh crude, which, of course, is not sanctioned, making sure that, that P&I coverage was in place. And we have seen now that, that has now sorted out. When it comes to the volumes out of the Black Sea, post 5th of February, it's a very, very good question. It certainly is all down to what supply of ships is available in the dark fleet to be able to move it because they were trying to do whatever they can to maximize that, but I think they're going to have an issue with finding enough ships to do so.

[Greg Lewis, BTIG]

Okay, super helpful everybody. Thanks, and if you are on port you have a great holiday.

[Robert Bugbee, President]

Thank you.

[Operator]

Ladies and gentlemen, with that, we'll conclude today's question-and-answer session. I'd like to turn the floor back over to A - Robert Bugbee for closing remarks.

[Robert Bugbee, President]

Thank you. Thank you very much, everybody. I'd just like to cover something that wasn't covered. I mean, we've been bullish. We've been very bullish, and we even talked on the last conference call about $82 NAV by the end of March. Clearly, we haven't been bullish enough. I mean this is -- we just want to serve in a way it comes for you guys that, wow, this is especially now with the cold coming in and the various government policies are just continuing to run down the inventories and not implement either driving speed limits, et cetera, you're creating an amazingly tight market here. And that $82 a share NAV is no longer optimistic.

It's no longer even that bullish. It's fast becoming a reality and very quickly becoming a reality. So I know we haven't talked about it much on the call, but you've got two things coming in. It's not just the earnings, it's the value too. So it's a great position. We wish you all a very happy holidays, and thank you again very much for your support and your trust. Thanks.

[Operator]

Ladies and gentlemen, that will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.