List of Questions for Robert Bugbee

by | May 14, 2020 | General | 0 comments

List of questions I received from you

What is the difference between a product tanker and crude oil tanker?

What is the useful commercial life of a product tanker trading in clean petroleum products?

STNG is trading at a discount to NAV. Do you have a strategy to close the discount to NAV? Will you proactively take any step to help the market get a better understanding of the company and appreciate the hidden value?

I understand that the company wants to delever, but at what point, would buybacks be on the table?

What does an institutional investor dialogue look like?

How are you going to attract new investors to the company and keep existing ones from jumping ship?

We have seen some CEOs of other companies on TV such as CNBC. Why don’t we ever see you doing such interviews?

Due to the fact that STNG is trading at discount to NAV, are you concerned about the possibility of a hostile takeover by private equity/hedge funds? They could sell the ships, payoff the debt and make a handsome profit. Has the company been approached about being acquired recently?

SNTG and SALT are in different financial situations. STNG is doing well while SALT is struggling. Should investors worry that STNG and SALT will merge? How can investors be certain that this will not happen?

What are your thoughts about consolidation in the shipping sector? How do you think about M&A (inbound & outbound)? How much incremental market share would STNG need to achieve pricing power for 1) individual routes, 2) individual products, 3) both?

Would you ever want to acquire a strategic competitor that trades at even more of a discount to NAV to gain market share in the crude space or double down on the product space?

If you could reverse one mistake that you made in the last 12 months, what would it be?

Assuming the worst case scenario, how long can STNG survive in a very bad market without tapping equity market or raising convertible debt? What needs to happen for STNG to go bankrupt, assuming bank funding shuts down completely?

Right now floating storage is being built both in crude and product. What do you expect to be drawn down first? EURN’s CEO said that he expects floating crude to be last. He expects floating product to be drawn first. Then, he expects onshore crude close to refineries to be drawn second. Finally, he expects, floating crude to be drawn last. Do you agree with this?

I was an investor of the shipping stocks back in the 2003-2008 period. The current share price volatility is quite normal given that the vast majority of the investment community is not convinced. What will happen once the current situation, where tankers are used for storage, abides? Could we get a clearer picture of how the transition develops? Once the oil market is in equilibrium, what happens? Do people draw down from reserves on land? If so, won’t they need tankers to transport it? Or will they draw down on the reserves from the tankers first? I am trying to understand if there is a nightmare scenario where the tankers will sit idle with no oil. Can that happen?

Does the speed matter in which demand for oil come back?  EURN seems to think so, as they discusses in their presentation.  EURN believes a rapid increase in demand would be less positive, while a gradual pick up would be ok.  But EURN does not explain why, and I am not sure EURN knows either.  Do you have a perspective on this?

What could possibly go wrong for the product tanker business in 2020-2021? In other words, what keeps you up at night?

What are the best and worst case scenarios that you see unfolding for the company over the next 2 years?

How long do you think a rebalancing in the product tanker market will take? Given STNG’s fleet is very young, what could the company do to help accelerate rebalancing other than drydocking for scrubber installations?

What is your strategy for creating value in a down-cycle with a currently stretched balance sheet? How much longer do strong/extraordinary conditions need to persist for STNG to gain strategic flexibility to buy ships when there are forced sellers?

How does demurrage work with the uncertainty of when the ships can dock due to congestion? Both bulls and bears use demurrage to support their argument. How big of an issue is it in terms of cost/tail risk for STNG specifically?

Given currently strong product market, would you consider selling ships today to accelerate deleveraging to make sure any potential storm in 2020-2022 can be weathered, giving up operating leverage to guarantee solvency?

Which other current shipping CEOs do you admire and why?

Since STNG reported earnings, what has changed in the market? What are you forward expectations? Do you think that the recent rate spike for product tankers has increased oil producers’ willingness to pay higher TC rates? Under what circumstances would you consider putting more ships on TC?

There are some people that know STNG well. Are there certain things that even they misunderstand about the company?

Does STNG have an investor relations department? Will STNG get active on Twitter again using @Scorpio_Tankers handle?

What is your perspective on the floating versus land-based storage situation both in the product and crude? EIA reports that a large portion, more than 30%, of the working storage capacity in the gulf coast. Why won’t liquids make its way onto land, but instead remain in storage on tankers? I’ve mostly seen the remaining capacity in land-based tanks explained away without going into much detail.  For example, I’ve heard that logistics prevent those tanks from being filled (e.g., pipeline capacity, conditions tank owners place on their tenants which forbids subleasing space that they have under long-term contract, or “the storage isn’t in the right places”) but no detailed illustration of why that’s true.  Can you paint a complete picture as to why the logistical issues just mentioned are really and truly binding?

If I am a merchant marine academy grad why do I want to work for Scorpio instead of Euronav? Does STNG have a generous and user friendly employee stock purchase or rewards plan?  

If STNG makes $3 per share in Q2 and $0.10 is paid in dividends, what percentage of remaining profit is used for deleveraging?

I hear more chatter about managing crews in this covid19 environment. How is STNG managing crew changes, shore leave, etc to address crew health and safety while minimizing labor disruption risk to operations.

You traded call option on STNG in the past. This is problematic because it creates distrust among shareholders. One of the reasons is because there is no transparency as to when you sell them. Would you consider restricting your trading in STNG securities to only common stock purchased or sold in the open market with public announcement on each purchase or sale?

When are the 2 refineries in the middle east coming online and how does this help STNG?

With reduced oil demand, if there is a change in product mix (i.e. less jet fuel, more gasoline) what impact does this have?

Another question. Given the large discount to NAV, will Scorpio adopt an approach like Okeanis (https://twitter.com/OriginalBraila/status/1261556725775314945) where Scorpio could periodically sell tankers to repurchase shares with the net (after debt paydown) proceeds? This could unlock significant value for shareholders as it would arbitrage the delta between vessel values and share price.

Given the significant discount to NAV and leverage levels, can the company cancel its dividend and instead use those funds for debt paydown (and/or share buybacks)?

Significant amounts of fees are currently being paid to related parties; to help instill trust in the company, will the company explore re-negotiating or canceling entirely the fees paid by the company under Related Party Transactions (going instead with better priced independent third parties or reduced fees going to related parties)?

On the earnings call, the company did not seem to commit to a leverage level and instead said it would look to the market to determine this. Given the market’s reaction and the resulting share price, can the company consider communicating a specific target reduced leverage level and driving aggressively towards that level?

https://classicvalueinvestors.com/2020/04/14/how-to-profit-from-the-coronavirus-recession/
https://classicvalueinvestors.com/2015/12/15/gold-production-from-beginning-to-end-2/

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About Mariusz Skonieczny

Mariusz Skonieczny is the founder of Classic Value Investors.