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May 17, 2010

Scorpio Tankers grows fleet

Tanker market newcomer Scorpio Tankers Inc. (NYSE: STNG) is expanding its fleet. The company, which completed its IPO last month, has agreed to purchase two 74,000 dwt LR1 ice class-1A product tankers along with their existing time charter contracts. The $92 million purchase price for the pair includes an estimated $2.5 million for the time charters.

The two ships were built in 2008 and 2007 at the Onomichi Dockyard in Japan and are scheduled to be delivered by the end of June 2010.

The existing time charter contracts of $25,500 per day per ship plus 50 percent profit sharing over the base rate expire in October 2010 (plus or minus 30 days) for the vessel built in 2007 and January 2011 (plus or minus 30 days) for the vessel built in 2008.

The time charters, which were signed in 2007, are with a related party of Scorpio Tankers.

Emanuele Lauro, the CEO of Scorpio Tankers, commented, "We are excited about early delivery of the LR1 product tankers, which will provide significant cash flow during the traditionally weak summer season. Since our initial public offering six weeks ago, we have been executing our plan with the agreements to purchase four Handymax vessels and two LR1s for an aggregate purchase price of approximately $190 million. Upon delivery of the six ships, the average age of our fleet will be approximately 5.5 years."

Scorpio Tankers Inc. currently owns two LR1 product tankers and one post-Panamax tanker, with an average age of 6.9 years and has signed agreements to purchase four Handymax tankers and two LR1 ice class-1A product tankers.

Commenting on this morning's announcement, Dahlman Rose & Company LLC reiterated its "Buy" rating and said it views the charters as "very positive."

Noting that Scorpio has tripled the size of its fleet since the IPO, Dahlman Rose says that it "still remains under-levered."

Dahlman Rose estimates Scorpion Tankers' net debt at $50 million following today's transaction with $100 milion still available under its credit facility. Its net debt/cap is now roughly 20 percent and is on track to fall to below 5 percent by the end of 2011.

"Accordingly," says Dahlman Rose, "we believe Scorpio still has significant fire power to grow its fleet."


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