Emanuele Lauro - Chairman & CEO Brian Lee - CFO Robert Bugbee - President Cameron Mackey - COO.

Gregory Lewis - Credit Suisse Jonathan Chappell - Evercore Noah Parquette - JP Morgan Ken Hoexter - Bank of America Merrill Lynch Benjamin Nolan - Stifel.

Hello, and welcome to the Scorpio Tankers Incorporated Second Quarter 2017 Conference Call. I would now like to turn the call over to Brian Lee, Chief Financial Officer. Please go ahead, sir..

Thank you, and thank you everyone for joining us today. On the call with me are Emanuele Lauro, our Chief Executive Officer; Robert Bugbee, President; Cameron Mackey, Chief Operating Officer.

The information discussed on this call is based on information as of today September 18, 2017 and may contain forward-looking statements that involve risks 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 that we issued today 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 broadcast live on the Internet and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investors Relations page of our website for approximately 14 days.

One final note before I turn it over to Emanuele, if you have any specific modeling questions, you can call me or we can discuss it offline. Now, I'd like to introduce Emanuele Lauro..

Thank you, Brian, and good morning or afternoon to everybody. Today, we are discussing the second quarter results later than usual because of the merger announced back in May. As you have seen from our announcement earlier this month, the deal has now closed effective September 1 and we are very pleased with it.

I'd like to thank our team who has done a tremendous job over the summer to combine both companies and we must also thank the lenders who have supported the transaction and Navig8's management which has been handling the merger professionally and cooperatively.

Now the focus can go back to running the day to day activities of the company, whilst we are taking delivery of the remaining vessels which are still under Navig8's control. We expect this to happen during the first half of the fourth quarter.

As far as the product tanker market is concerned and at the risk of something like a broken record, we remain optimistic on the product tanker market outlook with fundamental drivers of our market that will remain largely unchanged.

We expected demand growth actually to overtake supply growth in the second half of this year and this is happening with demand setting itself around the 4% mark supply being between 1% and 2% going forward.

We believe this is creating the conditions for a return to a stronger charter rate environment, of course the oil market dynamics and the inventory levels across the U.S., Europe and Asia will play an important role on when exactly this market will finally turn.

But being already in positive territory makes us believe that it shouldn't take us too long. With this, I'd like to turn the call to Robert..

Yes, thank you very much Emanuele. So I think that we had delayed here in the earnings but saw it pretty well through the third quarter. I'll see if we can see from the guidance.

It's pretty constructive what we are seeing in the third quarter in terms of the overall inventories coming down, as Emanuele said, demand going upwards and with looking forward to turning into the more seasonally strong phase and getting rid of what the weakest part of the year combined with the expectation that we're continuing to see the world inventory is coming down in products which will be good for trade.

And I really don't have anything more to add. So we're happy to open up to questions here..

[Operator Instructions] Our first question comes from the line of Gregory Lewis with Credit Suisse..

Thank you and good morning or good afternoon. This is question is probably Cameron or maybe Robert but clearly, we've had some continued disruptions in the Gulf of Mexico with some weather disruptions, hurricanes, as well as on the other side on the Pacific with hurricanes in Mexico; I mean, I'm sorry the earthquakes in Mexico.

Can you just provide a little bit of what you're seeing in the market? Are you surprised at the softness or tightness given what has been clearly a disruption in and around the Caribbean?.

Not really, you've take out the ability for short-term, it is coming back to normality as we go along but you took out the ability, the U.S. Gulf to export products, you would happen to naturally mean that you would expect the TC14 trade U.S.

Gulf out would be very weak and you would expect some strength which is what we had on cargo going into Europe.

You would also expect what we are seeing which is much stronger Pacific route where you've got cargo that is -- while Mexico and South America and the West Coast of the Americas are picking up the lag of cargos that we'd normally get from the U.S. Gulf, they are having to take from the Far East.

So you've kind of got what you would expect which is a much healthier market, east of Suez as a result of the hurricanes and that is coming on top of -- as Emanuele was saying, a market that's growing, that the economies are accelerating fairly fast. And the weakness -- the weakest place in that market is U.S.

Gulf out but as far as the product market in total is concerned, it's a plus; I mean the world of product market is -- you know, U.S. Gulf out is just one piece of the pie, it doesn't affect the LR1, doesn't really affect the LRs at all, in a negative way..

Okay, great. And then just one more for me; more shifting to sort of the strategy. I mean, I guess congratulations on the acquisition of Navig8.

I mean, clearly this puts you as the largest product company out there in the world; just -- as you think about positioning STNG over the next 6, 12, 18 months; I imagine a lot of that has to do with how the rate environment progresses over that period of time.

Could you talk a little bit about how you think about capital and allocation and taking some of that cash, potentially that the company earns to sort of position the company in the medium term?.

I think that's a question that's going to become more appropriate when we get into the third quarter earnings conference call which will be roundabout in a month or so; month and a half from now where we're turning into the winter, you've actually really absorbed the Navig8 position and you guys can see the balance sheet is in the third quarter and hopefully what we expect at that point is that you've got rights that are substantially positive in cash flow.

And you know, I think I'd sort of leave it at that; I mean the company is facing not going to really do much in the next 30 days other than operationally as Emanuele said, take controlled delivery of the remaining Navig8 fleet and probably Brian will be doing something on the financing.

And then we'll get into the capital allocation question come November, hopefully..

Okay. All right, thank you very much for the time..

Thank you..

Thank you. And our next question comes from the line of Jon Chappell with Evercore..

Thank you. Good morning, good afternoon. Four months ago it seems like a lifetime when the Navig8 acquisition was announced.

I just want to kind of refresher on two things; number one, kind of just remind us of the rational for that acquisition and the timing of it? And then, two, how you kind of see the capital structure now that everything's been integrated or not technically integrated but the merger is closed and you've kind of flushed out all the different credit facilities in billboard [ph] agreements etcetera?.

I think the rational remains the same which we have always said the Navig8 fleet was the only fleet in the world that firstly was -- that was underwater, that was newer than the Scorpio Tanker fleet and the Scorpio Tanker fleet is very, very modern fleet. The second thing is it was a fleet of size.

The third thing is there was extremely synergistic in terms of it was sized in our areas and in the larger vessels that we think are going to be that next point of market inflexion as you get over this pause in Asian strength and Asian refineries coming on which we're already seeing, the Asian market is the strongest today.

And those are the synergies and this is very, very easy, it's not very easy on any [indiscernible] terms of fleet profile; age, quality, they are coming from yards that we've built it in STNG, we were very familiar with the fleet, we ourselves actually technically manage them with their vessels.

So it's not that difficult to integrate this fleet into our operation. And the second question I think is probably left to Brian. I think -- I'm not sure you will have as I intimated to the last question there, you will still be spending the next 30-40 days going through the things precisely. But he can give you a general answer I guess..

So I'm just -- can you give me the question again?.

Yes.

So you've obviously doubled down on the operating leverage through the acquisition, hopefully it's the perfect time in the cycle but just on the capital structure too; how does the -- how does your kind of financial leverage sit today relative to acquisition and do you feel comfortable with that?.

That I can deal with. You haven't doubled down on your financial leverage because the deal was fundamentally structured in acquiring the company through the Navig8 shareholders taking STNG shares and the company did an equity offering back in May of $200 million to create the same type of capital structure if not stronger.

So in the front end of STNG, you have -- in many ways you have surplus cash as beginning, you've acquired cash strong here because you've taken it on with all the expectations as a liability of the company and the position. So you haven't altered to the negative, the actual financial leverage of the company.

In some senses you could argue that it's stronger because we anticipated or allowed for whilst the world is doing its energy drawdown of inventories which we really encourage as to how it's happening in the products and if anything -- that's what this hurricane in the Gulf has done, is start to normalize the only place that two months ago or a month ago that really had access inventories was the United States.

And we took substantial cash to the front end of the balance sheet..

And my last question to Emanuele. I can relate to the [indiscernible] I feel like we've been in the same boat, not but indeed, waiting for the market to recover. And these inventory numbers are certainly encouraging and the IA said last week, OECD is only 35 million barrels above the five-year average.

So it seems like we're getting really, really close.

And it seems like some of these spikes that we've seen in the market whether they were storm related or just kind of disruption related shows that the market is pretty tight but then they also seem to be pretty short-lived; so why are the spikes, why are these periods of tightness in the market kind of reversing so fast and does that kind of concern you about the supply side of the equation relatively to what's finally working on the demand side?.

I don't think that long-term this is a concern. I just think that realistically what has happened in the region, why the spikes have been short-lived is because the supply side was not balancing itself out.

So on the shorter term, yes, over the summer we were expecting a stronger market; the supply side came into balance already towards the beginning of the summer that has been some scrapping, as well on the MR front which is not extremely meaningful but it's good actually to see people scrapping MRs.

I think there are -- there have been 10 ships which have been scrapped over the 24 ships which have been delivering in or were expected to deliver between June and December.

So longer term I'm not very concerned because I'm actually looking forward to see once the balance on the supply side has been reached, some proper fundamental driver that takes this market along so that the expectation more than a concern..

I think -- Jon, I would add here. If you're going to look at, if you're having spikes in July and August and September, that's great; the fact you're having spikes at all. So it's great to have the spikes rather than being disappointed that the spikes are being sold off..

Yes, I understand..

If it's that bound to be sold -- if you take this sort of -- the great thing is the Asian market is actually being sustained.

If we kept away a little bit from the love of the United States and everything within the New Jersey showline here, we would look at the product market as being pretty strong; the strongest now for -- is for probably over a year in the East of Suez, not Far East market on MRs.

In the Western part, of course it's a spike when you have the fear of what you've just went through with these two hurricanes. You're going to get traders running high and too high..

Yes, I agree. Thanks. I appreciate it Robert, thank you..

No problem..

Thank you. And our next question comes from the line of Noah Parquette with JP Morgan..

Thanks. I want to ask -- last week we saw [indiscernible] taking diesel from Asia to Europe. Now we've seen a few of those things for the last 6 to 12 months, from the newbuild strips and my first cargo.

One, I was [indiscernible] your thoughts on, has this taken any sort of demand from your business and is this something that can normalize onto a typical product maker in the future or is this going to be a one-off?.

I think it's normal that VLCC is whether you can always allow or Suezmax or Aframax's on their first cargos out of the yards, we'll take those cargos where they can't. So it's a little bit difficult to sort of say all that stealing in a product tankers cargo because it's just so traditional, that's happened for all times ever..

It's difficult for traders to put together the spends to fill-in a VLCC at times. So if not immediate but I agree with Robert, this is not news to shipping, this has happened and yes, I mean of course, if they weren't VLCCs or Suezmax's with bulging [ph] tanks; these cargos would go on LR2s. So for sure it's impacting but it has always been the case..

Okay, fine. And Chinese [ph] refined capacity is new in terms of its amount.

So I wonder if that had any effect but -- on that?.

Second, this is Brian. The crude expenses was $30 million in flawless here but this quarter would drove that and reckon [indiscernible]..

I think expenses went up just for items that were -- that came across with the merger and things like that. It's also when you get deplete this size, it's going to grow, it's going to get bigger too; so we can go without later if you want..

Okay..

Thank you. And our next question comes from the line of [indiscernible]..

Thank you.

Most of my questions have been answered but just maybe a question on the fuel savings on your eco-ships; with the upcoming regulations around the corner on low soft to fuel; can you just kind of share with us what your experience has been with the fuel savings, both on the LR2s and the MRs?.

This is Cam. If we go back to our discussions in used path, not much has changed; so we're still with that 5% in tons for NMR and correspondingly I'm higher number for the LR2, that hasn't changed.

Of course but as a change to the price of fuel that comes down, now I would say that it's a bit early despite all the talk to predict exactly where the spread in fuel goes around 2020? Our experience with well water treatment systems makes us a bit skeptical or identical about the spacing in of those regulations but so far it appears that they are coming no doubt and the deadlines won't move.

The relative demand for diesel versus heavy fuel oil and how owners choose to respond whether through scrubber technology or paying for more expensive fuel remains to be seen but where we are is given the nature of our business being largely a spot business and the nature of fuel expense largely being priced into gross freight; we are expecting our eco-advantage or fuel efficiency to carry into post 2020 world, i.e.

have you built -- meaning, higher savings for us..

All right, thanks for clarifying.

And do you guys -- I mean, if -- I mean we're all expecting product tanker rates to move up here in the fourth quarter, if they don't and we'll sit here three months from now with rates at current levels; so would you consider trading your product tankers, your LR2, they are already undue, you currently have any trade in crude oil?.

There are five LR2s out of the Navig8 completed for their currently trading in crude and we are inheriting those five ships only as trading in crude.

We will continue to trace them in that market for some time but as and when the opportunity comes between them up and traded clean cargos alongside the rest of our alerts, we'd expect to take that opportunity.

As we've said in previous calls, it's costly and long and [indiscernible] to clean up shifts once they've gone dirty, so it's not a process we take lightly but to underline fundamental health etcetera, the right thing to do as and when we can take those voyages rather than we've been trading with crude..

Okay, great. Thank you..

I think what [indiscernible], one things in the long-term and the fundamental that didn't being covered in questions on the school is -- and it's slightly, it's the strength of what we're seeing in the dry cargo market and the related commodities; that strength is really just another confirmation that the world economy is very comforting in being the strength to dry cargo for two reasons; one, all of the cycles that have really been there for the last 40 years in the product market have really started or being preceded by the dry cargo market moving upwards.

And you know, that's pretty logical as it's a key indication of first starting of world growth.

Secondly, as especially today, as that dry cargo market strengthens, your ability, your chances, your elongating the strength of the product market by definition because it's those yards, those few yards that can build both quality products and dry -- it's great for the product market that the dry cargo market is strong.

And the dry cargo market is probably stronger than most people would expect at the moment; so that's a good I just wanted to cover in this scope..

Thank you..

Thank you. And our next question comes from the line of Ken Hoexter with Merrill Lynch..

Good morning, everyone.

Robert, can you just talk about the process of moving the vessels into the pool? Is there anything we should expect in downtime of switching anything over during this quarter? I guess, I don't know if that's the third quarter or that moves into the fourth quarter when you fully convert?.

Ken, nothing we expect of the ordinary, actually a relatively simple process switching from one pool to another. Naturally when that occurs, we're usually going from a discharged range to a loading range but in the context of the larger Scorpio pools, we don't expect that to be material sort of change of results.

One other note and then something we discussed in the past when ships change technical managers, they move their oil major approvals; so it's a bit of a trek and something you want to plan rather carefully, how and when to change technical management to minimize that time where you don't have oil major approvals; and that's something that we continue to work on with Navig8 to coordinate effectively..

Thanks.

But so we should not see then Cam any kind of impact to vessels being down in between within the quarter or which would just be smooth?.

It's not -- like I've said in the context of the company and the number of ships we already operate, you shouldn't see that have a material impact..

Perfect, thanks for that.

And then with the transaction, was there any kind of standstill of Navig8 kind of taking money and going? It seemed like there are lot of press about them going and buying more product vessels which would kind of maybe impact some of the supply-demand balance if they are going to reinject capital right back into that market? Is there any thought on that, any kind of [indiscernible]?.

Well, Navig8 doesn't exist now..

For the matter, it should be owners?.

The owners can particularly do what they want, I mean your owners are -- I am very sure by the amount of volumes as being traded in STNG that the number of the funds or the PE holders that were holding STNG have sold in the last few days as we closed or and off-selling, that become -- I would think to a pretty -- that's going to shortly finish.

But by looking at the volume the second aspect is the Navig8 manages -- yes, they can go and do that, they can take their equity and they can set up stuff, there is not standstill against that..

Okay.

And then I just want to revisit the first question; I think it was Greg's question but just that when you were talking about the storms; do you felt like we took down some of that excess supply that was out there and Brian, we talked about them before but do you think are we resetting on some of that balance given the local usage of the excess supply or wasn't not long enough of an impact?.

No, I think we're taking it down and we're taking it down before -- on a wealth basis we're taking it down and the kind of the clues to that is, is the strength that we're seeing ex-Asia at the moment..

Okay. And Robert, the….

Many are seeing pricing strength, there is other part of it. You're seeing general pricing strengths across the board, right, whether it's in -- you're seeing little bit more strength in this last 3-4 months including LNG and products across the board here..

All right, great. Thanks for the insight, thanks for the time..

Thank you. And our next question comes from the line of Ben Nolan with Stifel..

Benjamin Nolan:.

schematic:.

various:.

Since we recall the market, I mean it's difficult, right. I mean some -- if you take the other market, on most of the indexes we outperform that. We've already had enough scale to outperform that, and so you would expect to add to that now.

On the MRs, the market -- I mean we have the big pool in the MRs, we have lots of people who joined our pools; so I assume is they are free to come and go, over the years they have joined and stayed in our pools because we do at least or better than the average..

Okay..

You don't have many tools, you don't really have proper tools out there to measure what the market is..

Right. And yes, obviously we've talked a lot about that over the years and I guess my thinking is, really the point of the question is; how much would you say the integration of these additional vessels enhances your competitive position or….

Well, I think in LR2 market and the LR1 market which is a market that's especially with the modern shifts, that's already fairly consolidated.

Those market, the LR2 market is not like the MR market or the Aframax market or the bulk market, it's consolidated already; so I think it's really -- we have a lot of good hopes in being able to better service the customer with this greater percentage of assets that we have..

Okay. And then another question, it goes to -- there is a little bit in the press release about having five vessels that were dried out a little over $1 million apiece in terms of the dry docking cost; was that -- which to me sounds a little bit high for a special survey.

It was there balanced water treatment since stall or something like that or how should we think about what maybe the CapEx for dry docking will be going forward?.

Ben, its Cam. I think the way to think about these particular vessels is, two things happen which are extraordinary or conditions persistent which are extraordinary related to these but we don't think we'll be reflected in the ongoing dry dockings.

The first one has to do with the trading pattern of the shift and the trading activity of the shifts which encouraged a lot of time and let's call it wear and tear based on what they've been doing for the last five years, and so we'd expect that to be reflected in the higher dry docking build around -- for a special survey.

The second and related factor has to do with where they would dry dock, which is largely in the West where you have higher labor and fixed costs in repairing yards which is obvious; so in the future we are looking at the ongoing schedule that it seems that this is not something we've expected.

Again, most of the ships would be dry docked not in far east where costs are quite bit lower..

Right, okay. And then the last one for me, so tagging on with Magnus's [ph] question about the LR2s and the crude fleet; and Cameron, you did an excellent job of sort of identifying exactly what's what and where it's going and so forth.

But I did notice that it looks like there is now a Scorpio -- maybe I'd missed this in the past but a Scorpio Aframax pull? Is that -- I don't know, is that something that we should expect to see growing into the future?.

Not with the current fleet of assets..

No, we think the returns are going to be -- some set are going to be better in the LR2s.

It's just simply that we inherited that these particular shifts that STNG owns with those assets, we inherited that position from the Navig8 position and it will add -- you know, Cameron saying is to do that job properly, even -- and it's virtually impossible for older ships to come back into the clean market effectively and what Cameron is saying is that he is going to try and roll them back into the clean trade but do it in as an efficient manner as they can..

Right, right.

So there is no corporate strategy to -- you know, I have an Aframax angle or anything like that?.

No, I mean the Scorpio, whatever -- Scorpio management has had an Aframax pool and traded Aframax's for quite some time and STNG has been around for some time, it hasn't had any Aframax..

Right, okay. All right, that's very helpful. I appreciate it, thanks guys..

Thank you. And that concludes the question-and-answer session. I'd like to turn the floor back over to Scorpio Tankers for any closing comments..

I'd like to thank everyone for joining us today and we look forward to speaking with you very soon. Thank you..

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone have a great day..