Scorpio Tankers Inc. (Form: 20-F, Received: 03/29/2013 09:48:09)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)


o	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
OR
o	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report _________________

Commission file number

SCORPIO TANKERS INC.

(Exact name of Registrant as specified in its charter)

(Translation of Registrant’s name into English)

Republic of The Marshall Islands

(Jurisdiction of incorporation or organization)

9, Boulevard Charles III Monaco 98000

(Address of principal executive offices)

Mr. Emanuele Lauro,

+377-9898-5716

9, Boulevard Charles III Monaco 98000

(Name, Telephone Number and Address of Company Contact Person)


Securities registered or to be registered pursuant to section 12(b) of the Act.

Title of each class	Name of each exchange on which registered
Common Stock, par value of $0.01 per share	New York Stock Exchange


Securities registered or to be registered pursuant to section 12(g) of the Act.
NONE
(Title of class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

NONE

(Title of class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2012, there were 63,827,846 outstanding common shares with a par value $0.01 per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.

Yes x No o

If this report is an annual or transitional report, indicate by check mark if the registrant is not required to file reports pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP o

International Financial Reporting Standards as issued by the International Accounting Standards Board x

Other o

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Cautionary Statement Regarding Forward-Looking Statements

Matters discussed in this report may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. We desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. The words “believe,” “anticipate,” “intends,” “estimate,” “forecast,” “project,” “plan,” “potential,” “may,” “should,” “expect,” “pending” and similar expressions identify forward-looking statements.

The forward-looking statements in this report are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, our management’s examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.

In addition to these important factors, other important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the failure of counterparties to fully perform their contracts with us, the strength of world economies and currencies, general market conditions, including fluctuations in charter rates and vessel values, changes in demand for tanker vessel capacity, changes in our operating expenses, including bunker prices, drydocking and insurance costs, the market for our vessels, availability of financing and refinancing, charter counterparty performance, ability to obtain financing and comply with covenants in such financing arrangements, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents or political events, vessels breakdowns and instances of off-hires and other factors described from time to time in the reports we file with the SEC. We caution readers of this report not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to update or revise any forward-looking statements. These forward looking statements are not guarantees of our future performance, and actual results and future developments may vary materially from those projected in the forward looking statements. Please see our Risk Factors in Item 3.D of this annual report for a more complete discussion of these and other risks and uncertainties.

(i)


		TABLE OF CONTENTS

			Page

PART I			1

	ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	1
	ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	1
	ITEM 3.	KEY INFORMATION	1
	ITEM 4.	INFORMATION ON THE COMPANY	20
	ITEM 4A.	UNRESOLVED STAFF COMMENTS	40
	ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	41
	ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	77
	ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	83
	ITEM 8.	FINANCIAL INFORMATION	87
	ITEM 9.	THE OFFER AND LISTING	88
	ITEM 10.	ADDITIONAL INFORMATION	89
	ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS	98
	ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	99

PART II			99

	ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	99
	ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	99
	ITEM 15.	CONTROLS AND PROCEDURES	99
	ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	101
	ITEM 16B.	CODE OF ETHICS	101
	ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	101
	ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	102
	ITEM 16E.	PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	102
	ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	102
	ITEM 16G.	CORPORATE GOVERNANCE	102
	ITEM 16H.	MINE SAFETY DISCLOSURE	103

PART III			103

	ITEM 17.	FINANCIAL STATEMENTS	103
	ITEM 18.	FINANCIAL STATEMENTS	103
	ITEM 19.	EXHIBITS	103

(ii)

P ART I.


I TEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.


I TEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.


I TEM 3.	KEY INFORMATION

Unless the context otherwise requires, when used in this annual report, the terms “Scorpio Tankers,” the “Company,” “we,” “our” and “us” refer to Scorpio Tankers Inc. and its subsidiaries. “Scorpio Tankers Inc.” refers only to Scorpio Tankers Inc. and not its subsidiaries. Unless otherwise indicated, all references to “dollars,” “US dollars” and “$” in this annual report are to the lawful currency of the United States. We use the term deadweight tons, or dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, in describing the size of tankers.


A.	Selected Financial Data

The following tables set forth our selected consolidated financial data and other operating data as of and for the years ended December 31, 2012, 2011, 2010, 2009 and 2008. The selected data is derived from our audited consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Our audited consolidated financial statements for the years ended December 31, 2012, 2011 and 2010 and our consolidated balance sheets as of December 31, 2012 and 2011, together with the notes thereto, are presented herein. Our audited consolidated financial statements for the years ended December 31, 2009 and 2008 and our consolidated balance sheets as of December 31, 2010, 2009 and 2008, and the notes thereto, are not included herein.

We began our operations in October 2009, when Liberty Holding Company Ltd., or Liberty, a wholly-owned subsidiary of Simon Financial Limited, or Simon, a company owned and controlled by the Lolli-Ghetti family, of which our founder, Chairman and Chief Executive Officer, Mr. Emanuele Lauro, is a member, transferred to us three vessel owning and operating subsidiary companies. Prior to October 1, 2009, our historical consolidated financial statements were prepared on a carve-out basis from the financial statements of Liberty. These carve-out financial statements include all assets, liabilities and results of operations of the three vessel-owning subsidiaries owned by us, formerly subsidiaries of Liberty, for the periods presented. For the periods presented, certain of the expenses incurred by these subsidiaries for commercial, technical and administrative management services were under management agreements with other entities owned and controlled by the Lolli-Ghetti family, which we refer to collectively as the Scorpio Group, consisting of: (i) Scorpio Ship Management S.A.M., or SSM; and Scorpio Commercial Management S.A.M., or SCM; which provide us and third parties with technical and commercial management services, respectively; (ii) Liberty, which provided us with administrative services until March 13, 2012 when the administrative services agreement was assigned to Scorpio Services Holding Limited, or SSH, a company owned by the Lolli-Ghetti family; and (iii) other affiliated entities. Since agreements with related parties are by definition not at arms length, the expenses incurred under these agreements may have been different than the historical costs incurred if the subsidiaries had operated as unaffiliated entities during prior periods. Our estimates of any differences between historical expenses and the expenses that may have been incurred had the subsidiaries been stand-alone entities have been disclosed in the notes to our historical consolidated financial statements for those relevant years which are not presented herein.


	For the year ended December 31,
*In thousands of US dollars except per share and share data*	2012			2011			2010			2009			2008
Consolidated income statement data
Revenue:
Vessel revenue	$	115,381		$	82,110		$	38,798		$	27,619		$	39,274
Operating expenses:
Vessel operating costs		(30,353	)		(31,370	)		(18,440	)		(8,562	)		(8,623	)
Voyage expenses		(21,744	)		(6,881	)		(2,542	)		—			—
Charterhire		(43,701	)		(22,750	)		(276	)		(3,073	)		(6,722	)
Impairment ⁽¹⁾		—			(66,611	)		—			(4,512	)		—
Depreciation		(14,818	)		(18,460	)		(10,179	)		(6,835	)		(6,984	)
Loss from sale of vessels		(10,404	)		—			—			—			—
General and administrative expenses		(11,536	)		(11,637	)		(6,200	)		(417	)		(600	)
Total operating expenses		(132,556	)		(157,708	)		(37,637	)		(23,399	)		(22,930	)
Operating (loss) / income		(17,175	)		(75,599	)		1,161			4,220			16,344
Other income and expense:
Financial expenses		(8,512	)		(7,060	)		(3,231	)		(699	)		(1,711	)
Earnings from profit or loss sharing agreements		443			—			—			—			—
Realized loss on derivative financial instruments		—			—			(280	)		(808	)		(406	)
Unrealized (loss) / gain on derivative financial instruments		(1,231	)		—			—			956			(2,058	)
Financial income		35			51			37			5			35
Other expense, net		(97	)		(119	)		(509	)		(256	)		(19	)
Total other income and expense		(9,362	)		(7,128	)		(3,983	)		(802	)		(4,158	)
Net (loss)/income	$	(26,537	)	$	(82,727	)	$	(2,822	)	$	3,418		$	12,186
(Loss)/earnings per common share ⁽²⁾ :
Basic and diluted (loss)/earnings per share	$	(0.64	)	$	(2.88	)	$	(0.18	)	$	0.61		$	2.18
Basic and diluted weighted average shares outstanding		41,413,339			28,704,876			15,600,813			5,589,147			5,589,147


	As of December 31,
*In thousands of US dollars*	2012		2011		2010		2009		2008
Balance sheet data
Cash and cash equivalents	$	87,165	$	36,833	$	68,187	$	444	$	3,608
Vessels and drydock		395,412		322,458		333,425		99,594		109,260
Vessels under construction		50,251		60,333		—		—		—
Total assets		573,280		448,230		412,268		104,423		117,112
Current and non-current bank loans		142,459		145,568		143,188		36,200		43,400
Shareholder payable ⁽³⁾		—		—		—		—		22,028
Related party payable ⁽³⁾		—		—		—		—		27,406
Shareholders’ equity		414,790		286,853		264,783		61,329		20,299


	For the year ended December 31,
*In thousands of US dollars*	2012			2011			2010			2009			2008
Cash flow data
Net cash inflow/(outflow)
Operating activities	$	(1,928	)	$	(12,452	)	$	4,907		$	9,306		$	24,838
Investing activities		(90,155	)		(122,573	)		(245,595	)		—			—
Financing activities		142,415			103,671			308,431			(12,469	)		(22,384	)


	(1)	In the years ended December 31, 2011 and December 31, 2009, we recorded an impairment charge of $66.6 million for our 12 owned vessels and $4.5 million for two of our owned vessels, respectively. See Item 5. “Operating and Financial Review and Prospects.”

	(2)	Basic earnings per share is calculated by dividing the net (loss)/income attributable to equity holders of the parent by the weighted average number of common shares outstanding assuming, for the period prior to October 1, 2009, when our historical consolidated financial statements were prepared on a carve-out basis, that the reorganization described above was effective during the period. Diluted earnings per share are calculated by adjusting the net (loss)/income attributable to equity holders of the parent and the weighted average number of common shares used for calculating basic earnings per share for the effects of all potentially dilutive shares. Such potentially dilutive common shares are excluded when the effect would be to increase earnings per share or reduce a loss per share.

	(3)	On November 18, 2009, the shareholder payable and the related party payable balances, as of that date, were converted to equity as a capital contribution.

The following table sets forth our other operating data. This data should be read in conjunction with Item 5. “Operating and Financial Review and Prospects.”


	For the year ended December 31,
	2012		2011		2010		2009		2008
Average Daily Results
Time charter equivalent (TCE) per day ⁽¹⁾	$	12,960	$	12,898	$	16,213	$	23,423	$	29,889
Vessel operating costs per day ⁽²⁾		7,605		7,581		8,166	$	7,819	$	7,875

Aframax/LR2
TCE per revenue day - pool	$	10,201	$	14,849	$	12,460	$	—	$	—
TCE per revenue day - time charters		—		15,457		—		—		—
Vessel operating costs per day ⁽²⁾		8,436		6,960		8,293		—		—

Panamax/LR1
TCE per revenue day - pool	$	14,242	$	12,876	$	15,213	$	21,425	$	36,049
TCE per revenue day - spot		15,147		—		2,839		—		—
TCE per revenue day - time charters		—		23,962		22,729	$	24,825	$	24,992
Vessel operating costs per day ⁽²⁾		7,714		7,891		8,189		7,819		7,875

MR
TCE per revenue day - pool	$	11,811	$	—	$	—	$	—	$	—
TCE per revenue day - spot		12,541		12,092		—		—		—
Vessel operating costs per day ⁽²⁾		6,770		6,748		—		—		—

Handymax
TCE per revenue day - pool	$	13,166	$	11,343	$	9,965	$	—	$	—
TCE per revenue day - spot		11,201		—		8,077		—		—
Vessel operating costs per day ⁽²⁾		7,594		7,619		8,107		—		—

Fleet data
Average number of owned vessels		10.81		11.29		6.19		3.00		3.00
Average number of time chartered-in vessels		9.18		4.95		0.06		0.33		0.59

Drydock
Expenditures for drydock (in thousands of US dollars)	$	2,869	$	2,624	$	974	$	1,681	$	—


	(1)	Freight rates are commonly measured in the shipping industry in terms of time charter equivalent per revenue day. Vessels in the pool and on time charter do not have voyage expenses; therefore, the revenue for pool vessels and time charter vessels is the same as their TCE revenue. Please see “Important financial and operational terms and concepts” section below for a discussion of TCE revenue, revenue days and voyage expenses.
	(2)	Vessel operating costs per day represent vessel operating costs, as such term is defined in the “Important financial and operational terms and concepts” section below, divided by the number of days the vessel is owned during the period.
	(3)	For a definition of items listed under “Fleet Data,” please see the section of this annual report entitled Item 5. “Operating and Financial Review and Prospects.”

B.	Capitalization and indebtedness

	Not applicable.

C.	Reasons for the offer and use of proceeds

	Not applicable.

D.	Risk Factors

The following risks relate principally to the industry in which we operate and our business in general. Other risks relate principally to the securities market and ownership of our common stock. The occurrence of any of the events described in this section could significantly and negatively affect our business, financial condition, operating results or cash available for dividends or the trading price of our common stock.

RISKS RELATED TO OUR INDUSTRY

If the tanker industry, which historically has been cyclical, continues to be depressed in the future, our earnings and available cash flow may be adversely affected.

The tanker industry is both cyclical and volatile in terms of charter rates and profitability. A worsening of the current global economic conditions may adversely affect our ability to charter or recharter our vessels or to sell them on the expiration or termination of their charters and the rates payable in respect of our vessels currently operating in tanker pools, or any renewal or replacement charters that we enter into may not be sufficient to allow us to operate our vessels profitably. Fluctuations in charter rates and vessel values result from changes in the supply and demand for tanker capacity and changes in the supply and demand for oil and oil products. The factors affecting the supply and demand for tankers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.

The factors that influence demand for tanker capacity include:


	•	supply and demand for energy resources and oil and petroleum products;

	•	regional availability of refining capacity and inventories;

	•	global and regional economic and political conditions, including armed conflicts, terrorist activities, and strikes;


	•	the distance oil and oil products are to be moved by sea;

	•	changes in seaborne and other transportation patterns;

	•	environmental and other legal and regulatory developments;

	•	weather and natural disasters;

	•	competition from alternative sources of energy; and

	•	international sanctions, embargoes, import and export restrictions, nationalizations and wars.

The factors that influence the supply of tanker capacity include:


	•	supply and demand for energy resources and oil and petroleum products;

	•	the number of newbuilding deliveries;

	•	the scrapping rate of older vessels;

	•	conversion of tankers to other uses;

	•	the number of vessels that are out of service;

	•	environmental concerns and regulations; and

	•	port or canal congestion.

We are dependent on spot-oriented pools and spot charters and any decrease in spot charter rates in the future may adversely affect our earnings.

As of the date of this annual report, all of our vessels are employed in either the spot market or in spot market-oriented tanker pools, such as the Scorpio LR2 Pool, Scorpio Panamax Tanker Pool the Scorpio MR Pool, or the Scorpio Handymax Tanker Pool, which we refer to collectively as the Scorpio Group Pools, exposing us to fluctuations in spot market charter rates. The spot charter market may fluctuate significantly based upon tanker and oil supply and demand. The successful operation of our vessels in the competitive spot charter market, including within the Scorpio Group Pools, depends on, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo. The spot market is very volatile, and, in the past, there have been periods when spot charter rates have declined below the operating cost of vessels. If future spot charter rates decline, then we may be unable to operate our vessels trading in the spot market profitably, meet our obligations, including payments on indebtedness, or pay dividends in the future. Furthermore, as charter rates for spot charters are fixed for a single voyage which may last up to several weeks, during periods in which spot charter rates are rising, we will generally experience delays in realizing the benefits from such increases.

Our ability to renew expiring charters or obtain new charters will depend on the prevailing market conditions at the time. If we are not able to obtain new charters in direct continuation with existing charters, or if new charters are entered into at charter rates substantially below the existing charter rates or on terms otherwise less favorable compared to existing charter terms, our revenues and profitability could be adversely affected.

An over-supply of tanker capacity may lead to a reduction in charter rates, vessel values, and profitability.

The market supply of tankers is affected by a number of factors, such as supply and demand for energy resources, including oil and petroleum products, supply and demand for seaborne transportation of such energy resources, and the current and expected purchase orders for newbuildings. If the capacity of new tankers delivered exceeds the capacity of tankers being scrapped and converted to non-trading tankers, tanker capacity will increase. According to Drewry Shipping Consultants Ltd., or Drewry, as of the end of January 2013, the newbuilding order book, which extends to 2016, equaled approximately 12.4% of the existing world tanker fleet and the order book may increase further in proportion to the existing fleet. If the supply of tanker capacity increases and if the demand for tanker capacity decreases or does not increase correspondingly, charter rates could materially decline. A reduction in charter rates and the value of our vessels may have a material adverse effect on our results of operations and available cash.

Acts of piracy on ocean-going vessels could adversely affect our business.

Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean and in the Gulf of Aden. Although the frequency of sea piracy worldwide decreased during 2012 to its lowest level since 2009, sea piracy incidents continue to occur, particularly in the Gulf of Aden off the coast of Somalia and increasingly in the Gulf of Guinea, with drybulk vessels and tankers particularly vulnerable to such attacks. If these piracy attacks result in regions in which our vessels are deployed being characterized by insurers as “war risk” zones by insurers or Joint War Committee “war and strikes” listed areas, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including costs which may be incurred to the extent we employ onboard security guards, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a material adverse impact on our business, results of operations, cash flows and financial condition and may result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us under our charters.

The current state of the global financial markets and current economic conditions may adversely impact our ability to obtain additional financing on acceptable terms and otherwise negatively impact our business.

Global financial markets and economic conditions have been, and continue to be, volatile. In recent years, operating businesses in the global economy have faced tightening credit, weakening demand for goods and services, deteriorating international liquidity conditions, and declining markets. There has been a general decline in the willingness of banks and other financial institutions to extend credit, particularly in the shipping industry, due to the historically volatile asset values of vessels. As the shipping industry is highly dependent on the availability of credit to finance and expand operations, it has been negatively affected by this decline.

Also, as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets has increased as many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, and in some cases ceased, to provide funding to borrowers. . We will need to secure additional debt or equity financing or both in addition to our 2013 Credit Facility (defined later) to fully fund the remaining balance of our obligations under our Newbuilding Program (defined later). Due to these factors, additional financing may not be available if needed and to the extent required, on acceptable terms or at all. If additional financing is not available when needed, or is available only on unfavorable terms, we may be unable to expand or meet our obligations as they come due or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.

If economic conditions throughout the world do not improve, it will impede our operations.

Negative trends in the global economy that emerged in 2008 continue to adversely affect global economic conditions. In addition, the world economy continues to face a number of new challenges, including uncertainty related to the continuing discussions in the United States regarding the U.S. federal debt ceiling, mandatory reductions in federal spending, along with widespread skepticism about the implementation of any resulting agreements, continuing turmoil and hostilities in the Middle East, North Africa and other geographic areas and countries and continuing economic weakness in the European Union. There has historically been a strong link between the development of the world economy and demand for energy, including oil and gas. An extended period of deterioration in the outlook for the world economy could reduce the overall demand for oil and gas and for our services. Such changes could adversely affect our results of operations and cash flows.

The economies of the United States, the European Union and other parts of the world continue to experience relatively slow growth or remain in recession and exhibit weak economic trends. The credit markets in the United States and Europe have experienced significant contraction, de-leveraging and reduced liquidity, and the U.S. federal government and state governments and European authorities continue to implement a broad variety of governmental action and/or new regulation of the financial markets. Global financial markets and economic conditions have been, and continue to be, severely disrupted and volatile. Since 2008, lending by financial institutions worldwide remain at very low levels compared to the period preceding 2008.

We face risks attendant to changes in economic environments, changes in interest rates, and instability in the banking and securities markets around the world, among other factors. We cannot predict how long the current market conditions will last. However, these recent and developing economic and governmental factors, together with the concurrent decline in charter rates and vessel values, may have a material adverse effect on our results of operations and may cause the price of our common stock to decline.

Changes in fuel, or bunkers, prices may adversely affect profits.

Fuel, or bunkers, is typically the largest expense in our shipping operations for our vessels and changes in the price of fuel may adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the Organization of the Petroleum Exporting Countries, or OPEC, and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Further, fuel may become much more expensive in the future, which may reduce the profitability.

We are subject to complex laws and regulations, including environmental laws and regulations that can adversely affect our business, results of operations, cash flows and financial condition, and our available cash.

Our operations are subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership and operation of our vessels. These requirements include, but are not limited to, the U.S. Oil Pollution Act of 1990, or OPA, the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA, the U.S. Clean Air Act, U.S. Clean Water Act and the U.S. Marine Transportation Security Act of 2002, European Union Regulation, and regulations of the International Maritime Organization, or the IMO, including the International Convention for the Prevention of Pollution from Ships of 1975, the International Convention for the Prevention of Marine Pollution of 1973, the IMO International Convention for the Safety of Life at Sea of 1974, the International Convention on Load Lines of 1966, and the International Ship and Port Facility Security Code. Compliance with such laws and regulations, where applicable, may require installation of costly equipment or operational changes and may affect the resale value or useful lives of our vessels. We may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to air emissions including greenhouse gases, the management of ballast waters, maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution incidents. The 2010 Deepwater Horizon oil spill in the Gulf of Mexico may also result in additional regulatory initiatives or statutes or changes to existing laws that may affect our operations or require us to incur additional expenses to comply with such regulatory initiatives, statutes or laws.

These costs could have a material adverse effect on our business, results of operations, cash flows and financial condition and our available cash. A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the 200-nautical mile exclusive economic zone around the United States (unless the spill results solely from the act or omission of a third party, an act of God or an act of war). An oil spill could result in significant liability, including fines, penalties, criminal liability and remediation costs for natural resource damages under other international and U.S. federal, state and local laws, as well as third-party damages, including punitive damages, and could harm our reputation with current or potential charterers of our tankers. We are required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although we have arranged insurance to cover certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business, results of operations, cash flows and financial condition and available cash.

If we fail to comply with international safety regulations, we may be subject to increased liability, which may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.

The operation of our vessels is affected by the requirements set forth in the IMO’s International Management Code for the Safe Operation of Ships and Pollution Prevention, or the ISM Code, promulgated by the IMO under the International Convention for the Safety of Life at Sea of 1974, or SOLAS. The ISM Code requires the party with operational control of a vessel to develop and maintain an extensive “Safety Management System” that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. If we fail to comply with the ISM Code, we may be subject to increased liability, may invalidate existing insurance or decrease available insurance coverage for our affected vessels and such failure may result in a denial of access to, or detention in, certain ports.

Adverse market conditions could cause us to breach covenants in our credit facilities and adversely affect our operating results.

The market values of tankers have generally experienced high volatility. The market prices for tankers declined significantly from historically high levels reached in early 2008 and remain at relatively low levels. You should expect the market value of our vessels to fluctuate depending on general economic and market conditions affecting the shipping industry and prevailing charterhire rates, competition from other tanker companies and other modes of transportation, types, sizes and ages of vessels, applicable governmental regulations and the cost of newbuildings. We believe that the current aggregate market value of our vessels will be in excess of loan to value amounts required under our credit facilities. Our 2010 Revolving Credit Facility (defined later) and 2011 Credit Facility (defined later) each require that the fair market value of the vessels pledged as collateral never be less than 150% of the aggregate principal amount outstanding. Our Newbuilding Credit Facility (defined later) requires 140% (120% if the vessel is subject to acceptable long term employment) of the aggregate principal amount outstanding plus a pro rata amount of any allocable swap exposure. Our STI Spirit Credit Facility (defined later) requires that the charter-free market value of the STI Spirit be no less than 140% of the then outstanding loan balance and we made prepayments of $0.8 million in June 2012, and $1.3 million in December 2012 in order to stay in compliance with this covenant which will be applied to our next four quarterly payments.

In addition, each of our 2010 Revolving Credit Facility, 2011 Credit Facility and STI Spirit Credit Facility required us to maintain a ratio of EBITDA to interest expense of no less than 1.25 to 1.00 commencing with the fourth fiscal quarter of 2011 through the fourth quarter of 2012, at which time it increased to 1.50 to 1.00 for the first quarter of 2013, 1.75 to 1.00 for the second quarter of 2013, and 2.00 to 1.00 at all times thereafter. Our Newbuilding Credit Facility required us to maintain a ratio of EBITDA to interest expense of not less than 2.00 to 1.00 through the fourth quarter of 2012 and 2.50 to 1.00 at all times thereafter. Such ratio in all our credit facilities shall be calculated quarterly on a trailing four quarter basis. We expect to be subject to similar financial covenants under our 2013 Credit Facility.

A decrease in vessel values or a failure to meet these ratios could cause us to breach certain covenants in our existing credit facilities and future financing agreements that we may enter into from time to time. If we breach such covenants and are unable to remedy the relevant breach or obtain a waiver, our lenders could accelerate our debt and foreclose on our owned vessels. Additionally, if we sell one or more of our vessels at a time when vessel prices have fallen, the sale price may be less than the vessel’s carrying value on our consolidated financial statements, resulting in a loss on sale or an impairment loss being recognized, ultimately leading to a reduction in earnings. For the year ended December 31, 2011, we evaluated the recoverable amount of our vessels, and we recognized a total impairment loss of $66.6 million for all of our owned vessels. For the year ended December 31, 2012, we did not recognize an impairment loss, however we did record a $4.5 million total loss from disposal on the sales of the STI Conqueror , STI Gladiator and STI Matador and a $5.9 million total loss from disposal on the sales of the STI Diamond and STI Coral . See “—Risks related to our indebtedness” and Item 5.B. “Liquidity and Capital Resources - Long-Term Debt Obligations and Credit Arrangements” for a more comprehensive discussion of our current credit facilities and the related risks.

If our vessels suffer damage due to the inherent operational risks of the tanker industry, we may experience unexpected drydocking costs and delays or total loss of our vessels, which may adversely affect our business and financial condition.

The operation of an ocean-going vessel carries inherent risks. Our vessels and their cargoes will be at risk of being damaged or lost because of events such as marine disasters, bad weather, and other acts of God, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and other circumstances or events. Changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. These hazards may result in death or injury to persons, loss of revenues or property, the payment of ransoms, environmental damage, higher insurance rates, damage to our customer relationships, and market disruptions, delay or rerouting, which may also subject us to litigation. In addition, the operation of tankers has unique operational risks associated with the transportation of oil. An oil spill may cause significant environmental damage, and the associated costs could exceed the insurance coverage available to us. Compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to the high flammability and high volume of the oil transported in tankers.

If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover in full. The loss of revenues while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, may adversely affect our business and financial condition. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced to travel to a drydocking facility that is not conveniently located to our vessels’ positions. The loss of earnings while these vessels are forced to wait for space or to travel to more distant drydocking facilities may adversely affect our business and financial condition. Further, the total loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator. If we are unable to adequately maintain or safeguard our vessels, we may be unable to prevent any such damage, costs, or loss which could negatively impact our business, financial condition, results of operations and available cash.

We operate our vessels worldwide and as a result, our vessels are exposed to international risks which may reduce revenue or increase expenses .

The international shipping industry is an inherently risky business involving global operations. Our vessels and their cargoes will be at risk of being damaged or lost because of events such as marine disasters, bad weather, and other acts of God, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and other circumstances or events. In addition, changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. These sorts of events could interfere with shipping routes and result in market disruptions which may reduce our revenue or increase our expenses.

International shipping is subject to various security and customs inspection and related procedures in countries of origin and destination and trans-shipment points. Inspection procedures can result in the seizure of the cargo and/or our vessels, delays in the loading, offloading or delivery and the levying of customs duties, fines or other penalties against us. It is possible that changes to inspection procedures could impose additional financial and legal obligations on us. Furthermore, changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.

Political instability, terrorist or other attacks, war or international hostilities can affect the tanker industry, which may adversely affect our business.

We conduct most of our operations outside of the United States, and our business, results of operations, cash flows, financial condition and available cash may be adversely affected by the effects of political instability, terrorist or other attacks, war or international hostilities. Continuing conflicts and recent developments in the Middle East, including Egypt, and North Africa, including Libya, and the presence of the United States and other armed forces in Iraq and Afghanistan may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further world economic instability and uncertainty in global financial markets. As a result of the above, insurers have increased premiums and reduced or restricted coverage for losses caused by terrorist acts generally. Future terrorist attacks could result in increased volatility of the financial markets and negatively impact the U.S. and global economy. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all.

In the past, political instability has also resulted in attacks on vessels, such as the attack on the M/T Limburg, a very large crude carrier not related to us, in October 2002, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia. Any of these occurrences could have a material adverse impact on our business, financial condition, results of operations and available cash.

If our vessels call on ports located in countries that are subject to sanctions and embargos imposed by the U.S. or other governments that could adversely affect our reputation and the market for our common stock.

Although no vessels owned or operated by us have called on ports located in countries subject to sanctions and embargoes imposed by the U.S. government and other authorities or countries identified by the U.S. government or other authorities as state sponsors of terrorism, such as Cuba, Iran, Sudan, and Syria, in the future, our vessels may call on ports in these countries from time to time on charterers’ instructions. Sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. In 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or “CISADA”, which expanded the scope of the Iran Sanctions Act. Among other things, CISADA expands the application of the prohibitions of companies, such as ours, and introduces limits on the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products.

In 2012, President Obama signed Executive Order 13608 which prohibits foreign persons from violating or attempting to violate, or causing a violation of any sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. Any persons found to be in violation of Executive Order 13608 will be deemed a foreign sanctions evader and will be banned from all contacts with the United States, including conducting business in US dollars. Also in 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, or the Iran Threat Reduction Act, which created new sanctions and strengthened existing sanctions. Among other things, the Iran Threat Reduction Act intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Iran’s petroleum or petrochemical sector. The Iran Threat Reduction Act also includes a provision requiring the President of the United States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a person the President determines is a controlling beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a variety of sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of that person’s vessels from U.S. ports for up to two years.

Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, our common stock may adversely affect the price at which our common stock trades. Additionally, some investors may decide to divest their interest, or not to invest, in our company simply because we do business with companies that do business in sanctioned countries. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into charters with individuals or entities in countries subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries, or engaging in operations associated with those countries pursuant to contracts with third parties that are unrelated to those countries or entities controlled by their governments. Investor perception of the value of our common stock may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.

The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.

We expect that our vessels will call in ports where smugglers attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of our vessel and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims which could have an adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.

Maritime claimants could arrest our vessels, which would have a negative effect on our cash flows.

Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting or attaching a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our business or require us to pay large sums of money to have the arrest lifted, which would have a negative effect on our cash flows.

In addition, in some jurisdictions, such as South Africa, under the “sister ship” theory of liability, a claimant may arrest both the vessel which is subject to the claimant’s maritime lien and any “associated” vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert “sister ship” liability against one vessel in our fleet for claims relating to another of our ships.

Governments could requisition our vessels during a period of war or emergency, which may negatively impact our business, financial condition, results of operations and available cash.

A government could requisition one or more of our vessels for title or hire. Requisition for title occurs when a government takes control of a vessel and becomes the owner. Also, a government could requisition our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our vessels may negatively impact our business, financial condition, results of operations and available cash.

Technological innovation could reduce our charterhire income and the value of our vessels.

The charterhire rates and the value and operational life of a vessel are determined by a number of factors including the vessel’s efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to load and discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. The length of a vessel’s physical life is related to its original design and construction, its maintenance and the impact of the stress of operations. If new tankers are built that are more efficient or more flexible or have longer physical lives than our vessels, competition from these more technologically advanced vessels could adversely affect the amount of charterhire payments we receive for our vessels and the resale value of our vessels could significantly decrease. As a result, our available cash could be adversely affected.

If labor interruptions are not resolved in a timely manner, they could have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.

We, indirectly through SSM, employ masters, officers and crews to man our vessels. If not resolved in a timely and cost-effective manner, industrial action or other labor unrest could prevent or hinder our operations from being carried out as we expect and could have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.

RISKS RELATED TO OUR BUSINESS

Newbuilding projects are subject to risks that could cause delays, cost overruns or cancellation of our newbuilding contracts.

We have entered into contracts with Hyundai Mipo Dockyard Co. Ltd., or HMD, SPP Shipbuilding Co., Ltd., or SPP, Hyundai Samho Heavy Industries Co. Ltd., or HSHI and Daewoo Shipbuilding & Marine Engineering Co., Ltd., or DSME for the construction of 33 newbuilding vessels with expected delivery between April 2013 and December 2014. As of the date of this annual report, we have made total yard payments in the amount of $124.7 million and we have remaining yard installments in the amount of $1,101.5 million before we take possession of all of these vessels.

The delivery of such vessels or vessels that we may acquire in the future could be delayed, not completed or cancelled, which would delay or eliminate our expected receipt of revenues from the employment of such vessels. In addition, the yards or a seller could fail to deliver vessels to us as agreed, or we could cancel a purchase contract because such yard or seller has not met its obligations.

If the delivery of any vessel is materially delayed or cancelled, especially if we have committed the vessel to a charter for which we become responsible for substantial liquidated damages to the customer as a result of the delay or cancellation, our business, financial condition and results of operations could be adversely affected.

In addition, in the event HMD, SPP, HSHI and DSME do not perform under their contracts and we are unable to enforce certain refund guarantees with third party banks for any reason, we may lose all or part of our investment, which would have a material adverse effect on our results of operations, financial condition and cash flows.

Obligations associated with being a public company require significant company resources and management attention.

In April 2010, we became subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the other rules and regulations of the SEC, including the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley. Section 404 of Sarbanes-Oxley requires that we evaluate and determine the effectiveness of our internal controls over financial reporting. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We will need to dedicate a significant amount of time and resources to ensure compliance with these regulatory requirements.

We will continue to evaluate areas such as corporate governance, corporate control, internal audit, disclosure controls and procedures and financial reporting and accounting systems. We will make changes in any of these and other areas, including our internal control over financial reporting, which we believe are necessary. However, these and other measures we may take may not be sufficient to allow us to satisfy our obligations as a public company on a timely and reliable basis. In addition, compliance with reporting and other requirements applicable to public companies will create additional costs for us and will require the time and attention of management. Our limited management resources may exacerbate the difficulties in complying with these reporting and other requirements while focusing on executing our business strategy. Our incremental general and administrative expenses as a publicly traded corporation will include costs associated with annual reports to shareholders, tax returns, investor relations, registrar and transfer agent’s fees, incremental director and officer liability insurance costs and director compensation. We cannot predict or estimate the amount of the additional costs we may incur, the timing of such costs or the degree of impact that our management’s attention to these matters will have on our business.

We may have difficulty managing our planned growth properly.

One of our principal strategies is to continue to grow by expanding our operations and adding to our fleet. Our future growth will primarily depend upon a number of factors, some of which may not be within our control. These factors include our ability to:


	•	identify suitable tankers and/or shipping companies for acquisitions at attractive prices;

	•	obtain required financing for our existing and new operations;

	•	identify businesses engaged in managing, operating or owning tankers for acquisitions or joint ventures;

	•	integrate any acquired tankers or businesses successfully with our existing operations, including obtaining any approvals and qualifications necessary to operate vessels that we acquire;

	•	hire, train and retain qualified personnel and crew to manage and operate our growing business and fleet;

	•	identify additional new markets;

	•	enhance our customer base; and

	•	improve our operating, financial and accounting systems and controls.

Our failure to effectively identify, purchase, develop and integrate any tankers or businesses could adversely affect our business, financial condition and results of operations. The number of employees that perform services for us and our current operating and financial systems may not be adequate as we implement our plan to expand the size of our fleet, and we may not be able to effectively hire more employees or adequately improve those systems. Finally, acquisitions may require additional equity issuances or debt issuances (with amortization payments), both of which could lower our available cash. If any such events occur, our financial condition may be adversely affected.

Growing any business by acquisition presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel and managing relationships with customers and suppliers and integrating newly acquired operations into existing infrastructures. The expansion of our fleet may impose significant additional responsibilities on our management and staff, and the management and staff of our commercial and technical managers, and may necessitate that we, and they, increase the number of personnel. We cannot give any assurance that we will be successful in executing our growth plans or that we will not incur significant expenses and losses in connection with our future growth.

If we purchase and operate secondhand vessels, we will be exposed to increased operating costs which could adversely affect our earnings and, as our fleet ages, the risks associated with older vessels could adversely affect our ability to obtain profitable charters.

Our current business strategy includes additional growth through the acquisition of new and secondhand vessels. While we typically inspect secondhand vessels prior to purchase, this does not provide us with the same knowledge about their condition that we would have had if these vessels had been built for and operated exclusively by us. Generally, we do not receive the benefit of warranties from the builders for the secondhand vessels that we acquire.

In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. Older vessels are typically less fuel-efficient than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers.

Governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations, or the addition of new equipment, to our vessels and may restrict the type of activities in which the vessels may engage. As our vessels age, market conditions may not justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.

An increase in operating costs would decrease earnings and available cash.

Under time charter-out agreements, the charterer is responsible for voyage costs and the owner is responsible for the vessel operating costs. The same applies to time-charter-in agreements. With the exception of certain vessels on short-term time charter-out agreements, we currently have no vessels on long-term time charter-out agreements (greater than one year) and 21 vessels on time-charter-in agreements. When our owned vessels are employed under one of the Scorpio Group Pools, the pool is responsible for voyage expenses and we are responsible for vessel costs. As of the date of this annual report, we have 12 of our owned vessels and 15 of our time-chartered-in vessels employed through the Scorpio Group Pools. When our vessels operate in the spot market, we are responsible for both voyage expenses and vessel operating costs. As of the date of this annual report, four of the vessels in our Operating Fleet (defined later) operate in the spot market. Our vessel operating costs include the costs of crew, fuel (for spot chartered vessels), provisions, deck and engine stores, insurance and maintenance and repairs, which depend on a variety of factors, many of which are beyond our control. Further, if our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydocking repairs are unpredictable and can be substantial. Increases in any of these expenses would decrease earnings and available cash.

Declines in charter rates and other market deterioration could cause us to incur impairment charges.

We evaluate the carrying amounts of our vessels to determine if events have occurred that would require an impairment of their carrying amounts. The recoverable amount of vessels is reviewed based on events and changes in circumstances that would indicate that the carrying amount of the assets might not be recovered. The review for potential impairment indicators and projection of future cash flows related to the vessels is complex and requires us to make various estimates including future freight rates, earnings from the vessels and discount rates. All of these items have been historically volatile.

We evaluate the recoverable amount as the higher of fair value less costs to sell and value in use. If the recoverable amount is less than the carrying amount of the vessel, the vessel is deemed impaired. The carrying values of our vessels may not represent their fair market value at any point in time because the new market prices of secondhand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. For the year ended December 31, 2011, charter rates in the oil and petroleum products charter market declined along with second hand vessel values. Due to these indicators of potential impairment, in the year ended December 31, 2011, we evaluated the recoverable amount of our vessels, and we recognized a total impairment loss of $66.6 million for all of our owned vessels. For the year ended December 31, 2012, we did not recognize an impairment loss, however, we cannot assure you that there will be not be further impairments in future years. Any additional impairment charges incurred as a result of further declines in charter rates could negatively affect our business, financial condition, operating results or the trading price of our common shares.

If we are unable to operate our vessels profitably, we may be unsuccessful in competing in the highly competitive international tanker market, which would negatively affect our financial condition and our ability to expand our business.

The operation of tanker vessels and transportation of crude and petroleum products is extremely competitive, in an industry that is capital intensive and highly fragmented. The recent global financial crisis may reduce the demand for transportation of oil and oil products which could lead to increased competition. Competition arises primarily from other tanker owners, including major oil companies as well as independent tanker companies, some of whom have substantially greater resources than we do. Competition for the transportation of oil and oil products can be intense and depends on price, location, size, age, condition and the acceptability of the tanker and its operators to the charterers. We will have to compete with other tanker owners, including major oil companies as well as independent tanker companies.

Our market share may decrease in the future. We may not be able to compete profitably as we expand our business into new geographic regions or provide new services. New markets may require different skills, knowledge or strategies than we use in our current markets, and the competitors in those new markets may have greater financial strength and capital resources than we do.

If we do not set aside funds and are unable to borrow or raise funds for vessel replacement, at the end of a vessel’s useful life our revenue will decline, which would adversely affect our business, results of operations, financial condition, and available cash.

If we do not set aside funds and are unable to borrow or raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon the expiration of their remaining useful lives, which we expect to occur between 2026 to 2038, depending on the vessel. Our cash flows and income are dependent on the revenues earned by the chartering of our vessels. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our business, results of operations, financial condition, and available cash per share would be adversely affected. Any funds set aside for vessel replacement will reduce available cash.

Our ability to obtain additional financing may be dependent on the performance of our then existing charters and the creditworthiness of our charterers.

The actual or perceived credit quality of our charterers, and any defaults by them, may materially affect our ability to obtain the additional capital resources that we will require to purchase additional vessels or may significantly increase our costs of obtaining such capital. Our inability to obtain additional financing at all or at a higher than anticipated cost may materially affect our results of operation and our ability to implement our business strategy.

United States tax authorities could treat us as a “passive foreign investment company,” which could have adverse United States federal income tax consequences to United States shareholders.

A foreign corporation will be treated as a “passive foreign investment company,” or PFIC, for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of “passive income” or (2) at least 50% of the average value of the corporation’s assets produce or are held for the production of those types of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute “passive income.” United States shareholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.

Based on our current and proposed method of operation, we do not believe that we will be a PFIC with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, our income from our time and voyage chartering activities should not constitute “passive income,” and the assets that we own and operate in connection with the production of that income should not constitute assets that produce or are held for the production of “passive income.”

There is substantial legal authority supporting this position, consisting of case law and United States Internal Revenue Service, or IRS, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, it should be noted that there is also authority that characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if the nature and extent of our operations change.

If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders would face adverse United States federal income tax consequences and incur certain information reporting obligations. Under the PFIC rules, unless those shareholders make an election available under the United States Internal Revenue Code of 1986, as amended, or the Code (which election could itself have adverse consequences for such shareholders), such shareholders would be subject to United States federal income tax at the then prevailing rates on ordinary income plus interest, in respect of excess distributions and upon any gain from the disposition of their common shares, as if the excess distribution or gain had been recognized ratably over the shareholder’s holding period of the common shares. See “Taxation—Passive Foreign Investment Company Status and Significant Tax Consequences” for a more comprehensive discussion of the United States federal income tax consequences to United States shareholders if we are treated as a PFIC.

We may have to pay tax on United States source shipping income, which would reduce our earnings.

Under the Code, 50% of the gross shipping income of a corporation that owns or charters vessels, as we and our subsidiaries do, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States may be subject to a 4% United States federal income tax without allowance for deductions, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the regulations promulgated thereunder by the United States Department of the Treasury.

We and our subsidiaries intend to take the position that we qualify for this statutory tax exemption for United States federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to United States federal income tax on our United States source shipping income. For example, we may no longer qualify for exemption under Section 883 of the Code for a particular taxable year if shareholders with a five percent or greater interest in our common shares, or “5% Shareholders,” owned, in the aggregate, 50% or more of our outstanding common shares for more than half the days during the taxable year, and there does not exist sufficient 5% Shareholders that are qualified shareholders for purposes of Section 883 of the Code to preclude nonqualified 5% Shareholders from owning 50% or more of our common shares for more than half the number of days during such taxable year or we are unable to satisfy certain substantiation requirements with regard to our 5% Shareholders. Due to the factual nature of the issues involved, there can be no assurances on the tax-exempt status of us or any of our subsidiaries.

If we or our subsidiaries were not entitled to exemption under Section 883 of the Code for any taxable year, we or our subsidiaries could be subject for such year to an effective 2% United States federal income tax on the shipping income we or they derive during such year which is attributable to the transport of cargoes to or from the United States. The imposition of this taxation would have a negative effect on our business and would decrease our earnings available for distribution to our shareholders.

We will be required to make additional capital expenditures to expand the number of vessels in our fleet and to maintain all our vessels, which will be dependent on additional financing.

Our business strategy is based in part upon the expansion of our fleet through the purchase of additional vessels. If we are unable to fulfill our obligations under any memorandum of agreement for future vessel acquisitions, the sellers of such vessels may be permitted to terminate such contracts and we may forfeit all or a portion of the down payments we already made under such contracts, and we may be sued for any outstanding balance.

In addition, we will incur significant maintenance costs for our existing and any newly-acquired vessels. A newbuilding vessel must be drydocked within five years of its delivery from a shipyard, and vessels are typically drydocked every 30 months thereafter, not including any unexpected repairs. We estimate the cost to drydock a vessel to be between $500,000 and $1,000,000, depending on the size and condition of the vessel and the location of drydocking.

We are incorporated in the Republic of the Marshall Islands, which does not have a well-developed body of corporate law and, as a result, shareholders may have fewer rights and protections under Marshall Islands law than under a typical jurisdiction in the United States.

Our corporate affairs are governed by our articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act, or BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, there have been few judicial cases in the Republic of The Marshall Islands interpreting the BCA. The rights and fiduciary responsibilities of directors under the law of the Republic of The Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in certain United States jurisdictions. Shareholder rights may differ as well. While the BCA does specifically incorporate the non-statutory law, or judicial case law, of the State of Delaware and other states with substantially similar legislative provisions, our public shareholders may have more difficulty in protecting their interests in the face of actions by management, directors or controlling shareholders than would shareholders of a corporation incorporated in a United States jurisdiction.

It may be difficult to serve process on or enforce a United States judgment against us, our officers and our directors because we are a foreign corporation.

We are a corporation formed in the Republic of The Marshall Islands, and some of our directors and officers and certain of the experts named in this offering are located outside the United States. In addition, a substantial portion of our assets and the assets of our directors, officers and experts are located outside of the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside the United States, judgments you may obtain in U.S. courts against us or any of these persons in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. Furthermore, there is substantial doubt that the courts of the Republic of The Marshall Islands or of the non-U.S. jurisdictions in which our offices are located would enter judgments in original actions brought in those courts predicated on U.S. federal or state securities laws.

RISKS RELATED TO OUR RELATIONSHIP WITH SCORPIO GROUP AND ITS AFFILIATES

We are dependent on our managers and their ability to hire and retain key personnel, and there may be conflicts of interest between us and our managers that may not be resolved in our favor.

Our success depends to a significant extent upon the abilities and efforts of our technical manager, SSM, our commercial manager, SCM, and our management team. Our success will depend upon our and our managers’ ability to hire and retain key members of our management team. The loss of any of these individuals could adversely affect our business prospects and financial condition.

Difficulty in hiring and retaining personnel could adversely affect our results of operations. We do not maintain “key man” life insurance on any of our officers.

Our technical and commercial managers are affiliates of Scorpio Group, which is owned and controlled by the Lolli-Ghetti family, of which our founder, Chairman and Chief Executive Officer, Mr. Emanuele Lauro, is a member. Conflicts of interest may arise between us, on the one hand, and our commercial and technical managers, on the other hand. As a result of these conflicts, our commercial and technical managers, who have limited contractual duties, may favor their own or their owner’s interests over our interests. These conflicts may have unfavorable results for us.

Our founder, Chairman and Chief Executive Officer has affiliations with our commercial and technical managers which may create conflicts of interest.

Emanuele Lauro, our founder, Chairman and Chief Executive Officer, is a member of the Lolli-Ghetti family which owns and controls our commercial and technical managers. These responsibilities and relationships could create conflicts of interest between us, on the one hand, and our commercial and technical managers, on the other hand. These conflicts may arise in connection with the chartering, purchase, sale and operations of the vessels in our fleet versus vessels managed by other companies affiliated with our commercial or technical managers. Our commercial and technical managers may give preferential treatment to vessels that are time chartered-in by related parties because our founder, Chairman and Chief Executive Officer and members of his family may receive greater economic benefits. In particular, as of the date of this annual report, our commercial and technical managers provide commercial and technical management services to approximately 59 and 8 vessels respectively, other than the vessels in our fleet, that are owned or operated by entities affiliated with Mr. Lauro, and such entities may acquire additional vessels that will compete with our vessels in the future. Such conflicts may have an adverse effect on our results of operations.

Our Chief Executive Officer and President do not devote all of their time to our business, which may hinder our ability to operate successfully.

Messrs. Lauro and Bugbee, our Chief Executive Officer and President, respectively, participate in business activities not associated with us. As a result, Messrs. Lauro and Bugbee may devote less time to us than if they were not engaged in other business activities and may owe fiduciary duties to the shareholders of both us as well as shareholders of other companies which they may be affiliated, including other Scorpio Group companies. This may create conflicts of interest in matters involving or affecting us and our customers and it is not certain that any of these conflicts of interest will be resolved in our favor. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our commercial and technical managers are each privately held companies and there is little or no publicly available information about them.

SCM is our commercial manager and SSM is our technical manager. SCM’s and SSM’s ability to render management services will depend in part on their own financial strength. Circumstances beyond our control could impair our commercial manager’s or technical manager’s financial strength, and because each is a privately held company, information about the financial strength of our commercial manager and technical manager is not available. As a result, we and our shareholders might have little advance warning of financial or other problems affecting our commercial manager or technical manager even though their financial or other problems could have a material adverse effect on us.

We are subject to certain risks with respect to our counterparties on contracts, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.

We have entered into, and may enter in the future, various contracts, including, charter agreements and credit facilities. Such agreements subject us to counterparty risks. The ability of each of our counterparties to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the maritime and offshore industries, the overall financial condition of the counterparty, charter rates received for specific types of vessels, and various expenses. For example, the combination of a reduction of cash flow resulting from declines in world trade, a reduction in borrowing bases under reserve-based credit facilities and the lack of availability of debt or equity financing may result in a significant reduction in the ability of our charterers to make charter payments to us. In addition, in depressed market conditions, our charterers and customers may no longer need a vessel that is currently under charter or contract or may be able to obtain a comparable vessel at lower rates. As a result, charterers and customers may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts. Should a counterparty fail to honor its obligations under agreements with us, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The failure of our charterers to meet their obligations under our charter agreements, on which we depend for our revenues, could cause us to suffer losses or otherwise adversely affect our business.

As of the date of this annual report, we do not employ any vessels under a long-term time charter agreement but we may enter into such agreements in the future. The ability and willingness of each of our counterparties to perform their obligations under a time charter, spot voyage or other agreement with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the tanker shipping industry and the overall financial condition of the counterparties. Charterers are sensitive to the commodity markets and may be impacted by market forces affecting commodities such oil. In addition, in depressed market conditions, there have been reports of charterers renegotiating their charters or defaulting on their obligations under charters. Our customers may fail to pay charterhire or attempt to renegotiate charter rates. Should a counterparty fail to honor its obligations under agreements with us, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements we secure in the spot market or on time charters may be at lower rates given currently decreased tanker charter rate levels. When we employ a vessel in the spot charter market, we generally place such vessel in a tanker pool managed by our commercial manager that pertains to that vessel’s size class. If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to pay dividends, if any, in the future, and compliance with covenants in our credit facilities.

Our insurance may not be adequate to cover our losses that may result from our operations due to the inherent operational risks of the tanker industry.

We carry insurance to protect us against most of the accident-related risks involved in the conduct of our business, including marine hull and machinery insurance, protection and indemnity insurance, which include pollution risks, crew insurance and war risk insurance. However, we may not be adequately insured to cover losses from our operational risks, which could have a material adverse effect on us. Additionally, our insurers may refuse to pay particular claims and our insurance may be voidable by the insurers if we take, or fail to take, certain action, such as failing to maintain certification of our vessels with applicable maritime regulatory organizations. Any significant uninsured or under-insured loss or liability could have a material adverse effect on our business, results of operations, cash flows and financial condition and our available cash. In addition, we may not be able to obtain adequate insurance coverage at reasonable rates in the future during adverse insurance market conditions.

Changes in the insurance markets attributable to terrorist attacks may also make certain types of insurance more difficult for us to obtain due to increased premiums or reduced or restricted coverage for losses caused by terrorist acts generally.

Because we obtain some of our insurance through protection and indemnity associations, which result in significant expenses to us, we may be required to make additional premium payments.

We may be subject to increased premium payments, or calls, in amounts based on our claim records, the claim records of our managers, as well as the claim records of other members of the protection and indemnity associations through which we receive insurance coverage for tort liability, including pollution-related liability. In addition, our protection and indemnity associations may not have enough resources to cover claims made against them. Our payment of these calls could result in significant expense to us, which could have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.

RISKS RELATED TO OUR INDEBTEDNESS

Servicing our current or future indebtedness limits funds available for other purposes and if we cannot service our debt, we may lose our vessels.

Borrowing under our credit facilities requires us to dedicate a part of our cash flow from operations to paying interest on our indebtedness. These payments limit funds available for working capital, capital expenditures and other purposes, including further equity or debt financing in the future. Amounts borrowed under our credit facilities bear interest at variable rates. Increases in prevailing rates could increase the amounts that we would have to pay to our lenders, even though the outstanding principal amount remains the same, and our net income and cash flows would decrease. We expect our earnings and cash flow to vary from year to year due to the cyclical nature of the tanker industry. If we do not generate or reserve enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as:


	•	seeking to raise additional capital;

	•	refinancing or restructuring our debt;

	•	selling tankers; or

	•	reducing or delaying capital investments.

However, these alternative financing plans, if necessary, may not be sufficient to allow us to meet our debt obligations. If we are unable to meet our debt obligations or if some other default occurs under our credit facilities, our lenders could elect to declare that debt, together with accrued interest and fees, to be immediately due and payable and proceed against the collateral vessels securing that debt even though the majority of the proceeds used to purchase the collateral vessels did not come from our credit facilities.

Our credit facilities contain restrictive covenants which limit the amount of cash that we may use for other corporate activities, which could negatively affect our growth and cause our financial performance to suffer.

Our credit facilities impose operating and financial restrictions on us. These restrictions limit our ability, or the ability of our subsidiaries party thereto to:


	•	pay dividends and make capital expenditures if we do not repay amounts drawn under our credit facilities or if there is another default under our credit facilities;

	•	incur additional indebtedness, including the issuance of guarantees;

	•	create liens on our assets;

	•	change the flag, class or management of our vessels or terminate or materially amend the management agreement relating to each vessel;

	•	sell our vessels;

	•	merge or consolidate with, or transfer all or substantially all our assets to, another person; or

	•	enter into a new line of business.

Therefore, we will need to seek permission from our lenders in order to engage in some corporate actions. Our lenders’ interests may be different from ours and we may not be able to obtain our lenders’ permission when needed. This may limit our ability to pay dividends to you if we determine to do so in the future, finance our future operations or capital requirements, make acquisitions or pursue business opportunities.

If the recent volatility in LIBOR rates continues, it will affect the interest rate under our existing credit facilities or future credit facilities which could affect our profitability, earnings and cash flow.

Amounts borrowed under our credit facilities are tied to LIBOR rates. LIBOR rates have recently been volatile, with the spread between those rates and prime lending rates widening significantly at times. These conditions are the result of the recent disruptions in the international credit markets. Because the interest rates borne by amounts that we may drawdown under our existing credit facilities or future credit facilities fluctuate with changes in the LIBOR rates, if this volatility were to continue, it would affect the amount of interest payable on amounts that we were to draw down from our existing credit facilities or future credit facilities, which in turn, would have an adverse effect on our profitability, earnings and cash flow.


ITEM 4.		INFORMATION ON THE COMPANY

A.	History and Development of the Company

Scorpio Tankers Inc. was incorporated in the Republic of the Marshall Islands pursuant to the Marshall Islands Business Corporations Act on July 1, 2009. Our principal executive offices are located at 9, Boulevard Charles III, Monaco 98000 and our telephone number at that location is +377-9798-5716.We provide seaborne transportation of refined petroleum products and crude oil worldwide. We began our operations in October 2009 with three vessel owning and operating subsidiary companies. In April 2010, we completed our initial public offering of 12,500,000 shares of common stock at a public offering price of $13.00 per share and commenced trading on the New York Stock Exchange, or NYSE, under the symbol “STNG”. We have since expanded our fleet and as of the date of this annual report, our fleet consists of 14 wholly owned tankers (one LR2 tanker, four LR1 tankers, one Handymax tanker, seven MR tankers, and one post-Panamax tanker) with a weighted average age of approximately 4.4 years compared to a weighted average age of approximately 9.1 years for the global fleet (according to Drewry) and time charter-in and operate 21 tankers (six Handymax tankers, seven MR tankers, three LR1 tankers and five LR2 tankers, including four vessels we expect to be delivered to us by April 2013), which we refer to collectively as our Operating Fleet. Additionally, we currently have contracts for the construction of 33 newbuilding vessels (19 MR tankers, six Handymax ice class 1-A tankers and eight LR2 tankers), of which, one is expected to be delivered to us in April 2013 and the remaining 32 within 2014.

Fleet development

Newbuilding vessels

Since June 2011, we have entered into contracts for the construction of 40 fuel efficient newbuilding product tankers with shipyards, including HMD, HSHI, SPP and DSME, which we refer to as our Newbuilding Program. As of the date of this annual report, seven of the vessels in our Newbuilding Program have been delivered to us. We currently have contracts for the construction of 33 vessels, consisting of 11 MR tankers with HMD for an aggregate purchase price of $368.6 million, eight MR product tankers with SPP for an aggregate purchase price of $267.0 million, six Handymax ice class-1A tankers with HMD for an aggregate purchase price of $187.5 million, six LR2 product tankers with HSHI for an aggregate purchase price of $303.0 million and two LR2 product tankers with DSME for an aggregate purchase price of $100.0 million. One vessel in our Newbuilding Program is expected to be delivered to us by April 2013 and the remaining 32 within 2014. We also have fixed-price options to construct additional newbuilding product tankers at these yards.

As of March 28, 2013, we have paid $124.7 million of installment payments related to these newbuilding product tankers, and are committed to make additional installment payments of $1,101.5 million. We will need to secure additional debt or equity financing or both in addition to our 2013 Credit Facility to fully fund the remaining balance of our obligations under our newbuilding program.

Owned vessels

We currently have 14 wholly-owned vessels and contracts for the construction of 33 additional vessels.

We sold three Handymax vessels in 2012, STI Conqueror for $21.0 million in March 2012, STI Matador for $16.2 million in April 2012, and STI Gladiator for $16.2 million in May 2012 and recorded a $4.5 million loss from disposal in connection with the sales of these vessels. We also completed the sales of two MR product tankers, STI Diamond and STI Coral in August 2012 and September 2012, respectively, for $25.25 million each and recorded a $5.9 million loss from disposal in connection with the sales of these vessels.

In 2012, we took delivery of the first five vessels in our Newbuilding Program, STI Amber , STI Topaz STI Ruby, STI Garnet and STI Onyx , and in January 2013 and March 2013, we took delivery of the sixth and seventh vessels in our Newbuilding Program, STI Sapphire and STI Emerald , respectively .

Time chartered-in vessels

During 2012, we time chartered-in 21 vessels (six Handymax tankers, eight MR tankers, three LR1 tankers and four LR2 tankers), compared to 11 vessels in 2011. We currently have 21 vessels on time charter-in agreements as of the date of this annual report (six Handymax tankers, seven MR tankers, three LR1 tankers and five LR2 tankers, including four vessels we expect to be delivered to us by April 2013).

Please see our fleet list under Item 4.B. “Business Overview” for further information regarding our time chartered-in vessels.

Recent Developments

In January 2013, we reached an agreement with HMD for the construction of two additional MR product tankers for approximately $32.5 million each. These vessels will be delivered in May and June 2014.

In January 2013, we took delivery of the sixth vessel under our newbuilding program, STI Sapphire . Upon delivery, the vessel began a time charter for up to 80 days at $20,750 per day. The vessel was partially financed under our 2011 Credit Facility.

In February 2013, we closed on the sale 30,672,000 shares of common stock in a registered direct placement of common shares at an offering price of $7.50 per share. We received net proceeds of $222.1 million, after deducting placement agents’ discounts and offering expenses.

In February 2013, we reached an agreement with SPP for the construction of four MR product tankers for approximately $32.5 million each, two of which are the exercise of options from a previous contract. The vessels are expected to be delivered in the third and fourth quarters of 2014, respectively.

In February 2013, we exercised options with HMD for the construction of four MR product tankers for $33.0 million each and six Handymax ice class-1A tankers for approximately $31.3 million each. Two of the MR product tankers are expected to be delivered in the second quarter of 2014, with the third and fourth MR product tankers expected to be delivered in the third and fourth quarter of 2014, respectively. The six Handymax vessels are expected to be delivered in the third quarter of 2014.

In February 2013, we signed a commitment letter for a $267.0 million credit facility, or the 2013 Credit Facility, with Nordea Bank Finland plc, acting through its New York branch, ABN AMRO Bank N.V, and Skandinaviska Enskilda Banken AB.

In March 2013, we closed on the sale of 29,012,000 shares of common stock in a registered direct placement of common shares at an offering price of $8.10 per share. We received net proceeds of $226.7 million, after deducting placement agents’ discounts and offering expenses.

In March 2013, we reached an agreement with HSHI for the construction of six 114,000 dwt LR2 product tankers for approximately $50.5 million each. These vessels are expected to be delivered to us within 2014.

In March 2013, we reached an agreement with DSME for the construction of two 114,000 dwt LR2 product tankers for approximately $50.0 million each. These vessels are expected to be delivered to us within 2014.

In March 2013, we took delivery of the seventh vessel under our newbuilding program, STI Emerald . Upon delivery, the vessel began a time charter for up to 80 days at $19,500 per day. The vessel was partially financed under our 2011 Credit Facility.

In March 2013, we agreed to time charter-in two LR2 product tankers (one 115,756 dwt, 2011 built, and one 115,592 dwt, 2010 built) each for one year at $16,125 per day with expected deliveries by the middle of April 2013. We also agreed to time charter-in a Handymax product tanker, ice-class 1B, (37,217 dwt, 2004 built) for one year at approximately $12,700 per day. We have an option to extend the charter for an additional year at $14,000 per day. This vessel is expected to be delivered by the middle of April 2013.


B.	Business Overview

We provide seaborne transportation of refined petroleum products and crude oil worldwide. We began our operations in October 2009 with three vessel-owning and operating subsidiary companies. In April 2010, we completed our initial public offering of 12,500,000 shares of common stock at a public offering price of $13.00 per share and commenced trading on the NYSE under the symbol “STNG.” We have since expanded our fleet, and as of the date of this annual report, our fleet consists of 14 wholly owned tankers (one LR2 tanker, four LR1 tankers, one Handymax tanker, seven MR tankers, and one post-Panamax tanker) with a weighted average age of approximately 4.4 years and 21 time chartered-in tankers (five LR2 tankers, three LR1 tankers, seven MR tankers and six Handymax tankers), which we refer to collectively as our Operating Fleet. Additionally, we currently have contracts for 33 newbuilding vessels (six Handymax ice class 1-A tankers, 19 MR tankers and eight LR2 tankers), of which one MR is expected to be delivered by April 2013 and the remaining 32 within 2014.

The following table sets forth certain information regarding our fleet as of the date of this annual report:


	Vessel Name	Year Built	DWT		Ice Class	Employment	Vessel type
	Owned vessels

1	STI Highlander	2007		37,145	1A	SHTP (1)	Handymax

2	STI Amber	2012		52,000	—	SMRP(4)	MR

3	STI Topaz	2012		52,000	—	SMRP(4)	MR

4	STI Ruby	2012		52,000	—	SMRP(4)	MR

5	STI Garnet	2012		52,000	—	SMRP(4)	MR

6	STI Onyx	2012		52,000	—	SMRP(4)	MR

7	STI Sapphire	2013		52,000	—	Spot	MR

8	STI Emerald	2013		52,000	—	Spot	MR

9	Noemi	2004		72,515	—	SPTP (2)	LR1

10	Senatore	2004		72,514	—	SPTP (2)	LR1

11	STI Harmony	2007		73,919	1A	SPTP (2)	LR1

12	STI Heritage	2008		73,919	1A	SPTP (2)	LR1

13	Venice	2001		81,408	1C	SPTP (2)	Post-Panamax

14	STI Spirit	2008		113,100	—	SLR2P (3)	LR2

	Total owned DWT			888,520


								Time Charter Info
	Time Chartered-In vessels							Daily
	Vessel Name	Year Built	DWT		Ice Class	Employment	Vessel type	Base Rate		Expiry (5)
15	Freja Polaris	2004		37,217	1B	SHTP (1)	Handymax	$	12,700	10-Apr-14	(6)

16	Kraslava	2007		37,258	1B	SHTP (1)	Handymax	$	12,070	18-Jul-13	(7)

17	Krisjanis Valdemars	2007		37,266	1B	SHTP (1)	Handymax	$	12,000	14-Jun-13	(8)

18	Histria Azure	2007		40,394	—	SHTP (1)	Handymax	$	12,000	04-Apr-14	(9)

19	Histria Coral	2006		40,426	—	SHTP (1)	Handymax	$	13,000	17-Jul-13	(10)

20	Histria Perla	2005		40,471	—	SHTP (1)	Handymax	$	13,000	15-Jul-13	(10)

21	STX Ace 6	2007		46,161	—	SMRP(4)	MR	$	14,150	17-May-14	(11)

22	Targale	2007		49,999	—	SMRP(4)	MR	$	14,500	17-May-14	(12)

23	Ugale	2007		49,999	1B	SMRP(4)	MR	$	14,000	15-Jan-14	(13)

24	Nave Orion	2013		49,999	—	Spot	MR	$	14,300	25-Mar-15	(14)

25	Freja Lupus	2012		50,385	—	SMRP(4)	MR	$	14,760	26-Apr-14	(15)

26	Gan-Trust	2013		51,561	—	SMRP(4)	MR	$	16,250	06-Jan-16	(16)

27	Usma	2007		52,684	1B	SMRP(4)	MR	$	13,500	03-Jan-14	(17)

28	SN Federica	2003		72,344	—	Spot	LR1	$	11,250	28-Feb-15	(18)

29	Hellespont Promise	2007		73,669	—	SPTP (2)	LR1	$	12,500	16-Dec-13	(19)

30	FPMC P Eagle	2009		73,800	—	SPTP (2)	LR1	$	12,800	09-Sep-13	(20)

31	FPMC P Hero	2011		99,995	—	SLR2P (3)	LR2	$	14,750	19-Oct-13	(21)

32	FPMC P Ideal	2012		99,993	—	SLR2P (3)	LR2	$	14,750	09-Jul-13	(21)

33	Fair Seas	2008		115,406	—	SLR2P (3)	LR2	$	16,000	27-Jul-13	(22)

34	Pink Stars	2010		115,592	—	SLR2P (3)	LR2	$	16,125	01-Apr-14	(23)

35	Orange Stars	2011		115,756	—	SLR2P (3)	LR2	$	16,125	01-Apr-14	(23)

	Total time chartered-in DWT			1,350,375


	Newbuildings currently under construction
	Vessel Name	DWT		Ice Class	Vessel type
36	Hull 2451		38,000	1A	Handymax	(24)
37	Hull 2452		38,000	1A	Handymax	(24)
38	Hull 2453		38,000	1A	Handymax	(24)
39	Hull 2454		38,000	1A	Handymax	(24)
40	Hull 2462		38,000	1A	Handymax	(24)
41	Hull 2463		38,000	1A	Handymax	(24)
42	Hull 2369		52,000		MR	(24)
43	Hull 2389		52,000		MR	(24)
44	Hull 2390		52,000		MR	(24)
45	Hull 2391		52,000		MR	(24)
46	Hull 2392		52,000		MR	(24)
47	Hull 2449		52,000		MR	(24)
48	Hull 2450		52,000		MR	(24)
49	Hull 2458		52,000		MR	(24)
50	Hull 2459		52,000		MR	(24)
51	Hull 2460		52,000		MR	(24)
52	Hull 2461		52,000		MR	(24)
53	Hull S1138		52,000		MR	(25)
54	Hull S1139		52,000		MR	(25)
55	Hull S1140		52,000		MR	(25)
56	Hull S1141		52,000		MR	(25)
57	Hull S1142		52,000		MR	(25)
58	Hull S1143		52,000		MR	(25)
59	Hull S1144		52,000		MR	(25)
60	Hull S1145		52,000		MR	(25)
61	Hull S703		114,000		LR2	(26)
62	Hull S704		114,000		LR2	(26)
63	Hull S705		114,000		LR2	(26)
64	Hull S706		114,000		LR2	(26)
65	Hull S709		114,000		LR2	(26)
66	Hull S710		114,000		LR2	(26)
67	LR2 #1		114,000		LR2	(27)
68	LR2 #2		114,000		LR2	(27)

	Total newbuilding DWT		2,128,000


	Total DWT		4,366,895


(1)	This vessel operates in or is expected to operate in the Scorpio Handymax Tanker Pool (SHTP). SHTP is operated by Scorpio Commercial Management (SCM). SHTP and SCM are related parties to the Company.

(2)	This vessel operates in or is expected to operate in the Scorpio Panamax Tanker Pool (SPTP). SPTP is operated by SCM. SPTP is a related party to the Company.

(3)	This vessel operates in or is expected to operate in the Scorpio LR2 Pool (SLR2P). SLR2P is operated by SCM. SLR2P is a related party to the Company.

(4)	This vessel operates in or is expected to operate in the Scorpio MR Pool (SMRP). SMRP is operated by SCM. SMRP is a related party to the Company.

(5)	Redelivery from the charterer is plus or minus 30 days from the expiry date.

(6)	We have an option to extend the charter for an additional year at $14,000 per day. This vessel is expected to be delivered in April 2013.

(7)	We have an option to extend the charter for an additional year at $13,070 per day.

(8)	We have an option to extend the charter for an additional year at $13,000 per day. The agreement also contains a 50% profit and loss sharing provision whereby we split all of the vessel’s profits and losses above or below the daily base rate with the vessel’s owner.


(9)	In April 2013, the daily base rate will increase to $12,600 per day for one year thereafter. We have an option to extend the term of the charter for an additional year at $13,550 per day.

(10)	Represents the average rate for the two year duration of the agreement. The rate for the first year is $12,750 per day and the rate for the second year is $13,250 per day. We have an option to extend the charter for an additional year at $14,500 per day.

(11)	We have an option to extend the charter for an additional year at $15,150 per day.

(12)	We have options to extend the charter for up to three consecutive one year periods at $14,850 per day, $15,200 per day and $16,200 per day, respectively.

(13)	We have an option to extend the charter for an additional year at $15,000 per day.

(14)	We have an option to extend the charter for an additional year at $15,700 per day.

(15)	We have an option to extend the charter for an additional year at $16,000 per day.

(16)	The daily base rate represents the average rate for the three year duration of the agreement. The rate for the first year is $15,750 per day, the rate for the second year is $16,250 per day, and the rate for the third year is $16,750 per day. We have options to extend the charter for up to two consecutive one year periods at $17,500 per day and $18,000 per day, respectively.

(17)	We have an option to extend the charter for an additional year at $14,500 per day.

(18)	We have an option to extend the charter for an additional year at $12,500 per day. We have also entered into an agreement with the owner whereby we split all of the vessel’s profits above the daily base rate.

(19)	We have an option to extend the charter for an additional six months at $14,250 per day.

(20)	We have options to extend the charter for up to two consecutive one year periods at $13,400 per day and $14,400 per day, respectively. We have also entered into an agreement with a third party whereby we split all of the vessel’s profits and losses above or below the daily base rate.

(21)	We have options to extend the charters for three consecutive six month periods at $15,000 per day, $15,250 per day, and $15,500 per day respectively. FPMC P Hero is expected to be delivered in April 2013 and FPMC P Ideal was delivered in January 2013.

(22)	We have options to extend the charter for three consecutive six month periods at $16,250 per day, $16,500 per day, and $16,750 per day respectively.

(23)	These vessels are expected to be delivered in April 2013.

(24)	These Newbuilding vessels are being constructed at HMD (Hyundai Mipo Dockyard Co., Ltd. of South Korea). One vessel is expected to be delivered in April 2013, and the remaining 16 vessels are expected to be delivered by the end of 2014.

(25)	These Newbuilding vessels are being constructed at SPP (SPP Shipbuilding Co., Ltd. of South Korea). These eight vessels are expected to be delivered during the second, third and fourth quarters of 2014.

(26)	These Newbuilding vessels are being constructed at HSHI (Hyundai Samho Heavy Industries Co., Ltd.). These six vessels are expected to be delivered in the third and fourth quarters of 2014.

(27)	These Newbuilding vessels are being constructed at DSME (Daewoo Shipbuilding and Marine Engineering Co., Ltd.). These two vessels are expected to be delivered in the fourth quarter of 2014.

Chartering strategy

Generally, we operate our vessels in commercial pools on time charters or in the spot market.

Commercial Pools

To increase vessel utilization and thereby revenues, we participate in commercial pools with other shipowners of similar modern, well-maintained vessels. As of the date of this annual report, 27 of the vessels in our Operating Fleet operate in one of the Scorpio Group Pools. By operating a large number of vessels as an integrated transportation system, commercial pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools employ experienced commercial managers and operators who have close working relationships with customers and brokers, while technical management is performed by each shipowner. Pools negotiate charters with customers primarily in the spot market. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and contracts of affreightment, or COAs, thus generating higher effective TCE revenues than otherwise might be obtainable in the spot market.

Time Charters

Time charters give us a fixed and stable cash flow for a known period of time. Time charters also mitigate in part the seasonality of the spot market business, which is generally weaker in the second and third quarters of the year. In the future, we may opportunistically look to enter our vessels into time charter contracts. We may also enter into time charter contracts with profit sharing agreements, which enable us to benefit if the spot market increases. As of the date of this annual report, none of the vessels in our Operating Fleet operate under long-term time charters (greater than one year).

Spot Market

A spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an agreed freight per ton of cargo or a specified total amount. Under spot market voyage charters, we pay voyage expenses such as port, canal and bunker costs. Spot charter rates are volatile and fluctuate on a seasonal and year-to-year basis. Fluctuations derive from imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes. Vessels operating in the spot market generate revenue that is less predictable, but may enable us to capture increased profit margins during periods of improvements in tanker rates. As of the date of this annual report, four of the vessels in our Operating Fleet, STI Sapphire , STI Emerald , Nave Orion , and SN Federica , operate in the spot market.

Management of our fleet

Commercial and Technical Management

Our vessels are commercially managed by Scorpio Commercial Management S.A.M., or SCM and technically managed by Scorpio Ship Management S.A.M., or SSM, pursuant to a Master Agreement (which may be terminated upon a two year notice). SCM and SSM are related parties of ours. We expect that additional vessels that we may acquire in the future will also be managed under the Master Agreement or on substantially similar terms.

SCM’s services include securing employment, in the spot market and on time charters, for our vessels. SCM also manages the Scorpio Group Pools. For commercial management of our vessels that do not operate in any of the Scorpio Group Pools, we pay SCM a fee of $250 per vessel per day for each Panamax, LR1 and LR2 vessel and $300 per vessel per day for each Handymax and MR vessels, plus 1.25% commission on gross revenues per charter fixture. Effective January 1, 2013, all participants in the Scorpio Group Pools collectively pay SCM a pool management fee of $250 per vessel per day with respect to our LR2 vessels, $300 per vessel per day with respect to each of our Panamax vessels and $325 per vessel per day with respect to each of our Handymax and MR vessels, plus 1.50% commission on gross revenues per charter fixture. These are the same fees that SCM charges other vessels in these pools, including third party owned vessels.

SSM’s services include day-to-day vessel operation, performing general maintenance, monitoring regulatory and classification society compliance, customer vetting procedures, supervising the maintenance and general efficiency of vessels, arranging the hiring of qualified officers and crew, arranging and supervising drydocking and repairs, purchasing supplies, spare parts and new equipment for vessels, appointing supervisors and technical consultants and providing technical support. We currently pay SSM $548 per vessel per day to provide technical management services for each of our vessels. This fee is lower than that charged to third parties by SSM.

Administrative Services Agreement

We have an Administrative Services Agreement with Scorpio Services Holding Limited, or SSH, or our Administrator, for the provision of administrative staff and office space, and administrative services, including accounting, legal compliance, financial and information technology services. SSH is a related party of ours. Liberty, a company affiliated with us, acted as our Administrator until March 13, 2012 when the Administrative Services Agreement was novated to SSH. The effective date of the novation was November 9, 2009, the date that we first entered into the agreement with Liberty. We reimburse our current Administrator for the reasonable direct or indirect expenses it incurs in providing us with the administrative services described above. Our Administrator also arranges vessel sales and purchases for us. The services provided to us by our Administrator may be sub-contracted to other entities within the Scorpio Group.

We pay our Administrator a fee for arranging vessel purchases and sales for us, equal to 1% of the gross purchase or sale price, payable upon the consummation of any such purchase or sale. For the years ended December 31, 2012 and 2011, we paid our Administrator $2.4 million and $0.7 million in fees, respectively, relating to vessel acquisitions and sales. We believe this 1% fee on purchases and sales is customary in the tanker industry.

Further, pursuant to our administrative services agreement, our Administrator, on behalf of itself and other members of the Scorpio Group, has agreed that it will not directly own product or crude tankers ranging in size from 35,000 dwt to 200,000 dwt.

Our administrative services agreement, whose effective commencement began in December 2009, was automatically renewed on December 31, 2012 for an additional term of two years.

The International Oil Tanker Shipping Industry

All the information and data presented in this section, including the analysis of the oil tanker shipping industry, has been provided by Drewry Shipping Consultants Ltd., or Drewry. The statistical and graphical information contained herein is drawn from Drewry’s database and other sources. According to Drewry: (i) certain information in Drewry’s database is derived from estimates or subjective judgments; (ii) the information in the databases of other maritime data collection agencies may differ from the information in Drewry’s database; and (iii) while Drewry has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures.

Oil Tanker Demand

Demand for crude oil and refined petroleum products is affected by a number of factors including general economic conditions (such as increases and decreases in industrial production), oil prices, environmental concerns, weather conditions, and competition from alternative energy sources.

The world economy grew continuously from 2000 to 2008, but growth came to a halt in 2009 when the world went into a global economic recession. Since 2009, the world economy has returned to a state of growth, with a 3.1% increase in global GDP in 2012, generated largely by China and India.

World oil consumption has followed a similar pattern. From 2000 to 2007, world oil consumption grew considerably, but receded in 2008 and 2009 due to global economic downturn. World oil consumption has since recovered, with consumption rising to 89.7 million bpd in 2012. Since 2000, world oil consumption has grown at a compound annual growth rate, or CAGR, of approximately 1.4%.

World Oil Consumption: 1990 – 2012(1)
(Million Barrels Per Day)

(LINE GRAPH)

(1) Provisional
Source: Drewry Maritime Research

Oil consumption is either static or declining in most of the developed world, but is increasing in most of the developing world. In recent years, Asia, particularly China, has been the main generator of additional demand for oil.

Traditional sources, such as oil from the Middle East, have largely fulfilled this demand. From 2000 to 2012, Chinese oil consumption grew by a CAGR of 5.9%, reaching 9.54 million barrels per day. Notably, oil consumption on a per capita basis is still low in countries such as China and India as compared to the United States and Western Europe.

Seasonal trends also affect world oil consumption and, consequently, oil tanker demand. While trends in consumption do vary with season, peaks in tanker demand frequently precede seasonal consumption peaks due to anticipated consumer demand by refiners and suppliers. Seasonal peaks in oil demand can be broadly classified into two categories: increased demand prior to winter in the Northern Hemisphere, during which heating oil consumption increases, and increased demand for gasoline prior to the summer driving season in the United States.

Production trends have generally followed oil consumption patterns, though changes in oil inventories also play a part in determining production levels.

Production and exports from the Middle East, particularly countries that are members of the Organization of the Petroleum Exporting Countries, or OPEC, have historically had a significant impact on the demand for tanker capacity, and, consequently, on tanker charter hire rates, due to the relatively long distances between the Middle East and typical destination ports. Oil exports from short-haul regions, such as Latin America and the North Sea, are significantly closer to ports used by the primary consumers of such exports, which results in shorter average voyage length as compared to oil exports from the Middle East. Therefore, production in short-haul regions has historically increased the demand for vessels in the Handy, Panamax and Aframax market segments, but has had less of an impact on the demand for larger vessels.

Oil Refinery Capacity

Oil refineries also vary greatly in the quantity, variety and specification of products that they produce, and it is common for tankers to take products into and out of the same refinery. This global multi-directional trade pattern enables owners and operators of product tankers to engage in charters of triangulation, thereby maximizing revenue.

Changes in refinery throughput are somewhat driven by changes in the location of refinery capacity. Capacity increases are taking place mostly in the developing world, especially in Asia, and this is leading to changes in voyage patterns and longer voyages.

In response to growing domestic demand, Chinese refinery throughput has grown at the fastest rate of any global region in the last decade, ahead of the Middle East and other emerging economies. By contrast, refinery throughput in North America has actually declined in the last decade.

The shift in global refinery capacity from the developed to the developing world is likely to continue as refinery development plans are heavily focused on areas such as Asia and the Middle East, with relatively little capacity additions planned for North America and Europe.

World Oil Trades

World oil trades are naturally the result of geographical imbalances between areas of oil consumption and production, although in some sectors, such as refined petroleum products, arbitrage can have an impact on trade flows.

The volume of crude oil moved by sea each year also reflects underlying changes in world oil consumption and production. Seaborne trade in crude oil in 2012 is provisionally estimated at 2.1 billion tons, while refined petroleum products movement is provisionally estimated at 910 million tons.

Demand for oil tankers is primarily determined by the volume of crude oil and refined petroleum products transported and the distances over which they are transported. Tanker demand is generally expressed in ton miles, which are calculated as the number of metric tons of oil carried multiplied by the miles over which the oil is carried.

The transportation of crude oil is typically unidirectional as most oil is transported from a few areas of production to many regions of consumption, where it is refined into petroleum products. Conversely, the transportation of refined petroleum products and associated cargoes is multidirectional as there are several areas of both production and consumption.

In terms of ton miles, geographical changes in the pattern of trade have had a positive impact on tanker demand despite only modest growth in the volume of oil moved by sea since 2000. From 2000 to 2012, ton mile demand in the tanker sector grew at a CAGR of 2.6%, whereas the overall increase in trade over the same period was equivalent to a CAGR of 2.2%.

As a result of changes in patterns of trade, the average loaded voyage haul length of refined product trades has risen from a recent market low of 2,283 miles in 2000 to 2,800 miles in 2012, equivalent to a CAGR of 1.7%.

Oil Tanker Supply

The world oil tanker fleet is generally divided into five major types of vessel classifications based on vessel carrying capacity. Additionally, the tanker fleet is divided between crude tankers that carry dirty products, such as crude oil or residual fuel oil, and product tankers that carry clean products, such as refined petroleum products, including gasoline, jet fuel, kerosene, naphtha and gas oil.

While product tankers can carry dirty products, they generally do not switch between clean and dirty cargoes because a vessel’s tank must be cleaned prior to loading a different cargo type. Product tankers do not form a distinct vessel classification, but are identified on the basis of various factors, including technical and trading histories.

A number of tankers also have the capability to carry chemicals as well as refined petroleum products. These ships are sometimes referred to as product/chemical tankers and may switch between the carriage of chemicals or refined petroleum products depending on market conditions and employment opportunities.

The supply of tankers is measured in deadweight tons, or dwt. The supply of tanker capacity is determined by the age and size of the existing global fleet, the number of vessels on order and the number of ships removed from the fleet by scrapping and international regulations. Other factors which can affect the short-term supply of tankers include the number of combined carriers (which are vessels capable of trading wet and dry cargoes) trading in the oil market and the number of tankers in storage, dry-docked, awaiting repairs or otherwise out of commission.

There are eight main fleet categories within the oil tanker fleet: Small, Handy, Handymax (which include MR product tankers), Panamax (which include LR1 product tankers), Aframax (which include LR2 product tankers), Suezmax, Very Large Crude Carrier, or VLCC, and Ultra Large Crude Carrier, or ULCC.

The oil tanker fleet at the end of January 2013 consisted of 3,166 vessels with a combined capacity of 413.4 million dwt.

Oil Tanker Fleet – January 31, 2013


Sector	Deadweight Tons (dwt)	Number of Vessels		% of Fleet		Capacity (million dwt)		% of Fleet

Small	10-29,999		228		7.2		4.1		1.0
Handy	30-41,999		152		4.8		5.6		1.4
Handymax	42-54,999		407		12.9		19.2		4.6
Panamax	55-79,999		397		12.5		28.5		6.9
Aframax	80-119,999		902		28.5		96.6		23.4
Suezmax	120-199,999		470		14.8		72.7		17.6
VLCC	200-320,000		574		18.1		174.9		42.3
ULCC	320,000+		36		1.1		11.8		2.9
			3,166		100.0		413.4		100.0

Source: Drewry Maritime Research

Between the end of 2000 and January 2013 the size of the total tanker fleet grew by 54%, with increases in fleet size taking place across all sectors.

The Product Tanker Fleet

The product tanker fleet as of January 31, 2013 comprises 1,239 ships of 70.9 million dwt.

World Product ⁽¹⁾ Tanker Fleet January 31, 2013


Sector	Deadweight Tons (dwt)		Number of Vessels		% of Fleet		Capacity (million dwt )		% of Fleet
Small		10-29,999		209		16.9		3.7		5.2
Handy (MR1)		30-41,999		135		10.9		5		7.1
Handymax (MR2)		42-54,999		403		32.5		18.9		26.7
Panamax (LR1)		55-79,999		293		23.6		21.3		30.0
Aframax (LR2)		80,000+		199		16.1		22		31.0
				1,239		100.0		70.9		100.0

(1) Excludes chemical tankers

Source: Drewry Maritime Research

The supply of the smallest product tanker category fleet (tankers with 10,000-29,999 dwt) has declined in favor of larger ships that are more suited to long-haul routes.

World Product Tanker Fleet: Age Profile, January 31, 2013

(LINE GRAPH)

Left Hand Scale = Million Dwt; Right Hand Scale = No of Ships

Source: Drewry Maritime Research

Oil Tanker Orderbook

As of January 31, 2013, the oil tanker orderbook amounted to 362 tankers of 51.3 million dwt, equivalent to 12.4% of the current fleet. At its peak in 2008, the orderbook to existing fleet ratio was just over 40%. The decrease to its current level is due to deliveries from the orderbook outpacing new orders being placed. The current total tanker orderbook, including crude tankers and product tankers, and the schedule of deliveries are shown below.

The Total Tanker Fleet & Orderbook: January 31, 2013


Size	Existing Fleet		2013		2014		2015		2016+		Total		% Existing Fleet
	No.	Dwt	No.	Dwt	No.	Dwt	No.	Dwt	No.	Dwt	No.	Dwt	No	Dwt

10-29,999	228	4.1	7	0.1	0	0.0	0	0.0	0	0.0	7	0.1	3.1%	2.4%
30-41,999	152	5.6	7	0.2	2	0.1	0	0.0	0	0.0	9	0.3	5.9%	5.4%
42-54,999	407	19.2	58	2.9	28	1.4	8	0.4	5	0.2	99	4.9	24.3%	25.5%
55-79,999	397	28.5	18	1.3	6	0.4	0	0.0	4	0.3	28	2.0	7.1%	7.0%
80-119,999	902	96.6	29	3.2	21	2.3	7	0.8	0	0.0	57	6.3	6.3%	6.5%
120-199,999	470	72.7	67	10.4	10	1.5	6	1.0	1	0.2	84	13.1	17.9%	18.0%
200,000-319,999	574	174.9	23	7.2	13	4.0	2	0.6	0	0.0	38	11.8	6.6%	6.7%
320,000+	36	11.8	33	10.6	7	2.2	0	0.0	0	0.0	40	12.8	111.1%	108.5%
Total	3,166	413.4	242	35.9	87	11.9	23	2.8	10	0.7	362	51.3	11.4%	12.4%

Source: Drewry Maritime Research

Product Tanker Orderbook

As of January 31, 2013, the product tanker orderbook amounted to 145 ships of 8.3 million dwt, equivalent to 11.7% of the current fleet.

World Product Tanker Orderbook, January 31, 2013


	Scheduled Deliveries
Size (’000 dwt)	Existing Fleet*		2013		2014		2015		2016+		Total Orderbook		% of Fleet
	No.	Dwt	No.	Dwt	No.	Dwt	No.	Dwt	No.	Dwt	No.	Dwt	No	Dwt
10-29,999	209	3.7	6	0.1	0	0.0	0	0.0	0	0.0	6	0.1	2.9	2.7
30-41,999	135	5.0	6	0.2	2	0.1	0	0.0	0	0.0	8	0.3	5.9	6.0
42-54,999	403	18.9	54	2.7	28	1.4	8	0.4	5	0.2	95	4.7	23.6	24.9
55-79,999	293	21.3	13	0.9	5	0.4	0	0.0	4	0.3	22	1.6	7.5	7.5
80,000+	199	22.0	8	0.9	6	0.7	0	0.0	0	0.0	14	1.6	7.0	7.3
Total	1,239	70.9	87	4.8	41	2.6	8	0.4	9	0.5	145	8.3	11.7	11.7

Source: Drewry Maritime Research

The Product Tanker Freight Market

Tanker charter hire rates and vessel values for all tankers are influenced by supply and demand for tanker capacity. However, the product tanker segment is generally less volatile than other crude market segments because these vessels mainly transport refined petroleum products that are not subject to the same degree of volatility as the crude oil market. Time charter rates are also less volatile than spot rates because chartered vessels are fixed for a longer period of time. In the spot market, rates will reflect the immediate underlying conditions in vessel supply and demand and are thus prone to more volatility. Recent trends in rates in the time charter equivalent of spot rates and time charter rates are shown in the tables below.

Tanker charter hire rates and vessel values for all tankers are strongly influenced by supply and demand for tanker capacity. Small changes in tanker utilization have historically led to relatively large fluctuations in tanker charter rates for VLCCs, more moderate price volatility in the Suezmax, Aframax and Panamax markets and less volatility in the Handy market compared to the tanker market as a whole.

From 2005 to 2008, time charter rates for all sizes of oil tankers rose steeply, reflecting additional demand for tanker capacity generated by increased demand for oil and seaborne movements. This led to a much tighter balance between vessel demand and supply, and freight rates consequently rose. However, as the world economy weakened in the second half of 2008, demand for oil also fell, negatively impacting tanker demand and freight rates. Rates resultantly declined in 2009, recovered briefly in 2010, but remained weak for all of 2011 and 2012, especially for larger sized oil tankers.

Oil Tanker One Year Time Charter Rates: 2000-2013
(US$/Day Period Averages)


Size Range	30,000 Dwt	40-45,000 Dwt	60,000 Dwt	95-105,000 Dwt	150,000 Dwt	280,000 Dwt
Age	5 Yr	5 Yr	10 Yr	5 Yr	5 Yr	5 Yr
2000	12,454	13,958	14,854	18,854	27,042	35,250
2001	15,583	17,563	19,708	23,125	30,500	37,958
2002	11,417	13,288	15,292	16,896	17,750	23,458
2003	13,267	14,846	14,163	19,146	26,104	33,604
2004	15,629	19,029	18,813	29,500	37,875	53,875
2005	18,854	25,271	21,833	34,771	42,292	60,125
2006	21,417	26,792	23,225	35,150	42,667	55,992
2007	22,200	25,250	22,292	33,413	43,042	53,333
2008	21,438	23,092	19,704	34,708	46,917	74,663
2009	13,675	14,850	13,675	19,663	27,825	38,533
2010	11,038	12,388	11,738	18,571	25,967	36,083
2011	12,300	13,633	10,275	15,208	19,700	24,642
2012	12,013	13,325	9,808	13,588	17,504	20,996
Jan 2013	12,500	13,750	10,750	13,500	16,750	21,500

Source: Drewry Maritime Research

Environmental and Other Regulations

Government laws and regulations significantly affect the ownership and operation of our vessels. We are subject to various international conventions, laws and regulations in force in the countries in which our vessels may operate or are registered. Compliance with such laws, regulations and other requirements entails significant expense, including vessel modification and implementation costs.

A variety of government, quasi-governmental and private organizations subject our vessels to both scheduled and unscheduled inspections. These organizations include the local port authorities, national authorities, harbor masters or equivalent entities, classification societies, relevant flag state (country of registry) and charterers, particularly terminal operators and oil companies. Some of these entities require us to obtain permits, licenses, certificates and approvals for the operation of our vessels. Our failure to maintain necessary permits, licenses, certificates or approvals could require us to incur substantial costs or temporarily suspend operation of one or more of the vessels in our fleet, or lead to the invalidation or reduction of our insurance coverage.

We believe that the heightened levels of environmental and quality concerns among insurance underwriters, regulators and charterers have led to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for tankers that conform to stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with applicable local, national and international environmental laws and regulations. We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations; however, because such laws and regulations are frequently changed and may impose increasingly strict requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, a future serious marine incident that results in significant oil pollution or otherwise causes significant adverse environmental impact, such as the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, could result in additional legislation or regulation that could negatively affect our profitability.

International Maritime Organization

The International Maritime Organization, or the IMO, is the United Nations agency for maritime safety and the prevention of pollution by ships. The IMO has adopted several international conventions that regulate the international shipping industry, including but not limited to the International Convention on Civil Liability for Oil Pollution Damage of 1969, generally referred to as CLC, the International Convention on Civil Liability for Bunker Oil Pollution Damage, and the International Convention for the Prevention of Pollution from Ships of 1973, or the MARPOL Convention. The MARPOL Convention is broken into six Annexes, each of which establishes environmental standards relating to different sources of pollution: Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances carried, in bulk, in liquid or packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI, adopted by the IMO in September of 1997, relates to air emissions.

Air Emissions

In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution. Effective May 2005, Annex VI sets limits on nitrogen oxide emissions from ships whose diesel engines were constructed (or underwent major conversions) on or after January 1, 2000. It also prohibits “deliberate emissions” of “ozone depleting substances,” defined to include certain halons and chlorofluorocarbons. “Deliberate emissions” are not limited to times when the ship is at sea; they can for example include discharges occurring in the course of the ship’s repair and maintenance. Emissions of “volatile organic compounds” from certain tankers, and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls (PCBs)) are also prohibited. Annex VI also includes a global cap on the sulfur content of fuel oil (see below).

The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board ships. As of January 1, 2012, the amended Annex VI requires that fuel oil contain no more than 3.50% sulfur. By January 1, 2020, sulfur content must not exceed 0.50%, subject to a feasibility review to be completed no later than 2018.

Sulfur content standards are even stricter within certain Emission Control Areas ( or ECAs). As of July 1, 2010, ships operating within an ECA were not permitted to use fuel with sulfur content in excess of 1.0% (from 1.50%), which will be further reduced to 0.10% on January 1, 2015. Amended Annex VI establishes procedures for designating new ECAs. Currently, the Baltic Sea and the North Sea have been so designated. On August 1, 2012, certain coastal areas of North America were designated ECAs as will, the United States Caribbean Sea, effective January 1, 2014. If other ECAs are approved by the IMO or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the EPA or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.

As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for new ships. It makes the Energy Efficiency Design Index (EEDI) apply to all new ships, and the Ship Energy Efficiency Management Plan (SEEMP) apply to all ships.

Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. The U.S. Environmental Protection Agency promulgated equivalent (and in some senses stricter) emissions standards in late 2009. As a result of these designations or similar future designations, we may be required to incur additional operating or other costs.

Safety Management System Requirements

The IMO also adopted the International Convention for the Safety of Life at Sea, or SOLAS, and the International Convention on Load Lines, or LL, which impose a variety of standards that regulate the design and operational features of ships. The IMO periodically revises the SOLAS and LL standards. The Convention on Limitation for Maritime Claims (LLMC) was recently amended and the amendments are expected to go into effect on June 8, 2015. The amendments alter the limits of liability for a loss of life or personal injury claim and a property claim against ship owners.

Our operations are also subject to environmental standards and requirements contained in the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, or ISM Code, promulgated by the IMO under Chapter IX of SOLAS. The ISM Code requires the owner of a vessel, or any person who has taken responsibility for operation of a vessel, to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety management system that has been developed for our vessels for compliance with the ISM Code.

The ISM Code requires that vessel operators also obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel’s management with code requirements for a safety management system. No vessel can obtain a certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. We have obtained documents of compliance for its offices and safety management certificates for all of our vessels for which the certificates are required by the ISM Code. These documents of compliance and safety management certificates are renewed as required.

Noncompliance with the ISM Code and other IMO regulations may subject the shipowner or bareboat charterer to increased liability, may lead to decreases in, or invalidation of, available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports.

Pollution Control and Liability Requirements

IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatory nations to such conventions. For example, many countries have ratified and follow the liability plan adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocol in 1976, 1984, and 1992, and amended in 2000, or the CLC. Under the CLC and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel’s registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain exceptions. The 1992 Protocol changed certain limits on liability, expressed using the International Monetary Fund currency unit of Special Drawing Rights. The limits on liability have since been amended so that compensation limits on liability were raised. The right to limit liability is forfeited under the CLC where the spill is caused by the shipowner’s actual fault and under the 1992 Protocol where the spill is caused by the shipowner’s intentional or reckless act or omission where the shipowner knew pollution damage would probably result. The CLC requires ships covered by it to maintain insurance covering the liability of the owner in a sum equivalent to an owner’s liability for a single incident. We believe that our protection and indemnity insurance will cover the liability under the plan adopted by the IMO.

The IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the Bunker Convention, to impose strict liability on shipowners for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the Convention on Limitation of Liability for Maritime Claims of 1976, as amended). With respect to non-ratifying states, liability for spills or releases of oil carried as fuel in ship’s bunkers typically is determined by the national or other domestic laws in the jurisdiction where the events or damages occur.

In addition, the IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments, or the BWM Convention, in February 2004. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements to be replaced in time with mandatory concentration limits. The BWM Convention will not become effective until 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world’s merchant shipping. To date, there has not been sufficient adoption of this standard for it to take force. However, Panama may adopt this standard in the relatively near future, which would be sufficient for it to take force. Upon entry into force of the BWM Convention, mid-ocean ballast exchange would be mandatory. Vessels would be required to be equipped with a ballast water treatment system that meets mandatory concentration limits not later than the first intermediate or renewal survey, whichever occurs first, after the anniversary date of delivery of the vessel in 2014, for vessels with ballast water capacity of 1500-5000 cubic meters, or after such date in 2016, for vessels with ballast water capacity of greater than 5000 cubic meters. If mid-ocean ballast exchange or ballast water treatment requirements become mandatory, the cost of compliance could increase for ocean carriers. Although we do not believe that the costs of compliance with a mandatory mid-ocean ballast exchange would be material, it is difficult to predict the overall impact of such a requirement on our operations.

The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.

U.S. Regulations

The U.S. Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all “owners and operators” whose vessels trade in the United States, its territories and possessions or whose vessels operate in U.S. waters, which includes the U.S. territorial sea and its 200 nautical mile exclusive economic zone. The United States has also enacted the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, which applies to the discharge of hazardous substances other than oil, whether on land or at sea. OPA and CERCLA both define “owner and operator” in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Accordingly, both OPA and CERCLA impact our operations.

Under OPA, vessel owners and operators are “responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels. OPA defines these other damages broadly to include:


	•	injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;

	•	injury to, or economic losses resulting from, the destruction of real and personal property;

	•	net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources;

	•	loss of subsistence use of natural resources that are injured, destroyed or lost;

	•	lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and

	•	net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.

OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability to the greater of $2,000 per gross ton or $17.088 million for any double-hull tanker that is over 3,000 gross tons (subject to periodic adjustment for inflation), and our fleet is entirely composed of vessels of this size class. These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship), or a responsible party’s gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident where the responsibility party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.

CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damage for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.

OPA and CERCLA both require owners and operators of vessels to establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We have provided such evidence and received certificates of financial responsibility from the U.S. Coast Guard’s for each of our vessels as required to have one.

OPA permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA. Some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, however, in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining tanker owners’ responsibilities under these laws.

The 2010 Deepwater Horizon oil spill in the Gulf of Mexico may also result in additional regulatory initiatives or statutes, including the raising of liability caps under OPA. For example, on August 15, 2012, the U.S. Bureau of Safety and Environmental Enforcement (BSEE) issued a final drilling safety rule for offshore oil and gas operations that strengthens the requirements for safety equipment, well control systems, and blowout prevention practices. Compliance with any new requirements of OPA may substantially impact our cost of operations or require us to incur additional expenses to comply with any new regulatory initiatives or statutes.

Through our P&I Club membership, we expect to maintain pollution liability coverage insurance in the amount of $1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The U.S. Clean Water Act, or CWA, prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. Furthermore, many U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law.

The United States Environmental Protection Agency, or EPA, has enacted rules requiring a permit regulating ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters under the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels, or VGP. For a new vessel delivered to an owner or operator after September 19, 2009 to be covered by the VGP, the owner must submit a Notice of Intent, or NOI, at least 30 days before the vessel operates in United States waters. The EPA has proposed a draft 2013 VGP to replace the current VGP upon its expiration on December 19, 2013. The VGP focuses on authorizing discharges incidental to operations of commercial vessels and the new VGP is expected to contain numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in US waters, more stringent requirements for exhaust gas scrubbers and the use of environmentally acceptable lubricants.

U.S. Coast Guard regulations adopted and proposed for adoption under the U.S. National Invasive Species Act, or NISA, impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering U.S. waters, which could require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures, and/or otherwise restrict our vessels from entering U.S. waters. In 2009, the Coast Guard proposed new ballast water management standards and practices, including limits regarding ballast water releases. As of June 21, 2012, the U.S. Coast Guard implemented revised regulations on ballast water management by establishing standards on the allowable concentration of living organisms in ballast water discharged from ships into U.S. waters. The revised ballast water standards are consistent with those adopted by the IMO in 2004.

Compliance with the EPA and the U.S. Coast Guard regulations could require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, and/or otherwise restrict our vessels from entering U.S. waters.

European Union Regulations

In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. Member States were required to enact laws or regulations to comply with the directive by the end of 2010. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims.

Greenhouse Gas Regulation

Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions. On January 1, 2013, two new sets of mandatory requirements to address greenhouse gas emissions from ships which were adopted by MEPC in July 2011, entered into force. Currently operating ships will be required to develop Ship Energy Efficiency Management Plans, and minimum energy efficiency levels per capacity mile will apply to new ships. These requirements could cause us to incur additional compliance costs. The IMO is also planning to implement market-based mechanisms to reduce greenhouse gas emissions from ships at an upcoming MEPC session. The European Union has indicated that it intends to propose an expansion of the existing European Union emissions trading scheme to include emissions of greenhouse gases from marine vessels, and in January 2012 the European Commission launched a public consultation on possible measures to reduce greenhouse gas emissions from ships. In the United States, the EPA has issued a finding that greenhouse gases endanger the public health and safety and has adopted regulations to limit greenhouse gas emissions from certain mobile sources and large stationary sources. Although the mobile source emissions regulations do not apply to greenhouse gas emissions from vessels, such regulation of vessels is foreseeable, and the EPA has in recent years received petitions from the California Attorney General and various environmental groups seeking such regulation. Any passage of climate control legislation or other regulatory initiatives by the IMO, European Union, the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol, that restrict emissions of greenhouse gases could require us to make significant financial expenditures which we cannot predict with certainty at this time.

International Labour Organization

The International Labour Organization (ILO) is a specialized agency of the UN with headquarters in Geneva, Switzerland. The ILO has adopted the Maritime Labor Convention 2006 (MLC 2006). A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance will be required to ensure compliance with the MLC 2006 for all ships above 500 gross tons in international trade. The MLC 2006 will enter into force one year after 30 countries with a minimum of 33% of the world’s tonnage have ratified it. On August 20, 2012, the required number of countries was met and MLC 2006 is expected to come into force on August 20, 2013. MLC 2006 will require us to develop new procedures to ensure full compliance with its requirements.

Vessel Security Regulations

Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the U.S. Maritime Transportation Security Act of 2002, or the MTSA, came into effect. To implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. The regulations also impose requirements on certain ports and facilities, some of which are regulated by the U.S. Environmental Protection Agency (EPA).

Similarly, in December 2002, amendments to SOLAS created a new chapter of the convention dealing specifically with maritime security. The new Chapter V became effective in July 2004 and imposes various detailed security obligations on vessels and port authorities, and mandates compliance with the ISPS Code. The ISPS Code is designed to enhance the security of ports and ships against terrorism. Amendments to SOLAS Chapter VII, made mandatory in 2004, apply to vessels transporting dangerous goods and require those vessels be in compliance with the International Maritime Dangerous Goods Code (“IMDG Code”).

To trade internationally, a vessel must attain an International Ship Security Certificate, or ISSC, from a recognized security organization approved by the vessel’s flag state. Among the various requirements are:


	•	on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship’s identity, position, course, speed and navigational status;

	•	on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore;

	•	the development of vessel security plans;

	•	ship identification number to be permanently marked on a vessel’s hull;

	•	a continuous synopsis record kept onboard showing a vessel’s history, including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship’s identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and

	•	compliance with flag state security certification requirements.

Ships operating without a valid certificate, may be detained at port until it obtains an ISSC, or it may be expelled from port, or refused entry at port.

The U.S. Coast Guard regulations, intended to align with international maritime security standards, exempt from MTSA vessel security measures non-U.S. vessels provided that such vessels have on board a valid ISSC that attests to the vessel’s compliance with SOLAS security requirements and the ISPS Code. We have implemented the various security measures addressed by MTSA, SOLAS and the ISPS Code, and our fleet is in compliance with applicable security requirements.

Inspection by classification societies

Every seagoing vessel must be “classed” by a classification society. The classification society certifies that the vessel is ‘‘in class,’’ signifying that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel’s country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.

The classification society also undertakes on request other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned.

For maintenance of the class, regular and extraordinary surveys of hull, machinery, including the electrical plant, and any special equipment classed are required to be performed as follows:


	•	Annual Surveys. For seagoing ships, annual surveys are conducted for the hull and the machinery, including the electrical plant, and where applicable for special equipment classed, within three months before or after each anniversary date of the date of commencement of the class period indicated in the certificate.

	•	Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and typically are conducted two and one-half years after commissioning and each class renewal. Intermediate surveys are to be carried out at or between the occasion of the second or third annual survey.

	•	Class Renewal Surveys. Class renewal surveys, also known as special surveys, are carried out for the ship’s hull, machinery, including the electrical plant, and for any special equipment classed, at the intervals indicated by the character of classification for the hull. At the special survey, the vessel is thoroughly examined, including audio-gauging to determine the thickness of the steel structures. Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals. The classification society may grant a one-year grace period for completion of the special survey. Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear. In lieu of the special survey every four or five years, depending on whether a grace period was granted, a vessel owner has the option of arranging with the classification society for the vessel’s hull or machinery to be on a continuous survey cycle, in which every part of the vessel would be surveyed within a five-year cycle.

At an owner’s application, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class. This process is referred to as continuous class renewal.

All areas subject to survey as defined by the classification society are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years.

Most vessels are also dry-docked every 30 to 36 months for inspection of the underwater parts and for repairs related to inspections. If any defects are found, the classification surveyor will issue a ‘‘recommendation’’ which must be rectified by the ship owner within prescribed time limits.

Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in-class” by a classification society which is a member of the International Association of Classification Societies (IACS). The IACS issued draft harmonized Common Structure Rules that align with IMO goal standards, for industry review in 2012 and it expects them to be adopted in Winter 2013. All our vessels are certified as being “in-class” by American Bureau of Shipping. All new and secondhand vessels that we purchase must be certified prior to their delivery under our standard purchase contracts and memoranda of agreement. If the vessel is not certified on the scheduled date of closing, we have no obligation to take delivery of the vessel.

In addition to the classification inspections, many of our customers regularly inspect our vessels as a precondition to chartering them for voyages. We believe that our well-maintained, high-quality vessels provide us with a competitive advantage in the current environment of increasing regulation and customer emphasis on quality.

Risk of Loss and Liability Insurance

General

The operation of any cargo vessel includes risks such as mechanical failure, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. OPA, which in certain circumstances imposes virtually unlimited liability upon owners, operators and demise charterers of any vessel trading in the United States exclusive economic zone for certain oil pollution accidents in the United States, has made liability insurance more expensive for vessel-owners and operators trading in the United States market. While we believe that our present insurance coverage is adequate, not all risks can be insured against, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.

Marine and War Risks Insurance

We have in force marine and war risks insurance for all of our vessels. Our marine hull and machinery insurance covers risks of particular average and actual or constructive total loss from collision, fire, grounding, engine breakdown and other insured named perils up to an agreed amount per vessel. Our war risks insurance covers the risks of particular average and actual or constructive total loss from confiscation, seizure, capture, vandalism, sabotage, and other war-related named perils. We have also arranged coverage for increased value for each vessel. Under this increased value coverage, in the event of total loss of a vessel, we will be able to recover amounts in excess of those recoverable under the hull and machinery policy in order to compensate for additional costs associated with replacement of the loss of the vessel. Each vessel is covered up to at least its fair market value at the time of the insurance attachment and subject to a fixed deductible per each single accident or occurrence, but excluding actual or constructive total loss.

Protection and Indemnity Insurance

Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Associations, and covers our third party liabilities in connection with our shipping activities. This includes third-party liability and other related expenses resulting from injury or death of crew, passengers and other third parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances, and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by mutual protection and indemnity associations, or “clubs.” Subject to the “capping” discussed below, our coverage, except for pollution, is unlimited.

As a member of a P&I Club that is a member of the International Group of P&I Clubs, or the International Group, we carry protection and indemnity insurance coverage for pollution of $1 billion per vessel per incident. The P&I Clubs that comprise the International Group insure approximately 90% of the world’s commercial tonnage and have entered into a pooling agreement to reinsure each association’s liabilities. Although the P&I Clubs compete with each other for business, they have found it beneficial to pool their larger risks under the auspices of the International Group. This pooling is regulated by a contractual agreement which defines the risks that are to be pooled and exactly how these risks are to be shared by the participating P&I Clubs. We are subject to calls payable to the associations based on its claim records as well as the claim records of all other members of the individual associations and members of the pool of P&I Clubs comprising the International Group.


C.	Organizational Structure

Please see Exhibit 8.1 to this annual report for a list of our current subsidiaries.


D.	Property, Plant and Equipment

For a description of our fleet, see Item 4.A. – “History and Development of the Company” and Item 4.B. “Business Overview – Our Fleet.”


IT EM 4A.	UNRESOLVED STAFF COMMENTS

None.


I TEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS


A.	Operating Results

The following presentation of management’s discussion and analysis of results of operations and financial condition should be read in conjunction with our consolidated financial statements, accompanying notes thereto and other financial information appearing in Item 18. “Financial Statements.” You should also carefully read the following discussion with the sections of this annual report entitled “Risk Factors,” “The International Tanker Industry,” and “Cautionary Statement Regarding Forward-Looking Statements.” Our consolidated financial statements as of December 31, 2012 and 2011 and for the years ended December 31, 2012, 2011 and 2010 have been prepared in accordance with IFRS as issued by the IASB. The consolidated financial statements are presented in US dollars ($) unless otherwise indicated. Any amounts converted from another non-U.S. currency to US dollars in this annual report are at the rate applicable at the relevant date, or the average rate during the applicable period.

We anticipate additional opportunities to expand our fleet through acquisitions of tankers, and we believe that recent downward pressure on tanker values will present attractive investment opportunities to ship operators that have the necessary capital resources. We may purchase secondhand vessels that meet our specifications or newbuilding vessels, either directly from shipyards or from the current owners with shipyard contracts. The timing of these acquisitions will depend on our ability to identify suitable vessels on attractive purchase terms. Since our initial public offering in April 2010, we have expanded our fleet from three tankers to 14 wholly-owned tankers and 21 time chartered-in tankers, and we have contracts for the construction of 33 additional newbuilding vessels.

We generate revenues by charging customers for the transportation of their refined oil and other petroleum products using our vessels. Historically, these services generally have been provided under the following basic types of contractual relationships:


•	Voyage charters , which are charters for short intervals that are priced on current, or “spot,” market rates.

•	Time charters , which are chartered to customers for a fixed period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates, or current market rates.

•	Commercial Pools , whereby we participate with other shipowners to operate a large number of vessels as an integrated transportation system, which offers customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools negotiate charters primarily in the spot market. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and contracts of affreightment (described below), thus generating higher effective time charter equivalent, or TCE, revenues than otherwise might be obtainable in the spot market.

•	For all types of vessels in contractual relationships, we are responsible for crewing and other vessel operating costs for our owned vessels and the charterhire expense for vessels that we time charter-in.

The table below illustrates the primary distinctions among these different employment arrangements:


	Voyage Charter	Time Charter	Commercial Pool
Typical contract length	Single voyage	One year or more	Varies
Hire rate basis ⁽¹⁾	Varies	Daily	Varies
Voyage expenses ⁽²⁾	We pay	Customer pays	Pool pays
Vessel operating costs for owned vessels ⁽³⁾	We pay	We pay	We pay
Charterhire expense for vessels chartered-in ⁽³⁾	We pay	We pay	We pay
Off-hire ⁽⁴⁾	Customer does not pay	Customer does not pay	Pool does not pay


	(1)	“Hire rate” refers to the basic payment from the charterer for the use of the vessel.

	(2)	“Voyage expenses” refers to expenses incurred due to a vessel’s traveling from a loading port to a discharging port, such as fuel (bunker) cost, port expenses, agent’s fees, canal dues and extra war risk insurance, as well as commissions.

	(3)	Defined below under “—Important Financial and Operational Terms and Concepts.”

	(4)	“Off-hire” refers to the time a vessel is not available for service due primarily to scheduled and unscheduled repairs or drydockings. For time chartered-in vessels, we do not pay the charterhire expense when the vessel is off-hire.

As of the date of this annual report, all of our owned and time chartered-in vessels were operating in the Scorpio Group Pools except STI Sapphire, Gan-Trust and SN Federica , which were operating in the spot market.

IMPORTANT FINANCIAL AND OPERATIONAL TERMS AND CONCEPTS

We use a variety of financial and operational terms and concepts. These include the following:

Vessel revenues. Vessel revenues primarily include revenues from time charters, pool revenues and voyage charters (in the spot market). Vessel revenues are affected by hire rates and the number of days a vessel operates. Vessel revenues are also affected by the mix of business between vessels on time charter, vessels in pools and vessels operating on voyage charter. Revenues from vessels in pools and on voyage charter are more volatile, as they are typically tied to prevailing market rates.

Voyage charters. Voyage charters or spot voyages are charters under which the customer pays a transportation charge for the movement of a specific cargo between two or more specified ports. We pay all of the voyage expenses.

Voyage expenses. Voyage expenses primarily include bunkers, port charges, canal tolls, cargo handling operations and brokerage commissions paid by us under voyage charters. These expenses are subtracted from voyage charter revenues to calculate time charter equivalent revenues.

Vessel operating costs. For our owned vessels, we are responsible for vessel operating costs, which include crewing, repairs and maintenance, insurance, stores, lube oils, communication expenses, and technical management fees. The two largest components of our vessel operating costs are crews, and repairs and maintenance. Expenses for repairs and maintenance tend to fluctuate from period to period because most repairs and maintenance typically occur during periodic drydocking. Please read “Drydocking” below. We expect these expenses to increase as our fleet matures and to the extent that it expands.

Additionally, these costs include technical management fees that we paid to SSM, which is controlled by the Lolli-Ghetti family. Pursuant to our Master Agreement, SSM provides us with technical services, and we provide them with the ability to subcontract technical management of our vessels with our approval.

Charterhire. Charterhire is the amount we pay the owner for time chartered-in vessels. The amount is usually for a fixed period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates, or current market rates. The vessel’s owner is responsible for crewing and other vessel operating costs.

Drydocking. We periodically drydock each of our owned vessels for inspection, repairs and maintenance and any modifications to comply with industry certification or governmental requirements. Generally, each vessel is drydocked every 30 months to 60 months. We capitalize a substantial portion of the costs incurred during drydocking and amortize those costs on a straight-line basis from the completion of a drydocking to the estimated completion of the next drydocking. We immediately expense costs for routine repairs and maintenance performed during drydocking that do not improve or extend the useful lives of the assets. The number of drydockings undertaken in a given period and the nature of the work performed determine the level of drydocking expenditures.

Depreciation. Depreciation expense typically consists of:


	•	charges related to the depreciation of the historical cost of our owned vessels (less an estimated residual value) over the estimated useful lives of the vessels; and

	•	charges related to the amortization of drydocking expenditures over the estimated number of years to the next scheduled drydocking.

Time charter equivalent (TCE) revenue or rates. We report time charter equivalent, or TCE revenues, a non-IFRS measure, because (i) we believe it provides additional meaningful information in conjunction with voyage revenues and voyage expenses, the most directly comparable IFRS measure, (ii) it assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance, (iii) it is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance irrespective of changes in the mix of charter types (i.e., spot charters, time charters and bareboat charters) under which the vessels may be employed between the periods, and (iv) we believe that it presents useful information to investors. TCE revenue is vessel revenue less voyage expenses, including bunkers and port charges. The TCE rate achieved on a given voyage is expressed in US dollars/day and is generally calculated by taking TCE revenue and dividing that figure by the number of revenue days in the period. For a reconciliation of TCE revenue, deduct voyage expenses from revenue on our Statement of Profit or Loss.

Revenue days. Revenue days are the total number of calendar days our vessels were in our possession during a period, less the total number of off-hire days during the period associated with major repairs or drydockings. Consequently, revenue days represent the total number of days available for the vessel to earn revenue. Idle days, which are days when a vessel is available to earn revenue, yet is not employed, are included in revenue days. We use revenue days to show changes in net vessel revenues between periods.

Average number of vessels. Historical average number of owned vessels consists of the average number of vessels that were in our possession during a period. We use average number of vessels primarily to highlight changes in vessel operating costs and depreciation and amortization.

Contract of affreightment. A contract of affreightment, or COA, relates to the carriage of specific quantities of cargo with multiple voyages over the same route and over a specific period of time which usually spans a number of years. A COA does not designate the specific vessels or voyage schedules that will transport the cargo, thereby providing both the charterer and shipowner greater operating flexibility than with voyage charters alone. The charterer has the flexibility to determine the individual voyage scheduling at a future date while the shipowner may use different vessels to perform these individual voyages. As a result, COAs are mostly entered into by large fleet operators, such as pools or shipowners with large fleets of the same vessel type. We pay the voyage expenses while the freight rate normally is agreed on a per cargo ton basis.

Commercial pools. To increase vessel utilization and revenues, we participate in commercial pools with other shipowners and operators of similar modern, well-maintained vessels. By operating a large number of vessels as an integrated transportation system, commercial pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools employ experienced commercial charterers and operators who have close working relationships with customers and brokers, while technical management is performed by each shipowner. Pools negotiate charters with customers primarily in the spot market. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and COAs, thus generating higher effective TCE revenues than otherwise might be obtainable in the spot market while providing a higher level of service offerings to customers.

Operating days . Operating days are the total number of available days in a period with respect to the owned vessels, before deducting available days due to off-hire days and days in drydock. Operating days is a measurement that is only applicable to our owned vessels, not our chartered-in vessels.

ITEMS YOU SHOULD CONSIDER WHEN EVALUATING OUR RESULTS

You should consider the following factors when evaluating our historical financial performance and assessing our future prospects:

Our vessel revenues are affected by cyclicality in the tanker markets . The cyclical nature of the tanker industry causes significant increases or decreases in the revenue we earn from our vessels, particularly those vessels we trade in the spot market. We employ a chartering strategy to capture upside opportunities in the spot market while using fixed-rate time charters to reduce downside risks, depending on SCM’s outlook for freight rates, oil tanker market conditions and global economic conditions. Historically, the tanker industry has been cyclical, experiencing volatility in profitability due to changes in the supply of, and demand for, tanker capacity. The supply of tanker capacity is influenced by the number and size of new vessels built, vessels scrapped, converted and lost, the number of vessels that are out of service, and regulations that may effectively cause early obsolescence of tonnage. The demand for tanker capacity is influenced by, among other factors:


•	global and regional economic and political conditions;

•	increases and decreases in production of and demand for crude oil and petroleum products;

•	increases and decreases in OPEC oil production quotas;

•	the distance crude oil and petroleum products need to be transported by sea; and

•	developments in international trade and changes in seaborne and other transportation patterns.

Tanker rates also fluctuate based on seasonal variations in demand. Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere but weaker in the summer months as a result of lower oil consumption in the northern hemisphere and refinery maintenance that is typically conducted in the summer months. In addition, unpredictable weather patterns during the winter months in the northern hemisphere tend to disrupt vessel routing and scheduling. The oil price volatility resulting from these factors has historically led to increased oil trading activities in the winter months. As a result, revenues generated by our vessels have historically been weaker during the quarters ended June 30 and September 30, and stronger in the quarters ended March 31 and December 31.

Our general and administrative expenses were affected by the fees we pay SCM and SSH for commercial management and administrative services respectively, and costs incurred from being a public company. SCM and SSH, companies controlled by the Lolli-Ghetti family of which our founder, Chairman and Chief Executive Officer is a member, provide commercial and administrative management services to us, respectively. We pay fees under our Master Agreement with SCM, which are identical to what SCM charges to its pool participants, including third-party owned vessels. We reimburse our Administrator for the reasonable direct or indirect expenses it incurs in providing us with the administrative services described above. We also pay our Administrator a fee for arranging vessel purchases and sales for us equal to 1% of the gross purchase or sale price, payable upon the consummation of any such purchase or sale. We believe this 1% fee on purchases and sales is customary in the tanker industry. In addition, we continue to incur general and administrative expenses related to our being a publicly traded company, including, among other things, costs associated with reports to shareholders, filings with the U.S. Securities Exchange Commission, investor relations, New York Stock Exchange fees and tax compliance expenses.

RESULTS OF OPERATIONS

The following tables separately present our operating results for the years ended December 31, 2012, 2011 and 2010.

Results of Operations for the Year ended December 31, 2012 Compared to the Year Ended December 31, 2011


	For the year ended December 31,						Change			Percentage Change
*In thousands of US dollars*	2012			2011			Change			Percentage Change
Vessel revenue	$	115,381		$	82,110		$	33,271			41	%
Vessel operating costs		(30,353	)		(31,370	)		1,017			3	%
Voyage expenses		(21,744	)		(6,881	)		(14,863	)		(216	%)
Charterhire		(43,701	)		(22,750	)		(20,951	)		(92	%)
Impairment		—			(66,611	)		66,611			100	%
Depreciation		(14,818	)		(18,460	)		3,642			20	%
Loss from sale of vessels		(10,404	)		—			(10,404	)		N/A
General and administrative expenses		(11,536	)		(11,637	)		101			1	%
Financial expenses		(8,512	)		(7,060	)		(1,452	)		(21	%)
Earnings from profit or loss sharing agreements		443			—			443			N/A
Unrealized loss on derivative financial instruments		(1,231	)		—			(1,231	)		N/A
Financial income		35			51			(16	)		(31	%)
Other expenses, net		(97	)		(119	)		22			18	%
Net loss	$	(26,537	)	$	(82,727	)	$	56,190			68	%

Net Loss. Net loss for the year ended December 31, 2012 was $26.5 million, compared to a net loss of $82.7 million for the year ended December 31, 2011. The differences between the two periods are discussed below.

Vessel revenue . Revenue for the year ended December 31, 2012 was $115.4 million, an increase of $33.3 million, or 41% from revenue of $82.1 million for the year ended December 31, 2011. The following table summarizes our revenue:


	For the year ended December 31,							Percentage Change
*In thousands of US dollars*	2012		2011		Change			Percentage Change

Owned vessels
Time charter revenue		—	$	9,626	$	(9,626	)		(100	%)
Pool revenue		38,522		39,522		(1,000	)		(3	%)
Voyage revenue		26,668		12,287		14,381			117	%
Time chartered-in vessels
Pool revenue		33,740		20,675		13,065			63	%
Voyage revenue		16,451		—		16,451			N/A
	$	115,381	$	82,110	$	33,271			41	%

Owned vessels – Time charter revenue. We did not time charter-out any owned vessels for the year ended December 31, 2012. For the year ended December 31, 2011, Noemi and STI Spirit were employed on time charters for a total of 427 days.

Owned vessels – Pool revenue. Pool revenue for owned vessels for the year ended December 31, 2012 was $38.5 million, a decrease of $1.0 million or 3% from $39.5 million for the year ended December 31, 2011. We had 2,851 revenue days of owned vessels in the pools during the year ended December 31, 2012 compared to 3,149 during the year ended December 31, 2011. This decrease in revenue days was primarily driven by the sales of STI Conqueror, STI Matador, and STI Gladiator during March, April and May 2012 resulting in 911 less pool days partially offset by (i) the entrance in the Scorpio MR Pool by our first five newbuilding vessels during the fourth quarter of 2012 for a total of 176 additional days, (ii) Noemi , which was on time charter for the majority of 2011 and operated in the pool during the year ended December 31, 2012 (net increase of 355 days), and (iii) an increase in TCE earnings from our owned vessels operating in the pools to $13,510 per day for the year ended December 31, 2012 from $12,550 per day for the year ended December 31, 2011.

Owned vessels – Voyage revenue . Voyage revenue for owned vessels for the year ended December 31, 2012 was $26.7 million, an increase of $14.4 million, or 117% from $12.3 million during the year ended December 31, 2011. The increase was primarily the result of an increase in the number of days that our vessels operated in the spot market for the year ended December 31, 2012 and 2011 to 1,015 days from 450 days, respectively. Additionally, TCE earnings from our owned vessels operating in the spot market increased to $13,220 per day in 2012 from $12,092 per day in 2011. Our first five newbuilding vessels operated in the spot market immediately after delivery from the yards for a total of 414 days. Furthermore, STI Conqueror, STI Matador, STI Gladiator, STI Coral and STI Diamond all operated in the spot market during 2012 prior to their sales. While STI Coral and STI Diamond were the only vessels operating in the spot market during 2011.

Time chartered-in vessels – Pool revenue. Pool revenue for time chartered-in vessels for the year ended December 31, 2012 was $33.7 million, an increase of $13.1 million, or 63% from $20.7 million during the year ended December 31, 2011. The increase was primarily the result of an increase in the number of days that our time chartered-in vessels operated in the pools for the years ended December 31, 2012 and 2011 to 2,662 days from 1,806 days, respectively. Additionally, TCE earnings from our time chartered-in vessels operating in the pools increased to $12,656 per day for the year ended December 31, 2012 from $11,448 per day for the year ended December 31, 2011.

Time chartered-in vessels – Voyage revenue. Voyage revenue for our time chartered-in vessels for the year ended December 31, 2012 was $16.5 million. During the year ended December 31, 2012, time chartered-in vessels operated 698 days in the spot market. There were no time chartered-in vessels operating in the spot market during the year ended December 31, 2011.

Vessel operating costs. Vessel operating costs for the year ended December 31, 2012 were $30.4 million, a decrease of $1.0 million or 3%, from $31.4 million during the year ended December 31, 2011. We had 3,957 operating days during 2012 compared to 4,121 operating days during 2011. The decrease was primarily the result of the sales of STI Conqueror, STI Gladiator and STI Matador in 2012 which resulted in a decrease of 789 operating days for these vessels during the year ended December 31, 2012 versus the same period of the prior year. This decrease was partially offset by an increase of 612 operating days resulting from the delivery of our first five newbuilding vessels during the third quarter of 2012. Overall operating costs per day were consistent at $7,605 per day for the year ended December 31, 2012 compared to $7,581 per day for the year ended December 31, 2011.

Voyage expenses . Voyage expenses for the year ended December 31, 2012 were $21.7 million, an increase of $14.9 million, or 216%, from $6.9 million during the year ended December 31, 2011. The increase was primarily due to an increase in the number of days vessels operated in the spot market. There were 1,712 spot voyage days (owned and time chartered-in) during the year ended December 31, 2012 as compared to 450 days during year ended December 31, 2011.

Charterhire. Charterhire expense for the year ended December 31, 2012 was $43.7 million, an increase of $21.0 million, or 92%, from $22.8 million during the year ended December 31, 2011. The increase was the result of additional time chartered-in vessels in 2012 compared with 2011; the average number of chartered-in vessels increased to 9.18 from 4.95 during the years ended December 31, 2012 and 2011, respectively.

Impairment. In the year ended December 31, 2011, we recognized an impairment loss of $66.6 million for our 12 owned vessels. This impairment loss was triggered by reductions in vessel values, and represented the difference between the carrying value and recoverable amount, being fair value less cost to sell. No impairment was recognized in the year ended December 31, 2012.

Impairment methodology

The carrying values of our vessels may not represent their fair market value at any point in time since the market prices of second-hand vessels fluctuate with changes in charter rates and the cost of constructing new vessels. At each reporting period end date, we review the carrying amounts of our vessels to determine whether there is any indication that those vessels may have suffered an impairment loss. In this regard, fluctuations in market values below carrying values are considered to represent an impairment triggering event that necessitates performance of a full impairment review.

Impairment losses are calculated as the excess of a vessel’s carrying amount over its recoverable amount. Under IFRS, the recoverable amount is the higher of an asset’s (i) fair value less costs to sell and (ii) value in use. Fair value less costs to sell is defined by IFRS as “the amount obtainable from the sale of an asset or cash-generating unit in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal”. When we calculate value in use, we discount the expected future cash flows to be generated by our vessels to their net present value.

Our impairment evaluation is performed on an individual vessel basis when there are indications of impairments. First, we assess the fair value less the cost to sell our vessels taking into consideration vessel valuations from leading, independent and internationally recognized ship brokers. We then compare that estimate of market values (less an estimate of selling costs) to each vessel’s carrying value and, if the carrying value exceeds the vessel’s market value, an indicator of impairment exists. The indicator of impairment prompts us to perform a calculation of the potentially impaired vessel’s value in use, in order to appropriately determine the ‘higher of’ the two values.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. In developing estimates of future cash flows, we make assumptions about future charter rates, vessel operating expenses, the estimated remaining useful lives of the vessels and the discount rate. These assumptions are based on historical trends as well as future expectations. Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. Reasonable changes in the assumptions for the discount rate or future charter rates could lead to a value in use for some of our vessels that is equal to or less than the carrying amount for such vessels. All of the aforementioned assumptions have been highly volatile in both the current market and historically. Given the current and historical volatility in market prices for similar vessels and recent downward pressure on charter rates, the fair value less estimated costs to sell in the current year reflected potential indicators of impairment for all of our owned vessels.

For the year ended December 31, 2012, we performed an assessment as described above. At that date, the carrying amounts of our vessels were greater than the basic, meaning charter free, market value for all of our owned vessels. In line with our policy we performed a value in use calculation where we estimated each vessels’ future cash flows based on a combination of the latest forecast time charter rates for the next three years (obtained from a third party service provider), a growth rate of 3.0% in freight rates for each period thereafter, and our best estimate of vessel operating expenses and drydock costs, which also assume a growth rate of 3.0% in each succeeding year. These cash flows were then discounted to their present value, using a discount rate of 7.9%, based on our current borrowing rates adjusted for certain credit risks. The value in use calculations were greater than the fair value less estimated costs to sell in all instances. As a result of this testing, no impairment charge was recorded.

For the year ended December 31, 2011, the value in use calculations for all vessels were less than both the fair value less estimated costs to sell and carrying amounts of the vessels. As a result of this testing, we recorded an impairment loss of $66.6 million to adjust the carrying amounts of our vessels to reflect fair value less estimated costs to sell.

Illustrative comparison of excess of carrying amounts over estimated charter-free market value of certain vessels

During the past few years, the market values of vessels have experienced particular volatility, with substantial declines in many vessel classes. As a result, the charter-free market value, or basic market value, of certain of our vessels may have declined below the carrying amounts of those vessels. After undergoing the impairment analysis using value in use to determine the recoverable amount as discussed above, we have concluded that at December 31, 2012, the value in use for our vessels was higher than their carrying values and consequently, no impairment is required.

The table set forth below indicates the carrying amount of each of our vessels as of December 31, 2012 and December 31, 2011 and the aggregate difference between the carrying amount and the market value represented by such vessels (see footnote 1 to the table set forth below). This aggregate difference represents the approximate analysis of the amount by which we believe we would record a loss if we sold those vessels, in the current environment, on industry standard terms, in cash transactions and to a willing buyer where we are not under any compulsion to sell, and where the buyer is not under any compulsion to buy. For purposes of this calculation, we have assumed that the vessels would be sold at a price that reflects our estimate of their basic market values. However, we are not holding our vessels for sale.

Our estimate of basic market value assumes that our vessels are all in good and seaworthy condition without need for repair and if inspected would be certified in class without notations of any kind. Our estimates are based on information available from various industry sources, including:


	•	reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values;

	•	news and industry reports of similar vessel sales;

	•	news and industry reports of sales of vessels that are not similar to our vessels where we have made certain adjustments in an attempt to derive information that can be used as part of our estimates;

	•	approximate market values for our vessels or similar vessels that we have received from shipbrokers, whether solicited or unsolicited, or that shipbrokers have generally disseminated;

	•	offers that we may have received from potential purchasers of our vessels; and

	•	vessel sale prices and values of which we are aware through both formal and informal communications with shipowners, shipbrokers, industry analysts and various other shipping industry participants and observers.

As we obtain information from various industry and other sources, our estimates of basic market value are inherently uncertain. In addition, vessel values and revenues are highly volatile; as such, our estimates may not be indicative of the current or future basic market value of our vessels or prices that we could achieve if we were to sell them.


	*In millions of US dollars*			Carrying value as at,
	Vessel Name	Year Built		December 31, 2012 ⁽¹⁾			December 31, 2011 ⁽²⁾
1	STI Highlander		2007	$	23.1		$	24.4
2	STI Gladiator		2003		N/A	⁽³⁾		17.8
3	STI Matador		2003		N/A	⁽³⁾		18.3
4	STI Conqueror		2005		N/A	⁽³⁾		20.5
5	STI Coral		2008		N/A	⁽³⁾		28.3
6	STI Diamond		2008		N/A	⁽³⁾		28.3
7	Noemi		2004		27.0			28.4
8	Senatore		2004		27.1			28.4
9	STI Harmony		2007		33.6			35.3
10	STI Heritage		2008		35.9			35.9
11	Venice		2001		17.7			19.7
12	STI Spirit		2008		37.4			37.7
13	STI Amber		2012		38.6			N/A	⁽⁴⁾
14	STI Topaz		2012		38.7			N/A	⁽⁴⁾
15	STI Ruby		2012		38.7			N/A	⁽⁴⁾
16	STI Garnet		2012		38.8			N/A	⁽⁴⁾
17	STI Onyx		2012		38.8			N/A	⁽⁴⁾

	Total			$	395.4		$	322.5


(1)	As of December 31, 2012, the basic charter-free market value is lower than each vessel’s carrying value. We believe that the aggregate carrying value of these vessels exceeds their aggregate basic charter-free market value by approximately $64.2 million.

(2)	Given that each of our vessels was impaired at December 31, 2011 based on fair value less costs to sell, the carrying amounts noted above are representative of fair value less estimated costs to sell as of December 31, 2011.

(3)	These vessels were sold during the year ended December 31, 2012.

(4)	These vessels were acquired during the year ended December 31, 2012.

The impairment test that we conduct is most sensitive to variances in the discount rate and future time charter rates. Based on the sensitivity analysis performed for December 31, 2012, a 1.0% increase in the discount rate would result in an aggregate impairment of $6.4 million. Alternatively, a 5% decrease in forecasted time charter rates would result in an aggregate impairment of $8.0 million.

We refer you to the discussion herein under Item 3.D. “Risk Factors — Risks Related to our Industry,” including the risk factor entitled “Adverse market conditions could cause us to breach covenants in our credit facilities and adversely affect our operating results.”

Depreciation. Depreciation expense for the year ended December 31, 2012 was $14.8 million, a decrease of $3.6 million or 20%, from $18.5 million during the year ended December 31, 2011. The decrease was a result of (i) a $66.6 million impairment charge recorded at December 31, 2011 which decreased the depreciable basis of our vessels and (ii) a decrease in the number of owned vessels to 10.81 from 11.29 which was driven by the sales of STI Conqueror in March 2012 , STI Matador in April 2012, STI Gladiator in May 2012 , STI Diamond in August 2012 and STI Coral in September 2012, partially offset by the delivery of our first five newbuilding vessels between July 2012 and September 2012.

Loss from sale of vessels. Loss from sale of vessels for the year ended December 31, 2012 was $10.4 million. This loss is related to the sales of STI Conqueror, STI Matador, STI Gladiator, STI Coral, and STI Diamond during the year ended December 31, 2012 and includes $0.2 million in relating to a loss on the interest rate swaps used to hedge the interest payments on the borrowings on these vessels.

General and administrative expenses. General and administrative expenses for the year ended December 31, 2012 were $11.5 million, a decrease of $0.1 million, or 1%, from the year ended December 31, 2011. These costs remained relatively stable as there were no significant changes in our overhead structure on a period over period basis.

Financial expenses. Financial expenses for the year ended December 31, 2012 were $8.5 million, an increase of $1.5 million, or 21%, from $7.1 million during the year ended December 31, 2011. The increase for the year ended December 31, 2012 was primarily driven by a $3.0 million write-off of deferred financing fees relating to our 2011 Credit Facility offset by a decrease in interest expense of $1.7 million which was driven by an increase in capitalized interest expense of $2.6 million for the year ended December 31, 2012 related to our vessels under construction.

Financial expenses for the year ended December 31, 2012 consisted of interest expense of $3.3 million, commitment fees of $1.0 million on the undrawn portions of the 2010 Revolving Credit Facility and 2011 Credit Facility, deferred financing fee amortization of $1.1 million, write-off of deferred financing fees of $3.0 million and other costs of $0.1 million.

Financial expenses for the year ended December 31, 2011 consisted of interest expense of $5.0 million, commitment fees of $1.1 million on the undrawn portion of the 2010 Revolving Credit Facility and 2011 Credit Facility and deferred financing fee amortization of $1.0 million.

Earnings from profit or loss sharing agreements. Earnings from profit or loss sharing agreements consist of realized earnings from profit and loss sharing agreements with third parties relating to a time chartered-in vessel. There were no similar agreements for the comparative period.

Unrealized loss on derivative financial instruments. Unrealized loss on derivative financial instruments consists of (i) the impact of the reclassification of $1.0 million from other comprehensive income to the statement of profit or loss relating to the de-designation of the hedge relationship on our interest rate swaps relating to the 2010 Revolving Credit Facility (See Note 12 to the consolidated financial statements) and (ii) the change in the fair value of profit and loss sharing agreements on time chartered-in vessels with third parties of $0.2 million.

The following is a discussion of our operating results by operating segment:

Aframax/LR2 segment

The following table summarizes vessel operations for our Aframax/LR2 segment.


*Aframax/LR2 segment*	For the year ended December 31,									Percentage
*In thousands of US dollars except per day and fleet data*	2012			2011			Change			Change
Vessel revenue	$	4,541		$	6,484		$	(1,943	)		(30	%)
Vessel operating costs		(3,304	)		(2,547	)		(757	)		(30	%)
Voyage expenses		(25	)		—			(25	)		N/A
Charterhire		(1,287	)		(839	)		(448	)		(53	%)
Impairment		—			(12,459	)		12,459			100	%
Depreciation		(1,735	)		(2,074	)		339			16	%
General and administrative expenses		(100	)		(136	)		36			26	%
Financial expenses		(1,086	)		(841	)		(245	)		(29	%)
Other expenses, net		(11	)		(134	)		123			92	%
Segment loss	$	(3,007	)	$	(12,546	)	$	9,539			76	%

Time charter revenue per day	$	—		$	15,457		$	(15,457	)		(100	%)
Pool revenue per day		10,201			14,849			(4,648	)		(31	%)
Operating costs per day		8,436			6,960			(1,476	)		(21	%)

Time charter revenue days		—			72			(72	)		(100	%)
Pool revenue days		443			361			82			23	%
Operating days		366			365			1			0	%

Average number of owned vessels		1.00			1.00			—			0	%
Average number of time chartered-in vessels		0.29			0.19			0.10			53	%

Vessel Revenue. Vessel revenue for the year ended December 31, 2012 was $4.5 million, a decrease of $1.9 million or 30% from the year ended December 31, 2011. There were two vessels operating in this segment during both periods, STI Spirit and Khawr Aladid . The decrease in revenue is due to a decrease in pool revenue per day to $10,201 per day from $14,849 per day. This was primarily driven by STI Spirit, which in June 2012 needed repairs and a subsequent positioning voyage which negatively affected the vessel’s earnings.

Vessel operating costs. Vessel operating costs for the year ended December 31, 2012 were $3.3 million, an increase of $0.8 million, or 30%, from the year ended December 31, 2011. On a daily basis, vessel operating costs for the year ended December 31, 2012 increased $1,476 per day, or 21% from the year ended December 31, 2011. This was a result of unplanned repairs on STI Spirit during the year ended December 31, 2012.

Charterhire. Charterhire expense for the year ended December 31, 2012 was $1.3 million, an increase of $0.5 million, or 53%, from the year ended December 31, 2011. This increase was driven by the time chartered-in vessel, Khawr Aladid, which was delivered on October 24, 2011, on a six month arrangement that expired in April 2012.

Depreciation. Depreciation expense for the year ended December 31, 2012 was $1.7 million, a decrease of $0.3 million, or 16%, from the year ended December 31, 2011. This was a result of an impairment charge that was recorded in December 2011 which reduced the depreciable basis of STI Spirit in 2012 .

Financial expense. Financial expense for the year ended December 31, 2012 was $1.1 million, an increase of $0.2 million or 29% from the year ended December 31, 2011. Financial expense for the Aframax/LR1 segment represents interest for the STI Spirit Credit Facility, which was signed and drawn in March 2011; therefore, the year ended December 31, 2012 represents a full year of interest expense as opposed to approximately nine months of interest expense during year ended December 31, 2011.

Other expenses, net . Other expenses, net for the year ended December 31, 2012 decreased $0.1 million or 92% from the year ended December 31, 2011. This decrease was driven by the write-off of the fair value of vessel purchase options that were acquired with STI Spirit in September 2011.

Panamax/LR1 segment

The following table summarizes vessel operations for our Panamax/LR1 segment.


*Panamax/LR1 segment*	For the year ended December 31,									Percentage
*In thousands of US dollars except per day and fleet data*	2012			2011			Change			Change
Vessel revenue	$	28,602		$	31,101		$	(2,499	)		(8	%)
Vessel operating costs		(14,137	)		(14,428	)		291			2	%
Voyage expenses		(999	)		(13	)		(986	)		(7585	%)
Charterhire		(1,629	)		(4,554	)		2,925			64	%
Impairment		—			(28,616	)		28,616			100	%
Depreciation		(7,352	)		(9,279	)		1,927			21	%
General and administrative expenses		(495	)		(692	)		197			28	%
Earnings from profit or loss sharing agreements		443			—			443			N/A
Unrealized loss on derivative financial instruments		(184	)		—			(184	)		N/A
Other expenses, net		—			23			(23	)		100	%
Segment profit / (loss)	$	4,249		$	(26,458	)	$	30,707			116	%

Time charter revenue per day	$	—		$	23,962		$	(23,962	)		(100	%)
Pool revenue per day		14,242			12,876			1,366			11	%
Voyage revenue per day		15,147			—			15,147			N/A
Operating costs per day		7,714			7,891			177			2	%

Time charter revenue days		—			355			(355	)		(100	%)
Pool revenue days		1,888			1,754			134			8	%
Voyage revenue days		48			—			48			N/A
Operating days		1,830			1,825			(5	)		0	%

Average number of owned vessels		5.00			5.00			—			0	%
Average number of time chartered-in vessels		0.35			0.91			(0.56	)		(62	%)

Vessel Revenue. Vessel revenue for the year ended December 31, 2012 was $28.6 million, a decrease of $2.5 million or 8% from the year ended December 31, 2011. The decrease in revenue was the result of (i) a decrease in the number of revenue days to 1,936 for the year ended December 31, 2012 compared to 2,109 days during the year ended December 31, 2011 and (ii) a decrease in overall revenue per day to $14,264 for the year ended December 31, 2012 from $14,743 for the year ended December 31, 2011. This was driven by a reduction in the average number of time chartered-in vessels to 0.35 from 0.91 for the years ended December 31, 2012 and 2011, respectively. This reduction is due to the redelivery of the time chartered-in vessel, BW Zambesi in November 2011 following its 10 month time charter-in agreement offset partially by the delivery of the time chartered-in vessels, FPMC P Eagle and Hellespont Promise in September and December 2012, respectively.

Noemi was time chartered-out during the year ended December 31, 2011 at a rate of $24,500 per day and was redelivered in December 2011. The effect of the decrease on overall pool revenue resulting from the expiration of this charter was offset by an increase of pool revenue per day to $14,242 per day during the year ended December 31, 2012 from $12,876 per day during the year ended December 31, 2011.

Vessel operating costs. Vessel operating costs for the year ended December 31, 2012 were $14.1 million, a decrease of $0.3 million, or 2%, from the year ended December 31, 2011. Vessel operating costs per day for the year ended December 31, 2012 decreased $177 per day, or 2% from the year December 31, 2011. These costs remained relatively stable as there were no changes in our owned Panamax/LR1 fleet on a period over period basis.

Voyage expenses. Voyage expenses for the year ended December 31, 2012 were $1.0 million, an increase of $1.0 million from the year ended December 31, 2011. This increase was the result of time chartered-in vessel, FPMC P Eagle , which operated in the spot market for 48 days during the year ended December 31, 2012. No vessels operated in the spot market for the year ended December 31, 2011.

Charterhire. Charterhire expense for the year ended December 31, 2012 was $1.6 million, a decrease of $2.9 million or 64% from the year ended December 31, 2011. This decrease was the result of the redelivery of time chartered-in vessel, BW Zambesi in November 2011 from its 10 month time charter-in agreement. This was partially offset by the delivery of the time chartered-in vessels, FPMC P Eagle and Hellespont Promise in September and December 2012, respectively.

Depreciation. Depreciation expense for the year ended December 31, 2012 was $7.4 million, a decrease of $1.9 million, or 21%, from the year ended December 31, 2011. This was a result of an impairment charge recorded in December 2011, which reduced the depreciable basis of all owned vessels in the Panamax / LR1 Segment.

General and administrative expenses. General and administrative expenses for the year ended December 31, 2012 were $0.5 million, a decrease of $0.2 million or 28%, from the year ended December 31, 2011. General and administrative expenses for the Panamax / LR1 segment primarily consist of administrative fees.

Earnings from profit or loss sharing agreements Earnings from profit or loss sharing agreements consist of realized earnings from profit and loss sharing agreements with third parties relating to time chartered-in vessels. We had two such agreements in place during the year ended December 31, 2012, one with our time chartered-in vessel, FPMC P Eagle and the other relating to a vessel for which the Company neither owns nor time charters-in (i.e. the vessel is chartered-in by an unrelated third party.) There were no similar agreements for the comparative period.

Unrealized loss on derivative financial instruments. Unrealized loss on derivative financial instruments consists of a $0.2 million change in the fair value of our profit and loss sharing agreements with third parties. For a description of these agreements, please see Item 5.B. “Liquidity and Capital Resources – Profit or loss sharing agreements.” There were no similar agreements for the comparative period.

MR segment

The following table summarizes vessel operations for our MR segment.


*MR segment*	For the year ended December 31,									Percentage
*In thousands of US dollars except per day and fleet data*	2012			2011			Change			Change
Vessel revenue	$	46,857		$	12,287		$	34,570			281	%
Vessel operating costs		(7,484	)		(3,178	)		(4,306	)		(135	%)
Voyage expenses		(17,979	)		(6,842	)		(11,137	)		(163	%)
Charterhire		(17,593	)		—			(17,593	)		N/A
Impairment		—			(12,573	)		12,573			100	%
Depreciation		(4,015	)		(2,038	)		(1,977	)		(97	%)
Loss from sale of vessels		(5,879	)		—			(5,879	)		N/A
General and administrative expenses		(398	)		(314	)		(84	)		(27	%)
Financial income		6			—			6			N/A
Other expenses, net		(51	)		—			(51	)		N/A
Segment loss	$	(6,536	)	$	(12,658	)	$	6,122			48	%

Pool revenue per day	$	11,811		$	—		$	11,811			N/A
Voyage revenue per day		12,541			12,092			449			4	%
Operating costs per day		6,770			6,748			(22	)		0	%

Pool revenue days		809			—			809			N/A
Voyage revenue days		1,541			450			1,091			242	%
Operating days		1,089			471			618			131	%

Average number of owned vessels		2.97			1.29			1.68			130	%
Average number of time chartered-in vessels		3.51			—			3.51			N/A

Vessel Revenue. Vessel revenue for the year ended December 31, 2012 was $46.9 million, an increase of $34.6 million or 281% from the year ended December 31, 2011. Vessel revenue less voyage expenses, or TCE revenue, was $28.9 million, an increase of $23.4 million, or 430% from $5.4 million for the year ended December 31, 2011. The change in revenue was the result of an increase in revenue days to 2,350 for the year ended December 31, 2012 from 450 during the year ended December 31, 2011. During the year ended December 31, 2011, only STI Diamond and STI Coral were operating in this segment as these vessels were acquired in May 2011. Revenue days increased during the year ended December 31, 2012 as a result of the delivery of the first five Newbuilding vessels in the third quarter of 2012 ( STI Amber, STI Topaz, STI Ruby, STI Garnet, and STI Onyx) and the delivery of six time chartered-in vessels ( Pacific Duchess, Freja Lupus, STX Ace 6 , Targale, Endeavour, and Valle Bianca) . The increase in revenue was also driven by an increase in voyage revenue per day to $12,541 during the year ended December 31, 2012 from $12,092 during the year ended December 31, 2011.

Vessel operating costs. Vessel operating costs for the year ended December 31, 2012 were $7.5 million, an increase of $4.3 million, or 135%, from the year ended December 31, 2011. The increase was driven by an increase in the number of operating days to 1,089 from 471 days during the year ended December 31, 2012. This increase was the result of the delivery of our first five newbuilding vessels during the third quarter of 2012.

Voyage expenses. Voyage expenses for the year ended December 31, 2012 were $18.0 million, an increase of $11.1 million or 163% from the year ended December 31, 2011. The increase was primarily driven by STI Coral, STI Diamond, Pacific Duchess, Freja Lupus, STX Ace 6 , Targale, Endeavour, Valle Bianca and the first five newbuilding vessels operating in the spot market for a total of 1,541 days during the year ended December 31, 2012 compared to only STI Coral and STI Diamond operating in the spot market for 450 days during the year ended December 31, 2011.

Charterhire. Charterhire expense for the year ended December 31, 2012 was $17.6 million, which was the result of time chartering-in Pacific Duchess, Freja Lupus, STX Ace 6, Targale, Endeavour and Valle Bianca during the year ended December 31, 2012 . There were no vessels chartered-in during the year ended December 31, 2011.

Depreciation. Depreciation expense for the year ended December 31, 2012 was $4.0 million, an increase of $2.0 million, or 97%, from the year ended December 31, 2011. The increase was driven by an increase in the average number of owned MR vessels to 2.97 for the year ended December 31, 2012 from 1.29 for the year ended December 31, 2011, which was the result of the delivery of the first five newbuilding vessels during the third quarter of 2012. The increase was partially offset by a decrease of depreciation expense which was driven by an impairment charge recorded in December 2011 that reduced the depreciable basis of STI Diamond and STI Coral .

Loss from sale of vessels. Loss from sale of vessels for the year ended December 31, 2012 was $5.9 million. This was a result of the sales of STI Diamond and STI Coral for $25.25 million each in August and September 2012, respectively.

General and administrative expenses. General and administrative expenses for the year ended December 31, 2012 were $0.4 million, an increase of $0.1 million, or 27%, from the year ended December 31, 2011. General and administrative expenses for the MR segment primarily consist of administrative fees. The increase was the result of an increase in the average number of owned vessels to 2.97 during the year ended December 31, 2012 from 1.29 during the year ended December 31, 2011.

Handymax segment

The following table summarizes vessel operations for our Handymax segment:


*Handymax segment*	For the year ended December 31,									Percentage
*In thousands of US dollars except per day and fleet data*	2012			2011			Change			Change
Vessel revenue	$	35,381		$	32,238		$	3,143			10	%
Vessel operating costs		(5,428	)		(11,217	)		5,789			52	%
Voyage expenses		(2,741	)		(26	)		(2,715	)		(10442	%)
Charterhire		(23,192	)		(17,357	)		(5,835	)		(34	%)
Impairment		—			(12,962	)		12,962			100	%
Depreciation		(1,716	)		(5,069	)		3,353			66	%
Loss from sale of vessels		(4,525	)		—			(4,525	)		N/A
General and administrative expenses		(195	)		(762	)		567			74	%
Segment loss	$	(2,416	)	$	(15,155	)	$	12,739			84	%

Pool revenue per day	$	13,166		$	11,343		$	1,823			16	%
Voyage revenue per day		11,201			—			11,201			N/A
Operating costs per day		7,594			7,619			25			0	%

Pool revenue days		2,374			2,840			(466	)		(16	%)
Voyage revenue days		124			—			124			N/A
Operating days		673			1,460			787			54	%

Average number of owned vessels		1.84			4.00			(2.16	)		(54	%)
Average number of time chartered-in vessels		5.03			3.85			1.18			31	%

Vessel Revenue. Vessel revenue for the year ended December 31, 2012 was $35.4 million, an increase of $3.1 million or 10% from the year ended December 31, 2011. The increase is driven by 124 voyage revenue days in 2012 compared to no voyage revenue days in 2011 (though certain nominal voyage expenses were incurred).

Vessel revenue less voyage expenses, or TCE revenue, was $32.6 million for the year ended December 31, 2012, an increase of $0.4 million, or 1.3% from $32.2 million for the year ended December 31, 2011. The Handymax segment had 2,498 revenue days for the year ended December 31, 2012 and 2,840 revenue days for the year ended December 31, 2011. This decrease was driven by the sales of STI Conqueror, STI Matador and STI Gladiator in March, April and May of 2012, respectively, and was partially offset by an increase in the number of vessels time chartered-in for the year ended December 31, 2012. The average number of vessels (owned and time chartered-in) was 6.87 for the year ended December 31, 2012 and 7.85 for the year ended December 31, 2011.

The decrease in revenue days was offset by an increase in pool revenue per day to $13,166 for the year ended December 31, 2012 from $11,343 per day for the year ended December 31, 2011.

Vessel operating costs. Vessel operating costs for the year ended December 31, 2012 were $5.4 million, a decrease of $5.8 million, or 52%, from the year ended December 31, 2011. The decrease was driven by a decrease in the number of operating days to 673 during the year ended December 31, 2012 from 1,460 during the year ended December 31, 2011 which was due to the sales of STI Conqueror, STI Matador, and STI Gladiator in March, April and May of 2012, respectively.

Voyage expenses. Voyage expenses for the year ended December 31, 2012 were $2.7 million, increasing $2.7 million from the year ended December 31, 2011. This was a result of STI Conqueror, STI Matador, and STI Gladiator operating in the spot market for 124 days during the year ended December 31, 2012 prior to their sales. There were nominal voyage expenses incurred for the year ended December 31, 2011.

Charterhire. Charterhire expense for the year ended December 31, 2012 was $23.2 million, an increase of $5.8 million or 34% from the year ended December 31, 2011. This was the result of an increase in the number of days of chartered-in vessels to 1,840 during the year ended December 31, 2012 from 1,404 days during the year ended December 31, 2011. The increase was primarily driven by Histria Perla and Histria Coral; their time charters began in July 2011. These vessels therefore operated for partial periods during the year ended December 31, 2011 as compared to the full year during the year ended December 31, 2012. The average number of time chartered-in vessels increased to 5.03 for the year ended December 31, 2012 as compared to 3.85 for the year ended December 31, 2011.

Depreciation. Depreciation expense for the year ended December 31, 2012 was $1.7 million, a decrease of $3.4 million, or 66%, from the year ended December 31, 2011. This was due to the sales of STI Conqueror, STI Matador , and STI Gladiator which ceased being depreciated and were written down to their disposal values in February 2012, the date which they were considered held for sale. In addition, we recorded an impairment charge in December 2011 which decreased the depreciable basis of the owned vessels in this segment.

Loss from sales of vessels. Loss from sales of vessels for the year ended December 31, 2012 was $4.5 million which was the result of the sales of STI Conqueror, STI Matador , and STI Gladiator in March, April, and May 2012, respectively.

General and administrative expenses. General and administrative expenses for the year ended December 31, 2012 were $0.2 million, a decrease of $0.6 million, or 74% from the year ended December 31, 2011. General and administrative expenses for the Handymax segment primarily consist of administrative fees. The decrease in administrative fees was driven by decrease in the average number of owned vessels to 1.84 for the year ended December 31, 2012 from 4.00 for the year ended December 31, 2011 resulting from the sales of STI Conqueror, STI Matador and STI Gladiator during the year ended December 31, 2012.

Results of Operations for the Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010

Net Loss. For the year ended December 31, 2011, we incurred a net loss of $82.7 million, compared to a net loss of $2.8 million for the year ended December 31, 2010. The differences between the two periods are discussed below.


	For the year ended December 31,									Percentage
*In thousands of US dollars*	2011			2010			Change			Change
Vessel revenue	$	82,110		$	38,798		$	43,312			112	%
Vessel operating costs		(31,370	)		(18,440	)		(12,929	)		(70	%)
Voyage expenses		(6,881	)		(2,542	)		(4,339	)		(171	%)
Charterhire		(22,750	)		(276	)		(22,475	)		(8157	%)
Impairment		(66,611	)		—			(66,611	)		N/A
Depreciation		(18,460	)		(10,179	)		(8,281	)		(81	%)
General and administrative expenses		(11,637	)		(6,200	)		(5,437	)		(88	%)
Financial expenses		(7,060	)		(3,231	)		(3,829	)		(119	%)
Realized loss on derivative financial instruments		—			(280	)		280			N/A
Financial income		51			37			14			40	%
Other expense, net		(119	)		(509	)		390			77	%
Net loss	$	(82,727	)	$	(2,822	)	$	(79,904	)		2831	%

Vessel revenue . Vessel revenue was $82.1 million for the year ended December 31, 2011, an increase of $43.3 million, or 112%, from vessel revenue of $38.8 million for the year ended December 31, 2010. The following table summarizes our revenue:


	For the year ended December 31,							Percentage
*In thousands of US dollars*	2011		2010		Change			Change
Owned vessels
Time charter revenue	$	9,626	$	19,417	$	(9,791	)		(50	%)
Pool revenue		39,522		15,180		24,342			160	%
Voyage revenue		12,287		3,916		8,371			214	%
Time chartered-in vessels
Pool revenue		20,675		285		20,390			7163	%

Total	$	82,110	$	38,798	$	43,312			112	%

The decrease in time charter revenue of $9.8 million, or 50%, was the result of a decrease in the overall number of days of vessels on time charter to 427 in 2011 compared to 854 in 2010. This decrease was the result of the expiration of time charter contracts on the Senatore (expired August 2010), STI Harmony (expired September 2010), and STI Heritage (expired November 2010). Noemi was employed on a time charter for both periods that began in 2007 and expired in December 2011, and STI Spirit was employed on a short term time charter for 72 days during 2011.

The increase in pool revenue for owned vessels of $24.3 million, or 160%, was primarily the result of an increase in the number of pool revenue days to 3,149 in 2011 from 1,185 in 2010. This increase was attributable to growth of the fleet as our average number of owned vessels was 11.29 for the year ended December 31, 2011, compared to 6.19 for the year ended December 31, 2010.

The increase in voyage revenue of $8.4 million, or 214%, is a result of an increase in the number of days that our vessels operated in the spot market to 450 days in 2011 compared to 177 in 2010, in addition to an increase in TCE to $12,092 per day in 2011 from $7,774 per day in 2010. During 2011, STI Coral and STI Diamond operated in the spot market for 450 days combined. During 2010, our newly purchased vessels, STI Conqueror, STI Gladiator, STI Matador and STI Highlander operated in the spot market prior to their entry in the Scorpio Handymax Tanker Pool for 167 days. Additionally, Senatore operated in the spot market for 10 days subsequent to the termination of its time charter agreement and prior to its entry in the Scorpio Panamax Tanker Pool.

The increase of pool revenue for time chartered-in vessels of $20.3 million, or 7,163%, in 2011 compared to 2010 was due to an increase in the number of pool revenue days for time chartered-in vessels. In 2011, BW Zambesi, Krisjanis Valdemars, Kraslava, Kazdanga, Histria Azure, Histria Perla, Histria Coral and Khawr Aladid were time chartered-in for 1,806 days, while in 2010, BW Zambesi was time chartered-in for 20 days. All vessels operated in the Scorpio Group Pools.

Vessel operating costs. Vessel operating costs for owned vessels of $31.4 million for the year ended December 31, 2011, increased $12.9 million, or 70% from $18.4 million for the year ended December 31, 2010. The increase is the result of an additional 1,863 operating days in 2011 which was driven by the purchase of two vessels in 2011 and seven vessels throughout 2010, which operated for a full year in 2011 as opposed to partial years in 2010.

Voyage expenses. The increase in voyage expenses is a result of an increase in the number of days that our vessels operated in the spot market to 450 in 2011 from 177 in 2010. During 2011, STI Coral and STI Diamond operated in the spot market for 450 days combined. During 2010, our newly purchased vessels, STI Conqueror, STI Gladiator, STI Matador and STI Highlander operated in the spot market for 167 days prior to their entry in the Scorpio Handymax Tanker Pool. Additionally, Senatore operated in the spot market for 10 days subsequent to the termination of its time charter agreement and prior to its entry in the Scorpio Panamax Tanker Pool.

Charterhire. Charterhire expense of $22.8 million for the year ended December 31, 2011 increased $22.5 million, or 8,157%, from $0.3 million for the year ended December 31, 2010. The increase was due to an increase of the number of time chartered-in days in 2011. In 2011, BW Zambesi, Krisjanis Valdemars, Kraslava, Kazdanga, Histria Azure, Histria Perla, Histria Coral and Khawr Aladid were time chartered-in for 1,806 days, while in 2010, BW Zambesi was time chartered-in for 20 days.

Impairment. In the year ended December 31, 2011, we recognized an impairment loss of $66.6 million for our 12 owned vessels. This impairment loss was triggered by reductions in vessel values, and represented the difference between the carrying value and recoverable amount, being fair value less cost to sell. In determining the fair value less cost to sell, we took into consideration the estimated valuations provided by independent ship brokers. No impairments were recognized in the year ended December 31, 2010.

Depreciation. Depreciation of $18.5 million for the year ended December 31, 2011 increased $8.3 million, or 81%, from $10.2 million for the year ended December 31, 2010. The increase in depreciation expense was primarily due to an increase in our average number of owned vessels to 11.29 in 2011 from 6.19 in 2010. This increase was offset by a change in the depreciable life of our owned vessels from 20 to 25 years in the second quarter 2010. The estimated useful life of 25 years is management’s best estimate and is also consistent with industry practice for similar vessels. This change in estimate was applied prospectively and the impact on the income statement for the year ended December 31, 2010 resulted in a decrease in depreciation expense and increase in net income of $1.2 million.

General and administrative expense. General and administrative expense, which includes commercial management and administrative fees, of $11.6 million for the year ended December 31, 2011, increased $5.4 million, or 88%, from $6.2 million for the year ended December 31, 2010. The increase is a result of incremental costs incurred to operate as a public company and additional compensation arrangements that were entered into as part of the initial public offering in April 2010. This was specifically driven by an increase in the amortization of restricted stock issued in June 2010 and January 2011, a full year of salary costs, directors and officers insurance and fees, legal fees, audit fees and other related expenses.

Financial expenses. Financial expenses of $7.1 million for the year ended December 31, 2011, increased $3.8 million, or 119%, from $3.2 million for the year ended December 31, 2010. Financial expenses for the year ended December 31, 2011 consisted of interest on bank loans ($5.0 million), commitment fees on undrawn portions of the our 2010 and 2011 Credit Facilities ($1.1 million ) and amortization of deferred financing fees ($1.0 million). Financial expenses for the year ended December 31, 2010 consisted of interest on bank loan ($2.4 million), which at the time only consisted of the 2010 Revolving Credit Facility, commitment fees on undrawn portions of our 2010 Revolving Credit Facility ($0.6 million) and amortization of deferred financing fees ($0.2 million).

Realized loss on derivative financial instruments. Realized loss on derivatives from our interest rate swap, was $0.3 million for the year ended December 31, 2010. The realized loss is the result of the settlement difference between contracted interest rates and the actual market interest rates (LIBOR). The interest rate swap, which was related to the 2005 Credit Facility and did not qualify for hedge accounting, was terminated on April 9, 2010.

Financial income. Interest income was $51,008 for the year ended December 31, 2011, an increase of $14,474 or 40% from the $36,534 for the year ended December 31, 2010. The increase was primarily due to an increase in our average cash balance during the period.

Other expenses, net. Other expense, net was a loss of $0.1 million for the year ended December 31, 2011, and a loss of $0.5 million for the year ended December 31, 2010. The decrease was primarily driven by expenses incurred for the initial public offering in April 2010.

Results of operations – segment analysis

Aframax/LR2 segment

The following table summarizes vessel operations for our Aframax segment.


*Aframax/LR2 segment*	For the year ended December 31,									Percentage
*In thousands of US dollars except per day and fleet data*	2011			2010			Change			Change
Vessel revenue	$	6,484		$	641		$	5,843			911	%
Vessel operating costs		(2,547	)		(427	)		(2,121	)		(497	%)
Charterhire		(839	)		—			(839	)		N/A
Impairment		(12,459	)		—			(12,459	)		N/A
Depreciation		(2,074	)		(293	)		(1,781	)		(607	%)
General and administrative expenses		(136	)		(15	)		(121	)		(819	%)
Financial expenses		(841	)		1			(842	)		108206	%
Other expense, net		(134	)		—			(134	)		N/A
Segment loss	$	(12,546	)	$	(93	)		(12,453	)		(13434	%)

Time charter revenue per day		15,457			—			15,457			N/A
Pool revenue per day		14,849			12,460			2,389			19	%
Operating costs per day		6,960			8,293			(1,333	)		(16	%)

Time charter revenue days		72			—			72			N/A
Pool revenue days		361			51			310			602	%
Operating days		365			51			314			609	%

Average number of owned vessels		1.00			0.14			0.86			609	%
Average number of time chartered-in vessels		0.19			—			0.19			N/A

On November 2010, we took delivery of STI Spirit , a 113,091 dwt Aframax/LR2 product tanker. From delivery on November 10, 2010 through January 11, 2011, STI Spirit operated in the Scorpio Aframax Tanker Pool, which traded a mix of crude and product tankers. As of March 25, 2011, this vessel joined the Scorpio LR2 Pool, which focuses solely on product tankers.

Vessel Revenue. Vessel revenue of $6.5 million for the year ended December 31, 2011, increased $5.8 million, or 911%, as the result of an increase in the overall number of total revenue days to 434 days in 2011 from 51 days in 2010. This was driven by the acquisition of STI Spirit . Additionally, we took delivery of the Khawr Aladid , a 2006 built LR2 product tanker (106,003 DWT), on October 24, 2011, on a six month time charter-in agreement.

Vessel operating costs. Vessel operating costs of $2.5 million for the year ended December 31, 2011, increased $2.1 million or 497% as a result of an increase in the number of operating days to 365 in 2011 from 51 2010 which was driven by the purchase of STI Spirit in November 2010.

Charterhire. Charterhire expense of $0.9 million for the year ended December 31, 2011 was driven by the delivery of Khawr Aladid , a 2006 built LR2 product tanker (106,003 DWT), on October 24, 2011, on a six month time charter-in agreement. There were no time chartered-in vessels in the Aframax/LR2 segment in 2010.

Impairment. In the year ended December 31, 2011, we recognized an impairment loss of $12.5 million for the Aframax/LR2 segment. No impairment was recognized in 2010.

Depreciation. Depreciation expense of $2.1 million for the year ended December 31, 2011 increased $1.8 million, or 607%, from $0.3 million for the year ended December 31, 2010. The increase is due to an increase in the number of operating days to 365 in 2011 from 51 in 2010 which was driven by the purchase of STI Spirit in November 2010.

General and administrative expense. General and administrative expense of $0.1 million for the year ended December 31, 2011, increased $0.1 million or 819% from $14,747 for the year ended December 31, 2010. General and administrative expenses for the Aframax/LR2 segment primarily consist of commercial management fees and administrative fees to SCM. The increase is due to an increase in the number of revenue days to 434 in 2011 from 51 2010 which was driven by the purchase of STI Spirit in November 2010 and delivery of Khawr Aladid in October 2011.

Financial expenses. Financial expenses was $0.8 million for the year ended December 31, 2011, an increase of approximately $0.8 million or 108,206% from $778 for year ended December 31, 2010. Financial expenses for the Aframax/LR2 segment represents interest for the STI Spirit Credit Facility which was signed and drawn in March 2011.

Other expense, net. Other expense, net was a loss of $0.1 million for the year ended December 31, 2011. There were no other expenses for the year ended December 31, 2010. This increase is primarily due to the write-off of vessel purchase options that were acquired as part of the purchase of STI Spirit in November 2010 and expired unexercised in September 2011.

Panamax/LR1 segment

The following table summarizes vessel operations for our Panamax segment


*Panamax/LR1 segment*	For the year ended December 31,									Percentage
*In thousands of US dollars except per day and fleet data*	2011			2010			Change			Change
Vessel revenue	$	31,101		$	29,345		$	1,756			6	%
Vessel operating costs		(14,428	)		(12,364	)		(2,064	)		(17	%)
Voyage expenses		(13	)		(253	)		240			95	%
Charterhire		(4,554	)		(276	)		(4,278	)		(1553	%)
Impairment		(28,616	)		—			(28,616	)		N/A
Depreciation		(9,279	)		(7,494	)		(1,786	)		(24	%)
General and administrative expenses		(692	)		(600	)		(91	)		(15	%)
Financial expenses		0			(134	)		134			100	%
Realized loss on derivative financial instruments		—			(280	)		280			N/A
Other expense, net		23			(4	)		27			616	%
Segment (loss)/profit	$	(26,458	)	$	7,940			(34,398	)		433	%

Time charter revenue per day		23,962			22,729			1,233			5	%
Pool revenue per day		12,876			15,213			(2,337	)		(15	%)
Voyage revenue per day		—			2,839			(2,839	)		N/A
Operating costs per day		7,891			8,189			(298	)		(4	%)

Time charter revenue days		355			854			(499	)		(58	%)
Pool revenue days		1,754			634			1,120			177	%
Voyage revenue days		—			10			(10	)		N/A
Operating days		1,825			1,510			315			21	%

Average number of owned vessels		5.00			4.14			0.86			21	%
Average number of time chartered-in vessels		0.91			0.05			0.86			1565	%

Vessel Revenue. Vessel revenue for the year ended December 31, 2011 was $31.1 million, an increase of $1.8 million, or 6% from $29.3 million for the year ended December 31, 2010. The increase in revenue was the result of an increase in the overall number of total revenue days to 2,109 days in 2011 from 1,498 days in 2010. This was driven by an increase in pool days of 1,120 offset by a decrease in time charter days of 499. STI Harmony and STI Heritage were acquired in June 2010 with existing time charter contracts that expired in September and December 2010, respectively. These, along with the time charter contracts with Noemi and Senatore comprised the time charter revenue for 2010. The time charter contract for Senatore expired in August 2010. The time charter arrangement for Noemi expired in December 2011 and was the only vessel in this segment on time charter during 2011. All of these vessels entered the Scorpio Panamax Tanker Pool subsequent to the expiration of the time charters.

As such, in 2011, five of our owned vessels and one of our time chartered-in vessels operated in the Scorpio Panamax Tanker Pool. In 2010, four of our owned vessels and one of our time chartered-in vessels operated in the Scorpio Panamax Tanker Pool. The increase was offset by an overall decrease in daily TCE rates to $12,876 per day in 2011, from $15,213 per day in 2010.

Vessel operating costs. Vessel operating costs of $14.4 million increased $2.1 million or 17%, as a result of an increase in the number of operating days to 1,825 in 2011 from 1,510 in 2010, which was driven by the purchase of STI Harmony and STI Heritage in June 2010 and therefore a full year of operation in 2011.

Voyage expenses. Voyage expenses of $13,383 decreased $0.2 million or 95% as a result of Senatore operating in the spot market for 10 days subsequent to the termination of its time charter agreement and prior to its entry in the Scorpio Panamax Tanker Pool.

Charterhire. Charterhire expense of $4.5 million for the year ended December 31, 2011 decreased $4.2 million or 1,553% from $0.3 million for the year ended December 31, 2010. The increase was due to BW Zambesi which was chartered-in for a total of 333 days in 2011 and 20 days in 2010 at a charterhire rate of $13,850 per day.

Impairment. In the year ended December 31, 2011, we recognized an impairment loss of $28.6 million for our owned Panamax/LR1 vessels. No impairment was recognized in 2010.

Depreciation. Depreciation expense of $9.3 million for the year ended December 31, 2011, increased by $1.8 million, or 24% from $7.5 million for the year ended December 31, 2010. The increase in depreciation expense was primarily due to an increase in our average number of owned vessels to 5.00 in 2011 from 4.14 in 2010. This increase was offset by the effect from a change in the depreciable life of our owned vessels from 20 to 25 years, which occurred in the second quarter of 2010, together with the effect of an increase in estimated residual values of our vessels.

General and administrative expense. General and administrative expense of $0.7 million for the year ended December 31, 2011, increased $0.1 million, or 15% from $0.6 million for the year ended December 31, 2010. General and administrative expenses for the Panamax/LR1 segment primarily consist of commercial management fees and administrative fees to SCM. The increase is the result of an increase in the average number of owned vessels to 5.00 in 2011 to 4.14 in 2010.

Financial expenses. Financial expenses were $0.1 million for the year ended December 31, 2010. Financial expenses for the Panamax/LR1 segment represent interest for the 2005 Credit Facility which was repaid in April 2010.

Realized loss on derivative financial instruments. Realized loss on derivative financial instruments was $0.3 million for the year ended December 31, 2010. The realized loss is the result of the settlement difference between contracted interest rates and the actual market interest rates (LIBOR) on an interest rate swap that was related to the 2005 Credit Facility, and was terminated on April 9, 2010.

MR Segment

The following table summarizes vessel operations for our MR segment. On May 10, 2011, we took delivery of STI Coral and STI Diamond and we did not have vessels operating in this segment in prior periods. As such, no further commentary has been provided in respect of this segment as a year-on-year comparison is not applicable.


*MR segment*	For the year ended December 31,
*In thousands of US dollars except per day and fleet data*	2011
Vessel revenue	$	12,287
Vessel operating costs		(3,178	)
Voyage expenses		(6,842	)
Impairment		(12,573	)
Depreciation		(2,038	)
General and administrative expenses		(314	)
Segment loss	$	(12,658	)

Voyage revenue per day		12,092
Operating costs per day		6,748

Voyage revenue days		450
Operating days		471

Average number of owned vessels		1.29

Handymax segment

The following table summarizes vessel operations for our Handymax segment.


*Handymax segment*	For the year ended December 31,
In thousands of US dollars except per day and fleet data	2011				2010		Change			Percentage Change

Vessel revenue	$	32,238		$	8,812		$	23,426			266	%
Vessel operating costs		(11,217	)		(5,650	)		(5,567	)		(99	%)
Voyage expenses		(26	)		(2,289	)		2,263			99	%
Charterhire		(17,357	)		—			(17,357	)		N/A
Impairment		(12,962	)		—			(12,962	)		N/A
Depreciation		(5,068	)		(2,390	)		(2,678	)		(112	%)
General and administrative expenses		(762	)		(267	)		(496	)		(186	%)
Financial expenses		—			1			(1	)		N/A
Segment loss	$	(15,155	)	$	(1,782	)		(13,373	)		(751	%)

Pool revenue per day		11,343			9,965			1,379			14	%
Voyage revenue per day		—			8,077			(8,077	)		N/A
Operating costs per day		7,619			8,107			(489	)		(6	%)

Pool revenue days		2,840			520			2,320			446	%
Voyage revenue days		—			167			(167	)		N/A
Operating days		1,460			697			763			109	%

Average number of owned vessels		4.00			1.91			2.09			109	%
Average number of time chartered-in vessels		3.85			—			3.85			N/A

Vessel Revenue. Vessel revenue for the year ended December 31, 2011 was $32.2 million, an increase of $23.4 million, or 266% from $8.8 million for the year ended December 31, 2010. This increase was the result of an increase in the overall number of total revenue days to 2,840 days in 2011 from 687 days in 2010. STI Conqueror was delivered in June 2010, STI Matador and STI Gladiator were delivered in July 2010 and STI Highlander was delivered in August 2010. These were the only vessels in the Handymax segment during the year ended December 31, 2010. We time chartered-in Krisjanis Valdemars, Kraslava, Histria Azure , Kazdanga , Histria Perla and Histria Coral during the year ended December 31, 2011. In addition, pool revenue per day increased 14% for the year ended December 31, 2011 when compared to the year ended December 31, 2010.

Vessel operating costs. Vessel operating costs for the year ended December 31, 2011 were $11.2 million, an increase of $5.6 million, or 99%from the year ended December 31, 2010. This was the result of an increase in the number of operating days to 1,460 from 697 for the years ended December 31, 2011 and 2010, respectively which was driven by the purchase of STI Conqueror in June 2010, STI Gladiator and STI Matador in July 2010 and STI Highlander in August 2010, all of which operated for a full year during 2011.

Voyage expenses. Voyage expenses for the year ended December 31, 2011 were $25,760, a decrease of $2.3 million, or 99% as a result of STI Conqueror , STI Gladiator , STI Matador and STI Highlander operating in the spot market for 167 days in during the year ended December 31, 2010. No vessels operated in the spot market during the year ended December 31, 2011 though certain nominal voyage charges were incurred.

Charterhire. Charterhire for the year ended December 31, 2011 was $17.4 million, an increase of $17.4 million from the year ended December 31, 2010. The increase was the result of the chartering-in of Krisjanis Valdemars, Kraslava, Histria Azure , Kazdanga, Histria Perla and Histria Coral during the year ended December 31, 2011. There were no vessels chartered-in during the year ended December 31, 2010.

Impairment. In the year ended December 31, 2011, we recognized an impairment loss of $13.0 million for our owned Handymax. No impairment was recognized in 2010.

Depreciation. Depreciation expense for the year ended December 31, 2011 was $5.0 million, an increase of $2.7 million, or 112% from the year ended December 31, 2010. This increase was a result of an increase in our average number of owned Handymax vessels to 4.00 from 1.91 for the years ended December 31, 2011and 2010, respectively.

General and administrative expense. General and administrative expense for the year ended December 31, 2011 was $0.8 million, an increase of $0.5 million, or 186%, from the year ended December 31, 2010. General and administrative expenses for the Handymax segment primarily consists of commercial management fees and administrative fees to SCM. The increase is the result of an increase in the average number of owned and time chartered-in vessels to 7.85 from 1.91 for the years ended December 31, 2011 and 2010, respectively.


B.	Liquidity and Capital Resources

Our primary source of funds for our short-term and long-term liquidity needs will be the cash flows generated from our vessels, which are currently operating in Scorpio Group Pools or in the spot market, in addition to availability under our 2010 Revolving Credit Facility, 2011 Credit Facility, 2013 Credit Facility (as defined later), which will be used for the partial financing of newbuildings to be delivered after the first quarter of 2014, and cash on hand. The Scorpio Group Pools reduce volatility because (i) they aggregate the revenues and expenses of all pool participants and distribute net earnings to the participants based on an agreed upon formula and (ii) some of the vessels in the pool are on time charter. Furthermore, spot charters provide flexibility and allow us to fix vessels at prevailing rates. We believe these cash flows from operations, amounts available under our various credit facilities and our cash balance will be sufficient to meet our existing liquidity needs for the next 12 months from the date of this annual report.

As of December 31, 2012, our cash balance was $87.2 million, which is an increase from our cash balance of $36.8 million as of December 31, 2011. Additionally, at December 31, 2012 we had $67.4 million in availability under our 2010 Revolving Credit Facility. The increase in cash balance was primarily due to net proceeds from the sales of STI Conqueror, STI Matador, STI Gladiator , STI Coral and STI Diamond , drawdowns on various credit facilities, and proceeds from registered direct placements of common shares in April 2012 and December 2012. These increases were offset by bank loan repayments and payments related to our newbuilding vessels.

For the year ended December 31, 2012, our net cash outflow from operating activities was $1.9 million, our net cash outflow from investing activities was $90.2 million and the net cash inflow from financing activities was $142.4 million. For the year ended December 31, 2011, our net cash outflow from operating activities was $12.5 million, our net cash outflow from investing activities was $122.6 million, and the net cash inflow from financing activities was $103.7 million.

As of December 31, 2012, our long-term liquidity needs were comprised of our debt repayment obligations for our credit facilities, our obligations for our vessels under construction, and obligations under our charter-in arrangements.

Our credit facilities require us to comply with a number of covenants, including financial covenants related to liquidity, consolidated net worth, minimum interest coverage, maximum leverage ratios, loan to value ratios and collateral maintenance; delivery of quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws (including environmental); compliance with the Employee Retirement Income and Security Act, or ERISA; maintenance of flag and class of the initial vessels; restrictions on consolidations, mergers or sales of assets; approvals on changes in the manager of the vessels; limitations on liens; limitations on additional indebtedness; prohibitions on paying dividends if a covenant breach or an event of default has occurred or would occur as a result of payment of a dividend; prohibitions on transactions with affiliates; and other customary covenants.

No vessels are scheduled to be drydocked within the next 12 months.

Cash Flows

The table below summarizes our sources and uses of cash for the periods presented:


	For the year ended December 31,
*In thousands of US dollars*	2012			2011			2010
Condensed Cash Flows
Net cash inflow/(outflow)
Operating activities	$	(1,928	)	$	(12,452	)	$	4,907
Investing activities		(90,155	)		(122,573	)		(245,595	)
Financing activities		142,415			103,671			308,431

For the Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011

Net cash outflow from operating activities

Net cash outflow from operating activities was $1.9 million for the year ended December 31, 2012, which was an increase of $10.5 million from a cash outflow of $12.5 million the year ended December 31, 2011. The increase was primarily attributable to (i) an increase in vessel revenue of $33.3 million (ii) a decrease in vessel operating costs of $1.0 million (iii) earnings from profit or loss arrangements of $0.4 million (iv) a decrease in drydock payments of $0.8 million (v) changes in working capital movements of $9.1 million and (vi) a decrease in financial expenses of $1.7 million (excluding non-cash items such as deferred financing fee amortization). These changes were offset by (i) an increase in voyage expenses of $14.9 million and (ii) an increase in charterhire expense of $21.0 million.

Net cash outflow from investing activities

Cash outflow from investing activities was $90.2 million for the year ended December 31, 2012 compared to net cash outflows of $122.6 million for the year ended December 31, 2011. Investment activity during the year ended December 31, 2012 was driven by payments on our newbuilding vessels of $191.5 million (including capitalized costs). This was offset by the sales of STI Conqueror , STI Matador , STI Gladiator, STI Coral and STI Diamond for aggregate net proceeds of $101.3 million.

Cash outflow from investing activities was $122.6 million for the year ended December 31, 2011. Investment activity during the year ended December 31, 2011 was driven by the purchase of STI Coral and STI Diamond for an aggregate purchase price of $71.0 million (including a 1% commission paid to Liberty, our related party Administrator at that time, along with other capitalized costs). Additionally, as of December 31, 2011, we had made payments of $51.0 million relating to our newbuilding vessels under construction at HMD.

Net cash inflow from financing activities

Cash provided by financing activities was $142.4 million for the year ended December 31, 2012 compared to cash provided by financing activities of $103.7 million for the year ended December 31, 2011. Financing activities during the year ended December 31, 2012 were driven by the receipt of net proceeds of $153.1 million from two registered direct placements of common shares in April and December 2012, borrowings of $32.2 million under our 2010 Revolving Credit Facility, and borrowings of $92.0 million under our Newbuilding Credit Facility. These inflows were offset by repayments of $106.0 million into the 2010 Revolving Credit Facility, principal payments of $2.8 million into the STI Spirit Credit Facility, $18.2 million into the 2011 Credit Facility (of which $16.1 million was the repayment made as a result of the sale of STI Coral ) and $2.1 million into the Newbuilding Credit Facility. Cash outflows from financing activities also include the acquisition of treasury shares of $2.4 million and debt issuance costs of $3.3 million.

Financing activities during the year ended December 31, 2011 were driven by net proceeds of $68.5 million from an underwritten public offering of common shares in May 2011, net proceeds of $36.5 million from an underwritten public offering of common shares in November 2011, borrowings of $35.0 million under the 2011 Credit Facility, borrowings of $27.3 million under the STI Spirit Credit Facility, and borrowings of $53.0 million under the 2010 Revolving Credit Facility. These inflows were offset by payments of $99.0 million into the 2010 Revolving Credit Facility, principal payments on all of our credit facilities of $10.6 million, payment of debt issuance cost of $4.1 million under the 2011 Credit Facility, STI Spirit Credit Facility and the 2010 Revolving Credit Facility along with $2.9 million of costs related to the repurchase of our common shares.

For the Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010

Cash inflow/(outflow) from operating activities

Net cash outflow operating activities was $12.5 million for the year ended December 31, 2011, which was a decrease of $17.4 million from the year ended December 31, 2010. The decrease was primarily attributable to (i) an increase in vessel operating costs of $12.9 million, (ii) an increase in voyage expenses of $4.3 million, (iii) an increase in charterhire expense of $22.5 million, (iv) an increase in general and administrative expenses of $4.4 million (excluding non-cash items), (v) a net increase in interest expense of $3.8 million, (vi) a net increase in working capital movements of $11.5 million, (vii) a decrease in receipts from shareholders of $1.9 million, and (viii) an increase in drydock payments of $1.5 million. These decreases were partially offset by (i) an increase in vessel revenue of $43.3 million, (ii) a decrease in other expenses of $0.4 million and (iii) a decrease in interest rate swap termination payments of $1.9 million.

Cash outflow from investing activities

Cash outflow from investing activities was $122.6 million for the year ended December 31, 2011 compared to $245.6 million for the year ended December 31, 2010. Investment activity during the year ended December 31, 2011 was driven by the purchase of STI Coral and STI Diamond for an aggregate purchase price of $71.0 million (including a 1% commission paid to Liberty, our related party Administrator (at that time), along with other capitalized costs). Additionally, we entered into agreements with HMD for the construction of a total of six newbuilding vessels as of December 31, 2011 for an aggregate purchase price of $223.4 million of which, $51.0 million was paid as of that date. The first five newbuilding vessels were delivered to us in third quarter of 2012 and the sixth newbuilding vessel was delivered in January 2013.

Investment activity during the year ended December 31, 2010 was driven by the purchase of seven product tankers during the period. Two of the tankers, STI Harmony and STI Heritage, are LR1 ice class 1A sister ships and were acquired for an aggregate purchase price of $92.9 million (including a 1% commission paid to Liberty, a related party), which included $2.3 million related to the value of the existing time charter contracts. Four of the other vessels, STI Conqueror , STI Matador , STI Gladiator and STI Highlander are Handymax vessels that were acquired for $100.0 million in aggregate (including a 1% commission paid to Liberty, our related party Administrator). The last vessel, STI Spirit was acquired for $52.7 million which included $0.1 million related to the value of purchase options on two additional vessels which expired unexercised in September 2011.

Cash inflow from financing activities

Cash inflow from financing activities was $103.7 million for the year ended December 31, 2011 compared to $308.4 million for the year ended December 31, 2010. Financing activity during the year ended December 31, 2011 was driven by net proceeds of $68.5 million from an underwritten public offering in May 2011, net proceeds of $36.5 million from an underwritten public offering in November 2011, borrowings of $35.0 million under the 2011 Credit Facility, borrowings of $27.3 million under the STI Spirit Credit Facility, and borrowings of $53.0 million under the 2010 Revolving Credit Facility offset by payments of $99.0 million into the 2010 Revolving Credit Facility, principal payments on all of our credit facilities of $10.6 million, payment of deferred financing fees of $4.1 million under the 2011 Credit Facility, STI Spirit Credit Facility and the 2010 Revolving Credit Facility along with $2.9 million of costs related to the repurchase of our common shares. Financing activity during the year ended December 31, 2010 was driven from our initial public offering of $154.8 million and $150.0 million of borrowings under the 2010 Revolving Credit Facility, which were offset by principal payments of $4.8 million under the 2010 Revolving Credit Facility, the repayment of $39.8 million under the 2005 Credit Facility, $2.6 million of costs related to the repurchase of our common shares and the payment of deferred financing fees of $2.2 million under the 2010 Revolving Credit Facility.

Long-Term Debt Obligations and Credit Arrangements

2005 Credit Facility

Two of our wholly-owned subsidiaries, Senatore Shipping Company Limited and Noemi Shipping Company Limited, were joint and several borrowers under a loan agreement dated May 17, 2005, or the 2005 Credit Facility, entered into with The Royal Bank of Scotland plc, as lender, which was secured by, among other things, a first preferred mortgage over each of Senatore and Noemi . The initial amount of the 2005 Credit Facility was $56.0 million and consisted of two tranches, one for each vessel-owning subsidiary. On April 9, 2010, we repaid the outstanding balance of $38.9 million with a portion of the proceeds from our initial public offering.

2010 Revolving Credit Facility

On June 2, 2010, we executed a credit facility with Nordea Bank Finland plc, acting through its New York branch, DNB Bank ASA, acting through its New York branch, and ABN AMRO Bank N.V, for a senior secured term loan facility of up to $150 million. On July 12, 2011, we amended and restated the credit facility to convert it from a term loan to a reducing revolving credit facility. This gave us the ability to pay down and re-borrow from the total available commitments under the loan.

In March, April and May 2012, we sold three of our Handymax vessels, STI Conqueror for $21.0 million, STI Gladiator for $16.2 million, and STI Matador for $16.2 million. The availability of the 2010 Revolving Credit Facility permanently decreased by $31.0 million as a result of these vessel sales. Commitments are now reduced by $3.1 million each quarter, with a lump sum reduction of $39.9 million at the maturity on June 2, 2015. Our subsidiaries that own the vessels that are collateralized by the 2010 Revolving Credit Facility act as guarantors under the amended and restated credit facility. All terms mentioned are defined in the agreement.

Drawdowns under the credit facility bear interest as follows: (1) through December 29, 2011, at LIBOR plus an applicable margin of 3.00% per annum when our debt to capitalization (total debt plus equity) ratio is equal to or less than 50% and 3.50% per annum when our debt to capitalization ratio is greater than 50%; (2) from December 30, 2011 through September 30, 2013, at LIBOR plus an applicable margin of 3.50% per annum; and (3) from October 1, 2013 and at all times thereafter, at LIBOR plus an applicable margin of 3.25% per annum when our debt to capitalization (total debt plus equity) ratio is equal to or less than 50% and 3.50% per annum when our debt to capitalization ratio is greater than 50%. A commitment fee equal to 40% of the applicable margin is payable on the unused daily portion of the credit facility. The credit facility matures on June 2, 2015 and can only be used to refinance amounts outstanding from the original loan agreement and for general corporate purposes.

The credit facility requires that we comply with a number of covenants, including financial covenants; delivery of quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws (including environmental); compliance with ERISA; maintenance of flag and class of the initial vessels; restrictions on consolidations, mergers or sales of assets; approval on changes in the Manager of our initial vessels; limitations on liens; limitations on additional indebtedness; prohibitions on paying dividends if a covenant breach or an event of default has occurred or would occur as a result of payment of a dividend; prohibitions on transactions with affiliates; and other customary covenants.

The financial covenants require us to maintain:


•	The ratio of net debt to capitalization no greater than 0.60 to 1.00.

•	Consolidated tangible net worth no less than $150 million plus 25% of cumulative positive net income (on a consolidated basis) for each fiscal quarter beginning on July 1, 2010 and 50% of the value of any new equity issues from July 1, 2010 going forward.

•	The ratio of EBITDA to interest expense no less than 1.25 to 1.00 commencing with the fourth fiscal quarter of 2011 until the fourth quarter of 2012, at which point the ratio will increase to: (i) 1.50 to 1.00 for the first quarter of 2013, (ii) 1.75 to 1.00 for the second quarter of 2013 and (iii) 2.00 at all times thereafter. Such ratio shall be calculated quarterly on a trailing four quarter basis. In addition, we are restricted from paying dividends until our EBITDA to interest expense ratio is 2.00 to 1.00 or greater. EBITDA, as defined in the loan agreement, excludes non-cash charges such as impairment.

•	Consolidated liquidity (cash, cash equivalents, and availability under the 2010 Revolving Credit Facility) not less than $25 million, of which unrestricted cash and cash equivalents shall be not less than $15.0 million, until we owns, directly or indirectly, more than 15 vessels, at which time the amount increases by $750,000 per each additional vessel.

•	The aggregate fair market value of the collateral vessels shall at all times be no less than 150% of the then aggregate outstanding principal amount of loans under the credit facility.

As of December 31, 2012 and December 31, 2011 the outstanding balance was $17.2 million and $91.0 million, respectively, and the amount available to be drawn was $67.4 million and $37.9 million, respectively. We were in compliance with the financial covenants relating to this facility as of December 31, 2012.

STI Spirit Credit Facility

On March 9, 2011, we executed a credit facility with DVB Bank SE for a senior secured term loan facility of $27.3 million for STI Spirit , which was acquired on November 10, 2010. The credit facility was drawn down on March 17, 2011 and matures on March 17, 2018. On September 28, 2011 and on December 30, 2011, we amended certain financial covenants contained in the credit facility. The loan bears interest at LIBOR plus a margin of 2.75% per annum. The loan is repayable over 28 equal quarterly installments and a lump sum payment at maturity. The quarterly installments commenced three months after the drawdown and were calculated using an 18 year amortization profile. Our subsidiary, STI Spirit Shipping Company Limited, which owns the vessel, is the borrower and Scorpio Tankers Inc. is the guarantor. The credit facility requires us to comply with a number of covenants, including financial covenants; delivery of quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws (including environmental); compliance with ERISA; maintenance of flag and class of the vessel; restrictions on consolidations, mergers or sales of assets; approval of changes in the Manager of our vessels; limitations on liens; limitations on additional indebtedness; prohibitions on paying dividends if a covenant breach or an event of default has occurred or would occur as a result of payment of a dividend; prohibitions on transactions with affiliates; and other customary covenants.

The financial covenants of the credit facility are described below. On September 28, 2011, we executed an amendment modifying the EBITDA to interest expense financial covenant. On December 30, 2011, we entered into a first amendatory agreement modifying certain other financial covenants.

The financial covenants require us to maintain:


•	The ratio of debt to capitalization no greater than 0.60 to 1.00.

•	Consolidated tangible net worth no less than $150 million plus 25% of cumulative positive net income (on a consolidated basis) for each fiscal quarter.


•	The ratio of EBITDA to interest expense shall be no less than 1.25 to 1.00 for the period commencing with the fourth quarter of 2011 through the fourth quarter of 2012, at which time it will increase to: (i) 1.50 to 1.00 for the first quarter of 2013, (ii) 1.75 to 1.00 for the second quarter of 2013 and (iii) 2.00 to 1.00 at all times thereafter. Such ratio shall be calculated quarterly on a trailing four quarter basis. In addition, we are restricted from paying dividends until our EBITDA to interest expense ratio is 2.00 to 1.00 or greater. EBITDA, as defined in the loan agreement, excludes non-cash charges such as impairment.

•	Consolidated liquidity (cash, cash equivalents, and availability under the 2010 Revolving Credit Facility) not less than $25 million, of which unrestricted cash and cash equivalents shall be not less than $15.0 million, until we own, directly or indirectly, more than 15 vessels, at which time the amount increases by $750,000 per each additional vessel.

•	The aggregate fair market value of STI Spirit not less than (i) 140% of the then outstanding loan balance if the vessel is operating in a pool or in the spot market or (ii) 130% of the then outstanding loan if the vessel is on time charter with a duration of at least one year.

As described above, our STI Spirit Credit Facility requires that the charter-free market value of the STI Spirit shall be no less than 140% of the then outstanding loan balance. In order to stay in compliance with this covenant, we made prepayments of $0.8 million in June, 2012, and $1.3 million in December 2012 which will be applied to the next four quarterly payments.

As of December 31, 2012 the outstanding balance on this facility was $23.4 million, which includes a reduction for the prepayments discussed above. We were in compliance with the financial covenants relating to this facility as of December 31, 2012

2011 Credit Facility

On May 3, 2011, we executed a credit facility with Nordea Bank Finland plc, acting through its New York branch, DNB NOR Bank ASA, acting through its New York branch, and ABN AMRO Bank N.V., for a senior secured term loan facility of up to $150 million. On September 22, 2011 and December 22, 2011 we amended the loan agreement to extend the availability period and we amended the margin and certain financial covenants. On July 20, 2012, we extended the availability period of the 2011 Credit Facility until January 31, 2014 which was previously scheduled to expire in May 2013. As a result of this amendment, we wrote-off $3.0 million in deferred financing fees within Financial Expenses in our consolidated financial statements attached hereto.

Borrowings under this credit facility are available until January 31, 2014. Drawdowns under the credit facility bear interest as follows: (1) until December 29, 2011, at LIBOR plus an applicable margin of (i) 2.75% per annum when our debt to capitalization (total debt plus equity) ratio is less than 45%, (ii) 3.00% per annum when our debt to capitalization ratio is greater than or equal to 45% but less than or equal to 50% and (iii) 3.25% when our debt to capitalization ratio is greater than 50%; (2) from December 30, 2011 through September 30, 2013, at LIBOR plus an applicable margin of 3.50% per annum and (3) from October 1, 2013 and at all times thereafter, at LIBOR plus an applicable margin of (i) 3.25% per annum when our debt to capitalization (total debt plus equity) ratio is equal to or less than 50% and (ii) 3.50% per annum when our debt to capitalization ratio is greater than 50%. A commitment fee equal to 40% of the applicable margin is payable on the unused daily portion of the credit facility. The credit facility matures on May 3, 2017 and can only be used to finance up to 50% of the cost of future vessel acquisitions, which vessels would be the collateral for the credit facility.

Borrowings for each vessel financed under this facility represent a separate tranche, with repayment terms dependent on the age of the vessel at acquisition. Each tranche under the new credit facility is repayable in equal quarterly installments, with a lump sum payment at maturity, based on a full repayment of such tranche when the vessel to which it relates is sixteen years of age. Our subsidiaries, which may at any time, own one or more of our vessels, will act as guarantors under the credit facility.

consolidations, mergers or sales of assets; approvals on changes in the Manager of our initial vessels; limitations on liens; limitations on additional indebtedness; prohibitions on paying dividends if a covenant breach or an event of default has occurred or would occur as a result of payment of a dividend; prohibitions on transactions with affiliates; and other customary covenants.


	The financial covenants require us to maintain:

•	The ratio of net debt to capitalization no greater than 0.60 to 1.00.

•	Consolidated tangible net worth not less than $150 million plus 25% of cumulative positive net income (on a consolidated basis) for each fiscal quarter from July 1, 2010 going forward and 50% of the value of any new equity issues from July 1, 2010 going forward.

•	The ratio of EBITDA to interest expense not less than 1.25 to 1.00 commencing with the fourth fiscal quarter of 2011 until the fourth quarter of 2012, at which point it will increase to: (i) 1.50 to 1.00 for the first quarter of 2013, (ii) 1.75 to 1.00 for the second quarter of 2013 and (iii) 2.00 to 1.00 at all times thereafter. Such ratio shall be calculated quarterly on a trailing four quarter basis. In addition, we are restricted from paying dividends until our EBITDA to interest expense ratio is 2.00 to 1.00 or greater. EBITDA, as defined in the loan agreement, excludes non-cash charges such as impairment.

•	Consolidated liquidity (cash, cash equivalents, and availability under the 2010 Revolving Credit Facility) not less than $25 million, of which unrestricted cash and cash equivalents shall be not less than $15.0 million, until we own, directly or indirectly, more than 15 vessels, at which time the amount increases by $750,000 per each additional vessel.

•	The aggregate fair market value of the collateral vessels shall at all times be no less than 150% of the then aggregate outstanding principal amount of loans under the credit facility.

In August 2012, we sold STI Diamond and in September 2012, STI Coral for an aggregate amount of $50.5 million. A portion of the proceeds from the sale of STI Coral was used to repay $16.1 million of debt outstanding on the 2011 Credit Facility. STI Onyx , a newbuilding vessel which was delivered to us in September 2012, was substituted as collateral under the 2011 Credit Facility on the outstanding borrowings related to STI Diamond .

The outstanding balance on this facility at December 31, 2012 and December 31, 2011 was $15.5 million and $33.6 million, respectively. At December 31, 2012, there was $115.0 million available for borrowing which may be used to finance up to 50% of future vessel acquisitions.

In January 2013, we drew down $17.0 million in connection with the delivery of the sixth vessel in our Newbuilding Program, STI Sapphire . In March 2013, we drew down $17.4 million in connection with the delivery of the seventh vessel in our Newbuilding Program, STI Emerald . As of the date of this annual report, there was $49.9 million outstanding under this facility and $80.6 million available for borrowing which can be used to finance up to 50% of future vessel acquisitions.

We were in compliance with the financial covenants relating to this facility as of December 31, 2012.

Newbuilding Credit Facility

On December 21, 2011, we executed a credit facility agreement with Credit Agricole Corporate and Investment Bank and Skandinaviska Enskilda Banken AB for a senior secured term loan facility of up to $92.0 million. During the year ended December 31, 2012, we drew down an aggregate of $92.0 million from this facility to partially finance the deliveries of STI Amber, STI Topaz, STI Ruby and STI Garnet ($23.0 million per vessel). These vessels are owned individually by certain of our subsidiaries, who together are the borrowers under this credit facility, and Scorpio Tankers Inc. is the guarantor. Borrowings under the credit facility bear interest at LIBOR plus an applicable margin of 2.70% per annum. A commitment fee equal to 1.10% per annum is payable on the unused daily portion of the credit facility.

The facility is separated into four tranches (one tranche per vessel) and the four vessels are collateral for the credit facility. The repayment of the tranche relating to the respective vessel commenced after delivery of that vessel in quarterly installments of $375,000, which equates to a repayment profile of 15.33 years. Each tranche is scheduled to mature approximately seven years after delivery of the relevant vessel from the shipyard.

The credit facility requires us to comply with a number of covenants, including financial covenants; delivery of quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws (including environmental); compliance with ERISA; maintenance of flag and class of the initial vessels; restrictions on consolidations, mergers or sales of assets; approvals on changes in the Manager of our initial vessels; limitations on liens; limitations on additional indebtedness; prohibitions on paying dividends if a covenant breach or an event of default has occurred or would occur as a result of payment of a dividend; prohibitions on transactions with affiliates; and other customary covenants.


	The financial covenants require us to maintain:

•	The ratio of debt to capitalization no greater than 0.60 to 1.00.

•	Consolidated tangible net worth not less than $150 million plus 25% of cumulative positive net income (on a consolidated basis) for each fiscal quarter from July 1, 2010 going forward and 50% of the value of any new equity issues from July 2, 2010 going forward.

•	The ratio of EBITDA to interest expense not less than 2.00 to 1.00 commencing with the third fiscal quarter of 2011 until the fourth quarter of 2012, and 2.50 to 1.00 for all times thereafter. Such ratio shall be calculated quarterly on a trailing four quarter basis. EBITDA, as defined in the loan agreement, excludes non-cash charges such as impairment.

•	Unrestricted cash and cash equivalents not less than $15.0 million, until we owns, directly or indirectly, more than 15 vessels, at which time the amount increases by $750,000 per each additional vessel.

•	The aggregate fair market value of the collateral vessels shall at all times not less than 140% (120% if the vessel is subject to acceptable long term employment) of the aggregate principal amount outstanding plus a pro rata amount of any allocable swap exposure for the credit facility.

As of December 31, 2012, the outstanding balance on this facility was $89.8 million and the facility was fully drawn.

We had no borrowings outstanding under this facility at December 31, 2011. We were in compliance with the financial covenants relating to this facility as of December 31, 2012.

2013 Credit Facility

The 2013 Credit Facility is expected to consist of a $114.0 million delayed draw term loan facility and a $153.0 million revolving credit facility. The 2013 Credit Facility is expected to be secured by, among other things, a first-priority cross-collateralized mortgage on certain vessels for which we have entered into newbuilding contracts, or the Firm Vessels, and certain vessels for which we may exercise construction options, or the Option Vessels, and together with the Firm Vessels, the Collateral Vessels. Our subsidiaries that own the Collateral Vessels are expected to act as joint and several guarantors under the 2013 Credit Facility.

A single drawdown of the term loan may occur in connection with the delivery of each Firm Vessel in an amount equal to the lesser of 60% of (i) the loan amount allocated for such vessel or (ii) its fair market value. The initial drawdown of each revolving loan may occur in connection with the delivery of an Option Vessel and is similarly capped at the lesser of 60% of the loan amount or fair market value, with such amount, once drawn, available on a revolving basis. Drawdowns under the term loan are expected to be available until January 31, 2015 and drawdowns under the revolving loan are expected to be available until July 31, 2015 and each will bear interest at LIBOR plus an applicable margin of 3.50%.

Under the terms outlined in the commitment letter, the term loan shall be repaid and the revolving loans reduced, in each case, in an amount equal to 1/60 ^th of such loan on a consecutive quarterly basis until final maturity on the sixth anniversary of the facility.

In addition to restrictions imposed upon the owners of the Collateral Vessels (such as, limitations on liens and limitations on the incurrence of additional indebtedness), the 2013 Credit Facility is expected to include financial covenants that require us to maintain:


	•	minimum liquidity of at least the greater of $25 million or 5% of total indebtedness;

	•	a consolidated tangible net worth no less than (i) $150 million plus 25% of cumulative positive net income (on a consolidated basis) for each fiscal quarter beginning on July 1, 2010 and (ii) 50% of the value of any new equity issues from July 1, 2010 going forward.

	•	a ratio of net debt to total capitalization no greater than 0.60 to 1.00.

	•	a ratio of EBITDA to net interest expense greater than 2.00 to 1.00 through September 30, 2013 and 2.50 to 1.00 thereafter.

	•	the aggregate fair market value of the Collateral Vessels shall at all times be no less than 140% of the then aggregate outstanding principal amount of loans under the credit facility.

Our ability to close the 2013 Credit Facility and our ability to draw down on the facility are each subject to usual and customary conditions precedent, including the negotiation and execution of final documentation.

Derivative Contracts

Interest Rate Swaps

In August 2011, we entered into six interest rate swap agreements with three different banks to manage the interest costs and the risk associated with changing interest rates on our 2010 Revolving Credit Facility and 2011 Revolving Credit Facility. The notional amount of the swaps relating to the 2010 Revolving Credit Facility is $51.0 million with an average fixed rate of 1.27% starting on July 2, 2012 and expiring on June 2, 2015. The notional amount of the swaps relating to the 2011 Credit Facility was $24.0 million with an average fixed rate of 1.30% starting on July 2, 2012 and expiring on June 30, 2015.

In August and September 2012, we completed the sales of STI Coral and STI Diamond , respectively and as a result, we reduced the notional amount on the interest rate swaps relating to the 2011 Credit Facility to $15.0 million from $24.0 million in aggregate. As a result of the reduction, we recognized a loss of $0.2 million which was reclassified out of other comprehensive loss into the statement of profit or loss and recorded as a component of loss on sale of vessels.

In December 2012, we raised net proceeds of $127.2 million from a registered direct placement of common shares and as part of the use of proceeds of this offering, we voluntarily repaid $50.0 million into our 2010 Revolving Credit Facility. After the payment, we had $17.2 million of debt outstanding under the 2010 Revolving Credit Facility, which is less than the total notional amount of $51.0 million for the three interest rate swaps related to the facility. As such, the swaps related to the 2010 Revolving Credit Facility no longer met the criteria for hedge accounting and we therefore de-designated the hedge relationship prospectively and reclassified all amounts accumulated in other comprehensive income ($1.0 million) to the statement of profit or loss for the year ended December 31, 2012 as a component of Financial Expenses.

The interest rate swaps relating to the 2011 Credit Facility continue to qualify for hedge accounting. Hedge effectiveness is measured quarterly. Accordingly, changes in their fair value, which the hedge is deemed to be effective, are recognized directly in other comprehensive income and classified as ‘hedging reserves’. Changes in their fair value for any portion deemed to be ineffective are recognized in the consolidated statement of profit or loss. The fair market value of the interest rate swaps relating to both the 2010 Revolving Credit Facility and 2011 Credit Facility at December 31, 2012 and December 31, 2011 was a liability of $1.4 million and $0.7 million, respectively.

Profit or loss sharing agreements

In July 2012, we entered into a profit or loss sharing arrangement on the earnings of an LR1 vessel that is not owned or operated by us. Under the agreement, 50% of the profits and losses will be shared with the counterparty. The counterparty to this agreement was time chartering-in this vessel for a period of six months at $12,750 per day and this agreement expired in January 2013.

In September 2012, we took delivery of an LR1, FPMC P Eagle, on a time charter-in arrangement for one year at $12,800 per day. We also entered into a profit and loss sharing arrangement whereby 50% of the profits and losses relating to this vessel above or below the charterhire rate will be shared with a third party that neither owns nor operates this vessel.

These agreements are being treated as derivatives, recorded at fair value with any resultant gain or loss recognized in the statement of profit or loss. Changes in fair value are recorded as unrealized gains and losses on derivative financial instruments and actual earnings are recorded as earnings from profit or loss agreements, within the consolidated statement of profit or loss. The fair value of instrument is determined by comparing published time charter rates to the charterhire rate and discounting those cash flows to their estimated present value.

For the year ended December 31, 2012, we recognized earnings of $0.4 million and an unrealized loss of $0.2 million. There were no similar arrangements in 2011.

Equity

On April 6, 2010, we closed the issuance of 12,500,000 shares of common stock at $13.00 per share in our initial public offering and received net proceeds of $149.6 million, after deducting underwriters’ discounts and offering expenses.

On May 4, 2010, pursuant to the underwriters’ exercise of their over-allotment option that we granted in connection with our initial public offering, we closed the issuance of 450,000 shares of common stock at $13.00 and received $5.2 million, after deducting underwriters’ discounts.

On November 22, 2010, we closed on a follow-on public offering of 4,575,000 shares of common stock at $9.80 per share. After deducting underwriters’ discounts and paying offering expenses, the net proceeds were $41.8 million, and 510,204 shares were issued in a concurrent private placement to a member of the Lolli-Ghetti family for total proceeds of $5.0 million. On December 2, 2010, we closed the issuance of 686,250 shares of common stock at $9.80 and received $6.4 million, after deducting underwriters’ discounts, when the underwriters in our follow-on public offering fully exercised their over-allotment option.

On May 18, 2011, we closed on a follow-on public offering of 6,000,000 shares of common stock and also closed on the underwriters’ over-allotment option to purchase 900,000 additional common shares at an offering price of $10.50 per share. We received net proceeds of $68.5 million, after deducting underwriters’ discounts and offering expenses.

On December 6, 2011, we closed on a follow-on public offering of 7,000,000 shares of common stock at an offering price of $5.50 per share. We received net proceeds of $36.5 million, after deducting underwriters’ discounts and estimated offering expenses.

In April 2012, we closed on the sale of 4,000,000 shares of common stock in a registered direct placement of common shares at an offering price of $6.75 per share. We received net proceeds of $25.9 million, after deducting the placement agents’ discount and offering expenses.

In March 2013, we closed on the sale 29,012,000 shares of common stock in a registered direct placement of common shares at an offering price of $8.10 per share. We received net proceeds of $226.7 million, after deducting placement agents’ discounts and offering expenses.

CAPITAL EXPENDITURES

Vessel acquisitions

Since June 2011, we have entered into agreements to construct 40 fuel efficient newbuilding product tankers with shipyards including HMD, SPP, HSHI and DSME, which we refer to as our Newbuilding Program. As of the date of this annual report, seven of the vessels in our Newbuilding Program have been delivered to us. We currently have contracts for the construction of 33 vessels, consisting of 11 MR product tankers with HMD for an aggregate purchase price of $368.6 million, eight MR product tankers with SPP for an aggregate purchase price of $267.0 million, six Handymax ice class-1A tankers with HMD for an aggregate purchase price of $187.5 million, six LR2 product tankers with HSHI for an aggregate purchase price of $303.0 million and two LR2 product tankers with DSME for an aggregate purchase price of $100.0 million.

One of the vessels in our Newbuilding Program is expected to be delivered to us by April 2013 and the remaining 32 within 2014.

We made $152.5 million of instalment payments during the first quarter of 2013, which includes $44.2 million in aggregate for the delivery instalment payments on STI Sapphire in January 2013 and STI Emerald in March 2013. Our remaining commitments under all newbuilding vessel agreements as of the date of this report, including the above mentioned vessels are as follows*:


Q2 2013	$	41.6	million
Q3 2013		114.3	million
Q4 2013		74.1	million
Q1 2014		77.6	million
Q2 2014		302.0	million
Q3 2014		241.0	million
Q4 2014		250.9	million
Total	$	1,101.5	million

*These are estimates only and are subject to change as construction progresses.

As of the date of this annual report, we have paid $124.7 million of installment payments related to the newbuilding product tankers that we have contracted to purchase, and are committed to make additional installment payments of $1,101.5 million. We will need to secure additional debt or equity financing or both in addition to our 2013 Credit Facility to fully fund the remaining balance of our newbuilding obligations.

Vessel disposals

We also completed the sales of two MR product tankers, STI Diamond and STI Coral , in August 2012 and September 2012, respectively, for $25.25 million each, and recorded a $5.9 million loss in connection with the sales of these vessels. A portion of the proceeds from the sale of STI Coral was used to repay $16.1 million under our 2011 Credit Facility. STI Onyx , a newbuilding vessel which was delivered to us in September 2012, was substituted as collateral under our 2011 Credit Facility on our outstanding borrowings related to the STI Diamond . Please see “– Liquidity and Capital Resources – Long Term Debt Obligations and Credit Arrangements – 2011 Credit Facility.”

Drydock

During 2012, we drydocked two of our owned vessels, STI Heritage and STI Spirit for an aggregated drydock cost of $2.9 million and a total of 38 off-hire days.

As our fleet matures and expands, our drydock expenses will likely increase. Ongoing costs for compliance with environmental regulations and society classification survey costs are a component of our vessel operating costs. We are not currently aware of any regulatory changes or environmental liabilities that we anticipate will have a material impact on our results of operations or financial condition.

Dividends

We do not have immediate plans to pay dividends, but we will continue to assess our dividend policy. In the future, our board of directors may determine to pay dividends.

Share Buy-Back

On July 9, 2010, the board of directors authorized a share buyback program of up to $20 million. As of December 31, 2012, we have purchased $7.9 million of shares in the open market at an average price of $6.78. See Item 16E for further information.


C.	Research and Development, Patents and Licenses, Etc.

	Not applicable.

D.	Trend Information

	See Item 4.B. “The International Tanker Industry.”

E.	Off-Balance Sheet Arrangements

As of December 31, 2012, we were committed to make charter-hire payments to third parties for certain chartered-in vessels. These arrangements are accounted for as operating leases. Additionally, we are committed to make payments on our newbuilding vessel orders. See Item 5.B. – “Liquidity and Capital Resources” for further information.


F.	Tabular Disclosure of Contractual Obligations

The following table sets forth our total contractual obligations at December 31, 2012:


*Amounts in thousands of US dollars*	Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years

Bank loan(1)	$	7,608	$	34,974	$	26,446	$	76,913
Estimated interest payments(2)		5,662		10,010		7,374		3,491
Interest rate swap derivative contracts(3)		635		748		—		—
Bank loan - commitment fees(4)		2,516		1,094		—		—
Time charter-in commitments(5)		62,612		23,771		—		—
Technical management fees(6)		1,156		263		—		—
Commercial management fees(7)		—		—		—		—
Newbuilding installments (8)		157,149		173,575		—		—
Total	$	237,338	$	244,435	$	33,820	$	80,404


	(1)	Represents principal payments due on our 2010 Revolving Credit Facility, 2011 Credit Facility, STI Spirit Credit Facility and Newbuilding Credit Facility based on our outstanding borrowings as of December 31, 2012.

	(2)	Represents estimated interest payments on the variable portion of our credit facilities:


		•	For the 2010 Revolving Credit Facility, we used a weighted average of the 2 year and 3 year interest swap rates of 0.43% (as published by the US Federal Reserve as of December 31, 2012) plus a margin of 3.50%, which is the margin for the 2010 Revolving Credit Facility. We used a weighted average of the 2-year and 3-year interest swap rates to reflect the maturity date of this facility of June 2, 2015.

		•	For the 2011 Credit Facility, we used a weighted average of the 4-year and 5-year interest swap rates of 0.73% (as published by the US Federal Reserve as of December 31, 2012) plus a margin of 3.50%, which is the margin for the 2011 Credit Facility. We used the weighted average of the 4-year and 5-year interest swap rates to reflect the maturity date of this facility of May 3, 2017.

		•	For the STI Spirit Credit Facility, we used a weighted average of the 5-year and 7-year interest swap rates of 0.88% (as published by the US Federal Reserve as of December 31, 2012) plus a margin of 2.75%, which is the margin for the STI Spirit Credit Facility. We used the weighted average of the 5-year and 7-year interest swap rates to reflect the maturity date of this facility of March 17, 2018.

		•	For the Newbuilding Credit Facility, we used a weighted average of the 5-year and 7-year interest swap rates of 1.208% (as published by the US Federal Reserve as of December 31, 2012) plus a margin of 2.70%, which is the margin for our Newbuilding Credit Facility. We used the weighted average of the 5-year and 7-year interest swap rates to reflect the maturity date of this facility of June 30, 2019.


	(3)	Represents estimated payments due under our interest rate swaps:


		•	The three swaps relating to the 2010 Credit Facility with a total notional amount of $51.0 million carry an average fixed interest rate of 1.27% during the time period the swap is outstanding (January 1, 2013 through June 2, 2015). The payments due were estimated by offsetting the fixed payments against the estimated interest received using the forward swap curve at December 31, 2012 for each of the swaps.

		•	The three swaps relating to the 2011 Credit Facility with a total notional amount of $15.0 million carry an average fixed interest rate of 1.30% during the time period the swap is outstanding (January 1, 2013 through June 30, 2015). The payments due were estimated by offsetting the fixed payments against the estimated interest received using the forward swap curve at December 31, 2012 for each of the swaps.


	(4)	A commitment fee equal to 40% of the applicable margin is payable on the unused daily portion of our 2010 Revolving Credit Facility and 2011 Credit Facility. The STI Spirit Credit Facility and Newbuilding Credit Facility were fully drawn as of December 31, 2012.

	(5)	Represents amounts due under our time charter-in arrangements as of December 31, 2012 .

	(6)	We pay our technical manager, SSM, $548 per day per owned vessel.

	(7)	We pay our commercial manager, SCM, $250 per day for owned Aframax/LR2 and LR1 vessels and $300 per day for owned MR and Handymax vessels plus 1.25% of gross revenue for vessels that are not in a pool. As of December 31, 2012, all our owned vessels were operating in the pools. See Item 7.B., “Related Party Transactions” for changes to these fees effective January 1, 2013.

	(8)	Represents obligations under our agreements with HMD and SPP for the construction of eleven newbuilding vessels, as of December 31, 2012.


G.	Safe Harbor

	See “Cautionary Statement Regarding Forward-Looking Statements” at the beginning of this annual report.

CRITICAL JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the accounting policies, we are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The significant judgments and estimates are as follows:

Revenue recognition

We currently generate all revenue from vessels operating in pools or in the spot market. From time to time we also employ our vessels on time charters. Revenue recognition for time charters and pools is generally not as complex or as subjective as voyage charters (spot voyages). Time charters are for a specific period of time at a specific rate per day. For long-term time charters, revenue is recognized on a straight-line basis over the term of the charter. Pool revenues are determined by the pool managers from the total revenues and expenses of the pool and allocated to pool participants using a mechanism set out in the pool agreement.

We generated revenue from spot voyages during the year ended December 31, 2012. Within the shipping industry, there are two methods used to account for spot voyage revenue: (1) ratably over the estimated length of each voyage or (2) completed voyage. The recognition of voyage revenues ratably over the estimated length of each voyage is the most prevalent method of accounting for voyage revenues and the method used by us. Under each method, voyages may be calculated on either a load-to-load or discharge-to-discharge basis. In applying our revenue recognition method, we believe that the discharge-to-discharge basis of calculating voyages more accurately estimates voyage results than the load-to-load basis. In the application of this policy, we do not begin recognizing revenue until (i) the amount of revenue can be measured reliably, (ii) it is probable that the economic benefits associated with the transaction will flow to the entity, (iii) the transactions stage of completion at the balance sheet date can be measured reliably and (iv) the costs incurred and the costs to complete the transaction can be measured reliably.

Vessel impairment

We evaluate the carrying amounts of our vessels to determine whether there is any indication that those vessels have suffered an impairment loss. If any such indication exists, the recoverable amount of vessels is estimated in order to determine the extent of the impairment loss (if any).

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. The projection of cash flows related to vessels is complex and requires us to make various estimates including future freight rates, earnings from the vessels and discount rates. All of these items have been historically volatile. As part of our process of assessing the fair value less cost to sell of the vessel, we obtain vessel valuations from leading, independent and internationally recognized ship brokers on an annual basis or when there is an indication that an asset or assets may be impaired. If an indication of impairment is identified, the need for recognising an impairment loss is assessed by comparing the carrying amount of the vessels to the higher of the fair value less cost to sell and the value in use. Likewise, if there is an indication that an impairment loss recognized in prior periods no longer exists or may have decreased, the need for recognizing an impairment reversal is assessed by comparing the carrying amount of the vessels to the latest estimate of recoverable amount.

At December 31, 2012, the carrying amounts of all our vessels were greater than their fair values less costs to sell (determined by taking into consideration two independent broker valuations) which served as indicators of impairment. In line with our policy, for each vessel we performed a value in use calculation where we estimated the vessel’s future cash flows based on a combination of the latest, published, forecast time charter rates for the next three years, a steady growth rate in freight rates in each period thereafter which is based on management’s long-term view of the market, and our best estimate of vessel operating expenses and drydock costs. These cash flows were then discounted to their present value, using a pre-tax discount rate based on our current borrowing rates adjusted for certain credit risks. The value in use calculations were greater than the carry amounts of the vessels in all instances, which resulted in no impairment being recognized in 2012.

Vessel lives and residual value

The carrying value of each of our vessels represents its original cost at the time it was delivered or purchased less depreciation and impairment. We depreciate our vessels to their residual value on a straight-line basis over their estimated useful lives. Effective April 1, 2010, we revised the estimated useful life of our vessels from 20 years to 25 years from the date of initial delivery from the shipyard. The estimated useful life of 25 years is management’s best estimate and is also consistent with industry practice for similar vessels. The residual value is estimated as the lightweight tonnage of each vessel multiplied by a forecast scrap value per ton. The scrap value per ton is estimated taking into consideration the historical four year scrap market rate average at the balance sheet date.

An increase in the estimated useful life of a vessel or in its scrap value would have the effect of decreasing the annual depreciation charge and extending it into later periods. A decrease in the useful life of a vessel or scrap value would have the effect of increasing the annual depreciation charge.

When regulations place significant limitations over the ability of a vessel to trade on a worldwide basis, the vessel’s useful life is adjusted to end at the date such regulations become effective. The estimated salvage value of the vessels may not represent the fair market value at any one time since market prices of scrap values tend to fluctuate.

Deferred drydock cost

We recognize drydock costs as a separate component of the vessels’ carrying amounts and amortize the drydock cost on a straight-line basis over the estimated period until the next drydock. We use judgment when estimating the period between drydocks performed, which can result in adjustments to the estimated amortization of the drydock expense. If the vessel is disposed of before the next drydock, the remaining balance of the deferred drydock is written-off and forms part of the gain or loss recognized upon disposal of vessels in the period when contracted. We expect that our vessels will be required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are operating. Costs capitalized as part of the drydock include actual costs incurred at the drydock yard and parts and supplies used in making such repairs. We only include in deferred drydocking costs those direct costs that are incurred as part of the drydocking to meet regulatory requirements, or are expenditures that add economic life to the vessel, increase the vessel’s earnings capacity or improve the vessel’s efficiency. Direct costs include shipyard costs as well as the costs of placing the vessel in the shipyard. Expenditures for normal maintenance and repairs, whether incurred as part of the drydocking or not, are expensed as incurred.


ITEM 6.	DIREC TORS, SENIOR MANAGEMENT AND EMPLOYEES


A.	Directors and Senior Management

Set forth below are the names, ages and positions of our directors and executive officers. Our board of directors is elected annually, and each director elected holds office for a three-year term or until his successor shall have been duly elected and qualified, except in the event of his death, resignation, removal or the earlier termination of his term of office. The term of office of each director is as follows: One will serve for a term expiring at the 2013 annual meeting of shareholders, two will serve for a term expiring at the 2014 annual meeting of the shareholders and two will serve for a term expiring at the 2015 annual meeting of shareholders. Officers are elected from time to time by vote of our board of directors and hold office until a successor is elected. The business address for each director and executive officer is the address of our principal executive office which is Scorpio Tankers Inc., 9, Boulevard Charles III, Monaco 98000.

Messrs. Lauro and Bugbee, our Chief Executive Officer and President, respectively, participate in business activities not associated with us. As a result, Messrs. Lauro and Bugbee may devote less time to us than if they were not engaged in other business activities and may owe fiduciary duties to the shareholders of both us as well as shareholders of other companies which they may be affiliated, including other Scorpio Group companies. This may create conflicts of interest in matters involving or affecting us and our customers and it is not certain that any of these conflicts of interest will be resolved in our favor. While there will be no formal requirements or guidelines for the allocation of Messrs. Lauro’s and Bugbee’s time between our business and the business of members of the Scorpio Group, Messrs. Lauro’s and Bugbee’s performance of their duties will be subject to the ongoing oversight of our board of directors.


Name	Age	Position
Emanuele A. Lauro	34	Chairman, Class I Director, and Chief Executive Officer
Robert Bugbee	52	President and Class II Director
Brian Lee	46	Chief Financial Officer
Cameron Mackey	44	Chief Operating Officer
Luca Forgione	36	General Counsel
Sergio Gianfranchi	68	Vice President, Vessel Operations
Alexandre Albertini	36	Class III Director
Ademaro Lanzara	69	Class I Director
Donald C. Trauscht	78	Class II Director

Biographical information with respect to each of our directors and executive officers is set forth below.

Emanuele A. Lauro, Chairman & Chief Executive Officer

Emanuele A. Lauro, our founder, has served as Chairman and Chief Executive Officer since our initial public offering in April 2010. He joined Scorpio Group in 2003 and has continued to serve there in a senior management position since 2004. Under Mr. Lauro’s leadership, Scorpio Group has grown from an owner of three vessels in 2003 to become a leading operator and manager of over 100 vessels in 2013. Over the course of the last years, Mr. Lauro has founded and developed all of the Scorpio Group Tanker Pools in addition to several other ventures such as Scorpio Logistics in 2007, which owns and operates specialized assets engaged in the transshipment of coal and invests in coastal transportation and port infrastructure developments and Scorship Navigation in 2005, which engages in the identification, placement, and management of certain international shipping investments on behalf of retail investors in Europe. Mr. Lauro has a degree in international business from the European Business School, London. He currently serves as non-executive director in various international companies and trade organizations.

Robert Bugbee, President and Director

Robert Bugbee, has more than 25 years of experience in the shipping industry and has served as President since our initial public offering in April 2010. He joined Scorpio Group in February 2009 and has continued to serve there in senior management. Prior to joining Scorpio Group, Mr. Bugbee was a partner at Ospraie Management LLP between 2007 and 2008, a company which advises and invests in commodities and basic industry. From 1995 to 2007, Mr. Bugbee was employed at OMI Corporation, or OMI, a NYSE-listed tanker company sold in 2007. While at OMI, Mr. Bugbee most recently served as President from January 2002 until the sale of the company, and he previously served as Executive Vice President since January 2001, Chief Operating Officer since March 2000 and Senior Vice President of OMI from August 1995 to June 1998. Mr. Bugbee joined OMI in February 1993. Prior to this, he was employed by Gotaas-Larsen Shipping Corporation since 1984. During this time he took a two year sabbatical from 1987 for the M.I.B. Programme at the Norwegian School for Economics and Business administration in Bergen. He has a Fellowship from the International Shipbrokers Association and a B.A. (Honors) from London University.

Brian Lee, Chief Financial Officer

Brian Lee has served as Chief Financial Officer since our initial public offering in April 2010. He joined Scorpio Group in April 2009 where he continues to serve in a senior management position. He has been employed in the shipping industry since 1998. Prior to joining Scorpio Group, he was the Controller of OMI Corporation from 2001 until the sale of the company in 2007. Mr. Lee has a M.B.A. from the University of Connecticut and has B.S. in Business Administration from the University at Buffalo, State University of New York.

Cameron Mackey, Chief Operating Officer

Cameron Mackey, has served as Chief Operating Officer since our initial public offering in April 2010. He joined Scorpio Group in March 2009, where he continues to serve in a senior management position. Prior to joining Scorpio Group, he was an equity and commodity analyst at Ospraie Management LLC from 2007-2008. Prior to that, he was Senior Vice President of OMI Marine Services LLC from 2004-2007 and in Business Development at OMI Corporation from 2002-2004. He has been employed in the shipping industry since 1994 and, earlier in his career, was employed in unlicensed and licensed positions in the merchant navy, primarily on tankers in the international fleet of Mobil Oil Corporation, where he held the qualification of Master Mariner. He has an M.B.A. from the Sloan School of Management at the Massachusetts Institute of Technology, a B.S. from the Massachusetts Maritime Academy and a B.A. from Princeton University.

Luca Forgione, General Counsel

Luca Forgione, has served as General Counsel since our initial public offering in April 2010. He joined Scorpio Group in August 2009 where he continues to serve as General Counsel. He is licensed as a lawyer in his native Italy and as a Solicitor of the Supreme Court of England & Wales. Mr. Forgione has eight years of shipping industry experience and has worked in the fields of shipping, offshore logistics, commodity trading and energy since the beginning of his in-house career, most recently with Constellation Energy Commodities Group Ltd. in London, which is part of Constellation Energy Group Inc. listed on the NYSE under “CEG,” from 2007 to 2009, and previously with Coeclerici S.p.a. in Milan from 2004 to 2007. He has experience with all aspects of the supply chain of drybulk and energy commodities (upstream and downstream), and has developed considerable understanding of the regulatory and compliance regimes surrounding the trading of physical and financial commodities as well as the owning, managing and chartering of vessels. Mr. Forgione was a Tutor in International Trade Law and Admiralty Law at University College London (U.K.) and more recently a Visiting Lecturer in International Trade Law at King’s College (U.K.). He has a Masters Degree in Maritime Law from the University of Southampton (U.K.) and a Law Degree from the University of Genoa (Italy).

Sergio Gianfranchi, Vice President, Vessel Operations

Sergio Gianfranchi, has served as Vice President of Vessel Operations since our initial public offering in April 2010. He served as Operations Manager of our technical manager, SSM, at its headquarters in Monaco from 2002 to 2004. He has been instrumental in launching and operating the Scorpio Group Pools during the last five years, and was employed as the Fleet Manager of SCM, the Scorpio Group affiliate that manages the commercial operations of approximately 50 vessels grouped in the three Scorpio Group Pools, from 2007 to 2009. Mr. Gianfranchi is currently employed as the Pool Fleet Manager of SCM. From 1999 to 2001, Mr. Gianfranchi served as the on-site owner’s representative of the Scorpio Group affiliates named Doria Shipping, Tristan Shipping, Milan Shipping and Roma Shipping, to survey the construction of their Panamax and Post-Panamax newbuilding tankers being built at the 3Maj Shipyard in Rijeka, Croatia. When Mr. Gianfranchi joined SSM in 1989, he began as vessel master of its OBOs (multipurpose vessels that carry ore, heavy drybulk and oil). Upon obtaining his Master Mariner License in 1972, he served until 1989 as a vessel master with prominent Italian shipping companies, including NAI, which is the largest private Italian shipping company and owned by the Lolli-Ghetti family, and Almare, initially a subsidiary of NAI but later controlled by Finmare, the Italian state shipping financial holding company. In this position he served mostly on OBOs, tankers and drybulk carriers. He graduated from La Spezia Nautical Institute in Italy in 1963.

Alexandre Albertini, Director

Alexandre Albertini has more than 10 years of experience in the shipping industry. He has been employed by Marfin Management SAM, a drybulk ship management company, since 1997 and has served as Managing Director there since 2009, working in fields related to crew and human resources, insurance, legal, financial, technical, commercial, and information technology. He is a director of eight drybulk ship owning companies and serves as President of Ant. Topic srl, a vessel and crewing agent based in Italy. The aggregate valuation of the drybulk shipping companies for which Mr. Albertini serves as a Secretary or director is approximately $300 million. In 2008, Mr. Albertini was elected as a member of the Executive Committee of InterManager. He is a founding member of the Chamber of Shipping of Monaco and has served as its Secretary General since 2006. Mr. Albertini also holds various board positions in several other local business and associations.

Ademaro Lanzara, Director

Ademaro Lanzara has served as the Chairman of BPV Finance (International) Plc Dublin, a subsidiary of Banca Popolare di Vicenza, Italy, since 2008. He has also served as the deputy Chairman and Chairman of the Audit Committee of Cattolica Life Inc. Dublin since 2011 and Chairman of BPVI Fondi Sgr SpA, Milano since April 2012. From 1963 to 2006, Mr. Lanzara held a number of positions with BNL spa Rome, a leading Italian banking group, including acting as the Chairman of the Credit Committee, Chairman of the Finance Committee and Deputy CEO. He was also a director of Istituto dell’Enciclopedia Italiana fondata da Giovanni Treccani Spa, Rome. He also served as Chairman and/or director of a number of BNL controlled banks or financial companies in Europe, the United States and South America. He formerly served as a director of each of the Institute of International Finance Inc. in Washington DC, Compagnie Financiere Edmond de Rothschild Banque, in Paris, France, ABI—Italian Banking Association in Rome, Italy, FITD—Interbank deposit Protection Fund, in Rome, Italy, ICC International Chamber of Commerce Italian section, Rome, Italy Co-Chairman Round Table of Bankers and Small and Medium Enterprises, European Commission, in Brussels, Belgium. Mr. Lanzara has an economics degree (graduated magna cum laude ) from the University of Naples, a law degree from the University of Naples and completed the Program for Management Development (PMD) at Harvard Business School.

Donald C. Trauscht, Director

Donald C. Trauscht has served as the Chairman of BW Capital Corporation, a private investment company, since 1996. From 1967 to 1995, Mr. Trauscht held a number of positions at Borg-Warner Corporation, including Chairman and Chief Executive Officer. While at Borg Warner, Mr. Trauscht supervised an annual capital budget of $250 million and was responsible for risk assessment decisions involving the company’s investments. He has participated in acquisitions, divestments, financings, public offerings and other transactions whose combined value is over $30 billion. Mr. Trauscht is a director of Esco Technologies Inc., Hydac International Corporation, Bourns Inc., and Eyes For Learning LLC. He formerly served as a director of Baker Hughes Inc., Cordant Technologies Inc., Blue Bird Corporation, Imo Industries Inc., Mannesmann Capital Corporation, Wynn International Inc., Recon Optical Inc., Global Motorsport Group Inc., OMI Corporation, IES Corporation, and NSK-Warner Ltd. He has served as the Chairman, Lead Director, and Audit Committee, Compensation Committee, and Governance Committee Chairman at numerous public and private companies.


B.	Compensation

We did not pay any compensation to members of our senior executive officers in 2009. We paid an aggregate compensation of $6.3 million and $6.1 million to our senior executive officers in 2012 and 2011, respectively. We paid an aggregate compensation of $3.0 million to our senior executive officers in 2010 for the period April 6, 2010 to December 31, 2010. Executive management remuneration was as follows during these periods:


	For the period ended December 31,
*In thousands of US dollars*	2012		2011		2010
Short-term employee benefits (salaries)	$	2,896	$	2,875	$	2,060
Share-based compensation (1)		3,368		3,189		922

Total	$	6,264	$	6,064	$	2,982


(1)	Represents the amortization of restricted stock issued under our equity incentive plans in June 2010, January 2011 and January 2012. See Note 14 in the consolidated financial statements for further description.

Each of our non-employee directors receive cash compensation in the aggregate amount of $45,000 annually, plus an additional fee of $5,000 for each committee on which a director serves plus an additional fee of $15,000 for each committee for which a director serves as Chairman, per year, plus an additional fee of $20,000 to the lead independent director, plus reimbursements for actual expenses incurred while acting in their capacity as a director. During the year ended December 31, 2012 and 2011, we paid an aggregate compensation of $0.4 million and $0.4 million to our directors, respectively. Our officers and directors are eligible to receive awards under our equity incentive plan which is described below under “—2010 Equity Incentive Plan.”

We believe that it is important to align the interests of our directors and management with that of our shareholders. In this regard, we have determined that it will generally be beneficial to us and to our shareholders for our directors and management to have a stake in our long-term performance. We expect to have a meaningful component of our compensation package for our directors and management consisted of equity interests in us in order to provide them on an on-going basis with a meaningful percentage of ownership in us.

We do not have a retirement plan for our officers or directors.

2010 Equity Incentive Plan

We have adopted an equity incentive plan, which we refer to as the plan, under which directors, officers, employees, consultants and service providers of us and our subsidiaries and affiliates are eligible to receive incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and unrestricted common stock. We have reserved a total of 1,148,916 common shares for issuance under the plan, subject to adjustment for changes in capitalization as provided in the plan and it is not expected that any additional common shares will be reserved for issuance under our equity incentive plan prior to the third anniversary of the closing of our initial public offering. The plan is administered by our compensation committee. We issued a total of 559,458 restricted shares under the plan to our executive officers in the second quarter of 2010 which will vest in three equal installments on the third, fourth and fifth anniversaries, respectively, of the closing date of the initial public offering, which was April 6, 2010. In the second quarter of 2010, we also issued 9,000 restricted shares to our independent directors, which vested on April 6, 2011. We issued a total of 281,000 restricted shares under the plan to our executive officers in the first quarter of 2011 which will vest ratably in three equal installments on the first, second and third anniversaries, respectively, of the grant date, which was January 31, 2011. In the first quarter of 2011, we also issued 9,000 restricted shares to our independent directors, which vest on January 31, 2012. In the first quarter of 2012, we issued a total of 281,000 restricted shares under the plan to our executive officers, which will vest ratably in three equal installments on the first, second and third anniversaries of the grant date, which was January 31, 2012. In the first quarter of 2012, we also issued 9,000 restricted shares to our independent directors, which vest on January 31, 2013.

Under the terms of the plan, stock options and stock appreciation rights granted under the plan will have an exercise price equal to the fair market value of a common share on the date of grant, unless otherwise determined by the plan administrator, but in no event will the exercise price be less than the fair market value of a common share on the date of grant. Options and stock appreciation rights will be exercisable at times and under conditions as determined by the plan administrator, but in no event will they be exercisable later than ten years from the date of grant.

The plan administrator may grant shares of restricted stock and awards of restricted stock units subject to vesting, forfeiture and other terms and conditions as determined by the plan administrator. Following the vesting of a restricted stock unit, the award recipient will be paid an amount equal to the number of vested restricted stock units multiplied by the fair market value of a common share on the date of vesting, which payment may be paid in the form of cash or common shares or a combination of both, as determined by the plan administrator. The plan administrator may grant dividend equivalents with respect to grants of restricted stock units.

Adjustments may be made to outstanding awards in the event of a corporate transaction or change in capitalization or other extraordinary event. In the event of a “change in control” (as defined in the plan), unless otherwise provided by the plan administrator in an award agreement, awards then outstanding will become fully vested and exercisable in full.

Our board of directors may amend or terminate the plan and may amend outstanding awards, provided that no such amendment or termination may be made that would materially impair any rights, or materially increase any obligations, of a grantee under an outstanding award. Shareholder approval of plan amendments will be required under certain circumstances. Unless terminated earlier by our board of directors, the plan will expire ten years from the date the plan is adopted.

Employment Agreements

In April 2010, we entered into employment agreements with each of our executives. These employment agreements are in effect for a period of up to two years, and will automatically renew for the same successive employment periods unless terminated in accordance with the terms of such agreements. Pursuant to the terms of their respective employment agreements, our executives are prohibited from disclosing or unlawfully using any of our material confidential information.

Upon a change in control of us, the annual bonus provided under the employment agreement becomes a fixed bonus of up to 150% of the executive’s base salary. If an executive’s employment is terminated within two years of a change in control due to either disability or a reason other than “for cause,” he will be entitled to receive upon termination an assurance bonus equal to such fixed bonus and an immediate lump-sum payment in an amount equal to three times the sum of the executive’s then current base salary and the assurance bonus, and he will continue to receive all salary, compensation payment and benefits, including additional bonus payments, otherwise due to him, to the extent permitted by applicable law, for the remaining balance of his then-existing employment period. If an executive’s employment is terminated for cause or voluntarily by the employee, he shall not be entitled to any salary, benefits or reimbursements beyond those accrued through the date of his termination, unless he voluntarily terminated his employment in connection with certain conditions. Those conditions include a change in control combined with a significant geographic relocation of his office, a material diminution of his duties and responsibilities, and other conditions identified in the employment agreement.


C.	Board Practices

Our board of directors currently consists of five directors, three of whom have been determined by our board of directors to be independent under the rules of the New York Stock Exchange and the rules and regulations of the SEC. Our board has an Audit Committee, a Nominating Committee and a Compensation Committee, each of which is comprised of our three independent directors, who are Messrs. Alexandre Albertini, Ademaro Lanzara and Donald Trauscht. The Audit Committee, among other things, reviews our external financial reporting, engage our external auditors and oversee our internal audit activities, procedures and the adequacy of our internal controls. In addition, provided that no member of the Audit Committee has a material interest in such transaction, the Audit Committee is responsible for reviewing transactions that we may enter into in the future with other members of the Scorpio Group that our board believes may present potential conflicts of interests between us and the Scorpio Group. The Nominating and Corporate Governance Committee is responsible for recommending to the board of directors nominees for director and directors for appointment to board committees and advising the board with regard to corporate governance practices. The Compensation Committee oversees our equity incentive plan and recommends director and senior employee compensation. Our shareholders may also nominate directors in accordance with procedures set forth in our bylaws.


D.	Employees

As of December 31, 2012, we had ten employees. SSM and SCM were responsible for our commercial and technical management.


E.	Share Ownership

The following table sets forth information regarding the share ownership of the our common stock as of the date of this annual report by our directors and officers, including the restricted shares issued to our executive officers and to our independent directors as well as shares purchased in the open market.


Name	No. of Shares			% Owned
Emanuele A. Lauro ⁽¹⁾		704,145			0.57	%
Robert Bugbee ⁽²⁾		611,958			0.50	%
All other officers and directors individually			*			*


(1)	Includes 262,418 shares of restricted stock from the 2010 Equity Incentive Plan.

(2)	Includes 262,418 shares of restricted stock from the 2010 Equity Incentive Plan.

*	The remaining officers and directors individually each own less than 1% of our outstanding shares of common stock.


I TEM 7.		MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.	Major Shareholders

The following table sets forth information regarding beneficial ownership of our common stock for owners of more than five percent of our common stock, of which we are aware as of the date of this annual report.


Name	No. of Shares		% Owned
Galahad Securities Limited (1)		12,396,721		13.1	%
Claren Road Asset Management LLC (2)		9,260,000		7.5	%
Wellington Management Company, LLP (3)		7,814,974		12.2	%
Kensico Capital Management Corporation, Michael Lowenstein and Thomas J. Coleman (4)		5,930,049		9.3	%
Oceanic Hedge Fund, Oceanic Opportunities Master Fund, L.P., Oceanic Investment Management Limited, Oceanic Opportunities GP Limited, Tufton Oceanic (Isle of Man) Limited and Cato Brahde (5)		4,900,040		5.2	%
Wellington Trust Company, NA (6)		3,497,676		5.5	%


	(1)	This information is derived from Schedule 13G/A filed with the SEC on February 11, 2013.

	(2)	This information is derived from Schedule 13G filed with the SEC on March 25, 2013

	(3)	This Information is derived from a Schedule 13G/A filed with the SEC on February 14, 2013.

	(4)	This Information is derived from a Schedule 13G/A filed with the SEC on February 13, 2013.

	(5)	This Information is derived from a Schedule 13G/A filed with the SEC on February 14, 2013.

	(6)	This Information is derived from a Schedule 13G/A filed with the SEC on February 14, 2013.

B.	Related Party Transactions

Management of Our Fleet

Commercial and Technical Management

Our vessels are commercially managed by SCM and technically managed by SSM, pursuant to a Master Agreement, which may be terminated upon a two year notice. SCM and SSM are related parties of ours. We expect that additional vessels that we may acquire in the future will also be managed under the Master Agreement.

SCM’s services include securing employment, in the spot market and on time charters, for our vessels. SCM also manages the Scorpio Group Pools. For commercial management of our vessels that do not operate in any of the Scorpio Group Pools, we pay SCM a fee of $250 per vessel per day for each Panamax, LR1, LR2 vessel and $300 per vessel per day for each of our Handymax and MR vessels, plus 1.25% commission on gross revenues per charter fixture. Effective January 1, 2013, the Scorpio Group pool participants collectively pay SCM a pool management fee of $250 per vessel per day with respect to our LR2 vessels, $300 per vessel per day with respect to each of our Panamax vessels and $325 per vessel per day with respect to each of our Handymax and MR vessels, plus 1.50% commission on gross revenues per charter fixture. These are the same fees that SCM charges other vessels in these pools, including third party owned vessels.

Administrative Services Agreement

Liberty Holding Company Ltd., or Liberty, is a Scorpio Group affiliate which provided us with administrative services pursuant to an administrative services agreement until March 13, 2012 when the administrative services agreement was assigned to SSH, a company controlled by the Lolli-Ghetti, family pursuant to a novation agreement to which we were a party. The effective date of the novation was November 9, 2009, the date that we first entered into the agreement with Liberty. The administrative services provided under the agreement primarily include accounting, legal compliance, financial, information technology services, and the provision of administrative staff and office space. SSH also arranges vessel sales and purchases for us. Further, pursuant to our administrative services agreement, SSH, on behalf of itself and other members of the Scorpio Group, has agreed that it will not directly own product or crude tankers ranging in size from 35,000 dwt to 200,000 dwt. We expect that SSH will sub-contract many of its responsibilities to other entities within the Scorpio Group.

We reimburse SSH for the reasonable direct or indirect expenses it incurs in providing us with the administrative services described above. We also pay SSH a fee for arranging vessel purchases and sales for us equal to 1% of the gross purchase or sale price, payable upon the consummation of any such purchase or sale. We believe this 1% fee on purchases and sales is customary in the tanker industry.

Tanker pools

To increase vessel utilization and thereby revenues, we participate in commercial pools with other shipowners of similar modern, well-maintained vessels. By operating a large number of vessels as an integrated transportation system, commercial pools offer customers greater flexibility and a higher level of service while achieving scheduling efficiencies. Pools employ experienced commercial charterers and operators who have close working relationships with customers and brokers, while technical management is performed by each shipowner. The managers of the pools negotiate charters with customers primarily in the spot market. The size and scope of these pools enable them to enhance utilization rates for pool vessels by securing backhaul voyages and COAs, thus generating higher effective TCE revenues than otherwise might be obtainable in the spot market while providing a higher level of service offerings to customers. When we employ a vessel in the spot charter market, we generally place such vessel in a tanker pool managed by our commercial manager that pertains to that vessel’s size class. The earnings allocated to vessels (charterhire expense for the pool) are aggregated and divided on the basis of a weighted scale, or Pool Points, which reflect comparative voyage results on hypothetical benchmark routes. The Pool Point system generally favors those vessels with greater cargo-carrying capacity and those with better fuel consumption. Pool Points are also awarded to vessels capable of carrying clean products and to vessels capable of trading in certain ice conditions. We currently participate in four pools: the Scorpio LR2 Tanker Pool, the Scorpio Panamax Tanker Pool, Scorpio MR Tanker Pool and the Scorpio Handymax Tanker Pool.

SCM is responsible for the commercial management of participating vessels in the pools, including the marketing, chartering, operating and bunker (fuel oil) purchases of the vessels. The Scorpio LR2 Pool is administered by Scorpio LR2 Pool Ltd., the Scorpio Panamax Tanker Pool is administered by Scorpio Panamax Tanker Pool Ltd., or SPTP, the Scorpio MR Tanker Pool is administered by Scorpio MR Tanker Pool Ltd, or SMRP and the Scorpio Handymax Tanker Pool is administered by Scorpio Handymax Tanker Pool Ltd., or SHTP. Our founder, Chairman and Chief Executive Officer is a member of the Lolli-Ghetti family which owns all issued and outstanding stock of SLR2P, SPTP, SMRP and SHTP. Taking into account the recommendations of a pool committee and a technical committee, each of which is comprised of representatives of each pool participant, SLR2P, SPTP, SMRP and SHTP set the respective pool policies and issues directives to the pool participants and SCM. The pool participants remain responsible for all other costs including the financing, insurance, manning and technical management of their vessels. The earnings of all of the vessels are aggregated and divided according to the relative performance capabilities of the vessel and the actual earning days each vessel is available.

Our Relationship with Scorpio Group and its Affiliates

We were incorporated in the Republic of The Marshall Islands on July 1, 2009 by Simon Financial Limited, or Simon, which is owned by the Lolli-Ghetti family and manages their shipping interests. On October 1, 2009, (i) Simon, through its wholly-owned subsidiary, Liberty Holding Company Ltd., or Liberty, transferred three operating subsidiary companies to us that owned the vessels in our initial fleet consisting of the Venice , Senatore and Noemi ; (ii) Liberty became a wholly-owned subsidiary and operating vehicle of Simon; (iii) Scorpio Owning Holding Ltd. became a wholly-owned subsidiary of Liberty; and (iv) we became a wholly-owned subsidiary of Scorpio Owning Holding Ltd. Liberty’s operations include chartered-in vessels, and interests in joint ventures and investments. Scorpio Group does not have an ownership interest in any tanker vessels other than our tanker vessels, and will preclude itself from directly owning product or crude tankers ranging in size from 35,000 dwt to 200,000 dwt.

Our board of directors consists of five individuals, three of whom are independent directors. The three independent directors form the board’s Audit Committee and, pursuant to the Audit Committee charter, are required to review all potential conflicts of interest between us and Scorpio Group. The two non-independent directors, Emanuele Lauro and Robert Bugbee, serve in senior management positions within the Scorpio Group which is also our Administrator, and is an affiliate of the Scorpio Group.

The Scorpio Group is owned and controlled by the Lolli-Ghetti family, of which Mr. Lauro is a member. Mr. Lauro is considered to be the acting Chief Executive Officer and Mr. Bugbee is considered to be the acting President of the Scorpio Group. Mr. Lauro is employed by Scorpio Commercial Management and Mr. Bugbee is employed by Scorpio USA LLC, and both entities are affiliates within the Scorpio Group. Mr. Lauro, Mr. Bugbee and other senior management have a minority equity interest in Scorpio Services Holding Limited. We are not affiliated with any other entities in the shipping industry other than those that are members of the Scorpio Group.

In January 2011, Scorpio Owning Holding Ltd. distributed its shares in Scorpio Tankers Inc. (via a dividend) to the shareholders of Liberty, which is owned by the Lolli-Ghetti family, of which our CEO and Chairman is a member.

SCM, SSM and SSH our commercial manager, technical manager and administrator, respectively, are affiliates of the Scorpio Group. For information regarding the details regarding our relationship with SCM, SSM and SSH, please see “ – Related Party Transactions – Management of our Fleet.”

Transactions with Related Parties

Transactions with entities controlled by the Lolli-Ghetti family (herein referred to as related party affiliates) in the consolidated statements of profit or loss and balance sheet are as follows:


	For the year ended December 31,
In thousands of US dollars	2012			2011			2010
Pool revenue(1)
Scorpio Panamax Tanker Pool Limited	$	26,884		$	22,594		$	9,645
Scorpio Handymax Tanker Pool Limited		31,280			32,238			5,178
Scorpio MR Pool Limited		9,558			—			—
Scorpio LR2 Pool Limited		4,540			5,195			—
Scorpio Aframax Tanker Pool Limited		—			170			641
Time charter revenue(2)
King Dustin		—			8,507			8,700
Liberty and subsidiaries		—			—			4,780
Vessel operating costs(3)		(2,280	)		(2,203	)		(1,059	)
Commissions(4)		(532	)		(270	)		(234	)
Administrative expenses(5)		(1,862	)		(1,937	)		(932	)
Other(6)		—			—			(131	)


⁽¹⁾	These transactions relate to revenue earned in the Scorpio LR2, Scorpio Aframax, Scorpio Panamax, Scorpio MR and Scorpio Handymax Tanker Pools (the Pools). The Pools are owned by Scorpio LR2 Tanker Pool Limited, Scorpio Aframax Pool Limited, Scorpio Panamax Tanker Pool Limited, Scorpio MR Pool Limited and Scorpio Handymax Tanker Pool Limited, respectively. The Pools are related party affiliates.

⁽²⁾	The revenue earned was for Noemi’s time charter with King Dustin (which is 50% jointly controlled by a related party affiliate). In 2010, STI Harmony and STI Heritage were on a time charter with Liberty, a related party affiliate. See Note 16 to the consolidated financial statements for the terms of this time charter.

⁽³⁾	These transactions represent technical management fees charged by SSM, a related party affiliate, and included in the vessel operating costs in the consolidated profit or loss statement. We believe our technical management fees for the years ended December 31, 2012, 2011 and 2010 were at market rates because they were the same rates charged to other vessels managed by SSM. Each vessel pays $548 per day for technical management, which was, as noted, lower than that charged to third parties by SSM.

⁽⁴⁾	These transactions represent the expense due to SCM for commissions related to the commercial management services provided by SCM under the Master Agreement (see description below). Each of the vessels paid a commission of 1.25% of their revenue when not in the Pools. When our vessels were in the Pools, SCM, the pool manager, charged fees of $250 per vessel per day with respect to our Panamax/LR1 and LR2 vessels, $300 per vessel per day with respect to each of our Handymax and MR vessels, plus 1.25% commission on gross revenues per charter fixture. These were the same fees that SCM charges other vessels in these pools, including third party owned vessels.

⁽⁵⁾	We have an Administrative Services Agreement with Scorpio Services Holding Limited, or SSH or our Administrator, for the provision of administrative staff and office space, and administrative services, including accounting, legal compliance, financial and information technology services. SSH is a related party to us. Liberty Holding Company Ltd., or Liberty, a company affiliated with us, acted as our Administrator until March 13, 2012 when the Administrative Services Agreement was assigned to SSH. The effective date of the novation was November 9, 2009, the date that we first entered into the agreement with Liberty. We reimburse our current Administrator for the reasonable direct or indirect expenses it incurs in providing us with the administrative services described above. Our Administrator also arranges vessel sales and purchases for us. The services provided to us by our Administrator may be sub-contracted to other entities within the Scorpio Group. Our Master Agreement with SCM includes a daily flat fee charged payable to SCM for the vessels that are not in one of the pools managed by SCM. The flat fee was $250 per day for Panamaxes/LR1 and Aframax/LR2 vessels and $300 per day for Handymax and MR vessels. The flat fee was the same rate charged by SCM for vessels in the pools managed by SCM.

	•	The expense for the year ended December 31, 2012 of $1.9 million included the flat fee of $0.7 million charged by SCM and administrative fees of $1.2 million charged by SSH and were included in voyage expenses and general and administrative expenses in the consolidated profit or loss statement.

	•	The expense for the year ended December 31, 2011 of $1.9 million included the flat fee of $0.3 charged by SCM and administrative fees of $1.7 million charged by SSH and were both included in general and administrative expenses in the consolidated profit or loss statement.

	•	The expense for the year ended December 31, 2010 of $0.9 million included the flat fee of $0.2 million charged by SCM and administrative fees of $0.7 million charged by SSH and were both included in general and administrative expenses in the consolidated profit or loss statement.


⁽⁶⁾	In accordance with our Administrative Services Agreement with SSH, we have to reimburse SSH for any direct expenses. These transactions represent reimbursements of $0.1 million to SSH for the year ended December 31, 2010 for expenses related to the registration of the existing shares in the initial public offering which closed on April 6, 2010. In addition, $0.3 million related to expenses for the registration of the shares in the initial public offering were recorded as an offset against the proceeds from the offering. The cash payment was made in 2010.

	•	Furthermore, the Administrative Services Agreement with SSH includes a fee for arranging vessel purchases and sales, on our behalf, equal to 1% of the gross purchase or sale price, payable upon the consummation of any such purchase or sale. These fees are capitalized as part of the carrying value of the related vessel. In the year ended December 31, 2012, we paid SSH an aggregate fee of $2.4 million, which consisted of $0.5 million (recorded to loss from sale of vessels) on the sales of STI Conqueror, STI Gladiator, and STI Matador and $1.9 million on the purchase and delivery of the first five Newbuilding vessels. In the year ended December 31, 2011, we paid SSH an aggregate fee of $0.7 million in May 2011 for the purchase of the STI Coral and STI Diamond . In the year ended December 31, 2010, we paid SSH an aggregate fee of $2.4 million for the purchases of the STI Harmony , STI Heritage , STI Conqueror, STI Matador, STI Gladiator, STI Highlander and STI Spirit.

We had the following balances with related parties, which have been included in the consolidated balance sheets:


	As of December 31,
In thousands of US dollars	2012		2011
Assets:
Accounts receivable (due from the Pools)	$	33,271	$	18,102

Liabilities:
Accounts payable (owed to the Pools)		59		50
Accounts payable (SSM)		70		8
Accounts payable (SCM)		146		52

In 2011, we also entered into an agreement to reimburse costs to SSM as part of its supervision agreement for newbuilding vessels. $0.1 million has been charged under this agreement during the year ended December 31, 2012. No amounts were charged under this agreement during the year ended December 31, 2011.

Key management remuneration

Prior to April 6, 2010, our executive management services were provided by a related party affiliate and included in the management fees described in (5) above. If we were not part of a related party affiliate, and had the same ownership structure and a contract for administrative services for the periods up to April 6, 2010, we estimate our executive management remuneration would have been comparable with the executive management remuneration presented within general and administrative expenses in subsequent periods. Please see Item 6.B. “Compensation” for information regarding the remuneration we pay our key management.


C.	INTERESTS OF EXPERTS AND COUNSEL

Not applicable.


I TEM 8.		FINANCIAL INFORMATION

A.	Consolidated Statements and Other Financial Information

	See Item 18.

Legal Proceedings

To our knowledge, we are not currently a party to any lawsuit that, if adversely determined, would have a material adverse effect on our financial position, results of operations or liquidity. As such, we do not believe that pending legal proceedings, taken as a whole, should have any significant impact on our financial statements. From time to time in the future we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. While we expect that these claims would be covered by our existing insurance policies, those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. We have not been involved in any legal proceedings which may have, or have had, a significant effect on our financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or threatened which may have a significant effect on our financial position, results of operations or liquidity.

Dividend Policy

Since our initial public offering closed on April 6, 2010, we have not paid a dividend. We will continue to assess our dividend policy and our board of directors may determine to pay dividends in the future. Depending on prevailing charter market conditions, our operating results and capital requirements and other relevant factors, our board of directors may re-evaluate our dividend policy. In addition, Marshall Islands law generally prohibits the payment of dividends other than from surplus or when a company is insolvent or if the payment of the dividend would render the company insolvent. Any future dividend payments will be subject to determination by our board of directors in its discretion.


B.	Significant Changes

See Note 23 – Subsequent Events to our consolidated financial statements and notes thereto, included herein.


I TEM 9.	THE OFFER AND LISTING


A.	Offer and Listing Details

Since our initial public offering, our shares of common stock have traded on the NYSE under the symbol “STNG”. The high and low market prices for our shares of common stock on the NYSE are presented for the periods listed below:


For the Year Ended	High		Low
December 31, 2010*	$	13.01	$	9.50
December 31, 2011		12.18		4.28
December 31, 2012		7.50		4.93
* For the period beginning March 31, 2010


For the Quarter Ended:	High		Low
March 31, 2011		10.82		9.62
June 30, 2011		12.18		9.25
September 30, 2011		10.08		4.93
December 31, 2011		7.03		4.28
March 31, 2012		7.50		4.93
June 30, 2012		7.50		5.14
September 30, 2012		6.88		5.14
December 31, 2012		7.14		5.19
March 31, 2013 (through and including March 27, 2013)		8.93		6.92


Most Recent Six Months:	High		Low
September 2012	$	6.24	$	5.20
October 2012		6.07		5.19
November 2012		6.63		5.30
December 2012		7.14		6.11
January 2013		8.50		6.92
February 2013		8.81		7.72
March 2013 (through and including March 27, 2013)		8.93		8.10


I TEM 10.	ADDITIONAL INFORMATION


A.	Share Capital

	Not applicable

B.	Memorandum and Articles of Association

Our amended and restated articles of incorporation have been filed as exhibit 3.1 to Amendment No. 2 to our Registration Statement on Form F-1 (Registration No. 333-164940), filed with the SEC on March 18, 2010. Our amended and restated bylaws are filed as exhibit 1.2 to our Annual Report on Form 20-F filed on June 29, 2010. The information contained in these exhibits is incorporated by reference herein.

Information regarding the rights, preferences and restrictions attaching to each class of our shares of common stock is described in the section entitled “Description of Capital Stock” in the accompanying prospectus to our Registration Statement on Form F-3 (Registration No. 333-186815) with an effective date of February 25, 2013, provided that since the date of that Prospectus Supplement, our total issued and outstanding common shares has increased to 123,511,846 as of the date of this annual report.


C.	Material Contracts

Attached as exhibits to this annual report are the contracts we consider to be both material and not entered into in the ordinary course of business. Descriptions are included within Item 5.B. with respect to our credit facilities, and Item 7.B. with respect to our related party transactions.

Other than these contracts, we have no other material contracts, other than contracts entered into in the ordinary course of business, to which we are a party.


D.	Exchange Controls

Under Marshall Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of our common shares.


E.	Taxation

Marshall Islands Tax Considerations

The following are the material Marshall Islands tax consequences of our activities to us and holders of our common shares. We are incorporated in the Marshall Islands. Under current Marshall Islands law, we are not subject to tax on income or capital gains, and no Marshall Islands withholding tax will be imposed upon payments of dividends by us to our shareholders.

United States Federal Income Tax Considerations

The following are the material United States federal income tax consequences to us of our activities and to United States Holders and Non-United States Holders, each as defined below, of the ownership of common shares. The following discussion of United States federal income tax matters is based on the United States Internal Revenue Code of 1986, or the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United States Department of the Treasury, or the Treasury Regulations, all of which are subject to change, possibly with retroactive effect. The discussion below is based, in part, on the description of our business in this Report and assumes that we conduct our business as described herein. References in the following discussion to the “Company,” “we,” “our” and “us” are to Scorpio Tankers Inc. and its subsidiaries on a consolidated basis.

United States Federal Income Taxation of Operating Income: In General

We earn and anticipate that we will continue to earn substantially all our income from the hiring or leasing of vessels for use on a time charter basis, from participation in a pool or from the performance of services directly related to those uses, all of which we refer to as “shipping income.”

Unless exempt from United States federal income taxation under the rules of Section 883 of the Code, or Section 883, as discussed below, a foreign corporation such as us will be subject to United States federal income taxation on its “shipping income” that is treated as derived from sources within the United States, which we refer to as “United States source shipping income.” For United States federal income tax purposes, “United States source shipping income” includes 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States.

Shipping income attributable to transportation exclusively between non-United States ports will be considered to be 100% derived from sources entirely outside the United States. Shipping income derived from sources outside the United States will not be subject to any United States federal income tax.

Shipping income attributable to transportation exclusively between United States ports is considered to be 100% derived from United States sources. However, we are not permitted by United States law to engage in the transportation of cargoes that produces 100% United States source shipping income.

Unless exempt from tax under Section 883, our gross United States source shipping income would be subject to a 4% tax imposed without allowance for deductions, as described more fully below.

Exemption of Operating Income from United States Federal Income Taxation

Under Section 883 and the Treasury Regulations thereunder, a foreign corporation will be exempt from United States federal income taxation on its United States source shipping income if:

(1) it is organized in a “qualified foreign country,” which is one that grants an “equivalent exemption” from tax to corporations organized in the United States in respect of each category of shipping income for which exemption is being claimed under Section 883; and

(2) one of the following tests is met:

(A) more than 50% of the value of its shares is beneficially owned, directly or indirectly, by “qualified shareholders,” which as defined includes individuals who are “residents” of a qualified foreign country, which we refer to as the “50% Ownership Test”; or

(B) its shares are “primarily and regularly traded on an established securities market” in a qualified foreign country or in the United States, to which we refer as the “Publicly-Traded Test”.

The Republic of The Marshall Islands, the jurisdiction where we and our ship-owning subsidiaries are incorporated, has been officially recognized by the United States Internal Revenue Service, or the IRS, as a qualified

foreign country that grants the requisite “equivalent exemption” from tax in respect of each category of shipping income we earn and currently expect to earn in the future. Therefore, we will be exempt from United States federal income taxation with respect to our United States source shipping income if we satisfy either the 50% Ownership Test or the Publicly-Traded Test.

For our 2012 taxable tax year, we intend to take the position that we satisfy the Publicly-Traded Test and we anticipate that we will continue to satisfy the Publicly-Traded Test for future taxable years. However, as discussed below, this is a factual determination made on an annual basis. We do not currently anticipate a circumstance under which we would be able to satisfy the 50% Ownership Test.

Publicly-Traded Test

The Treasury Regulations under Section 883 provide, in pertinent part, that shares of a foreign corporation will be considered to be “primarily traded” on an established securities market in a country if the number of shares of each class of stock that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during that year on established securities markets in any other single country. Our common shares, which constitute our sole class of issued and outstanding stock, are “primarily traded” on the New York Stock Exchange, or the NYSE.

Under the Treasury Regulations, our common shares will be considered to be “regularly traded” on an established securities market if one or more classes of our stock representing more than 50% of our outstanding stock, by both total combined voting power of all classes of stock entitled to vote and total value, are listed on such market, to which we refer as the “Listing Threshold.” Since our common shares are listed on the NYSE, we expect to satisfy the Listing Threshold.

It is further required that with respect to each class of stock relied upon to meet the Listing Threshold, (i) such class of stock is traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or one-sixth of the days in a short taxable year, or the “Trading Frequency Test”; and (ii) the aggregate number of shares of such class of stock traded on such market during the taxable year is at least 10% of the average number of shares of such class of stock outstanding during such year or as appropriately adjusted in the case of a short taxable year, or the “Trading Volume Test.” We currently satisfy and anticipate that it will continue to satisfy the Trading Frequency Test and Trading Volume Test. Even if this were not the case, the Treasury Regulations provide that the Trading Frequency Test and Trading Volume Tests will be deemed satisfied if, as is the case with our common shares, such class of stock is traded on an established securities market in the United States and such class of stock is regularly quoted by dealers making a market in such stock.

Notwithstanding the foregoing, the Treasury Regulations provide, in pertinent part, that a class of stock will not be considered to be “regularly traded” on an established securities market for any taxable year during which 50% or more of the vote and value of the outstanding shares of such class are owned, actually or constructively under specified attribution rules, on more than half the days during the taxable year by persons who each own 5% or more of the vote and value of such class of outstanding shares, to which we refer as the “5% Override Rule.”

For purposes of being able to determine the persons who actually or constructively own 5% or more of the vote and value of our common shares, or “5% Shareholders,” the Treasury Regulations permit us to rely on those persons that are identified on Schedule 13G and Schedule 13D filings with the United States Securities and Exchange Commission, or the SEC, as owning 5% or more of our common shares. The Treasury Regulations further provide that an investment company which is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% Shareholder for such purposes.

In the event the 5% Override Rule is triggered, the Treasury Regulations provide that the 5% Override Rule will nevertheless not apply if we can establish that within the group of 5% Shareholders, there are sufficient qualified 92 shareholders for purposes of Section 883 to preclude non-qualified shareholders in such group from owning 50% or more of our common shares for more than half the number of days during the taxable year. In order to benefit from this exception to the 5% Override Rule, we must satisfy certain substantiation requirements in regards to the identity of its 5% Shareholders.

We believe that we currently satisfy the Publicly-Traded Test and intend to take this position on our United States federal income tax return for the 2012 taxable year However, there are factual circumstances beyond our control that could cause us to lose the benefit of the Section 883 exemption. For example, if we trigger the 5% Override Rule for any future taxable year, there is no assurance that we will have sufficient qualified 5% Shareholders to preclude nonqualified 5% Shareholders from owning 50% or more of our common shares for more than half the number of days during such taxable year, or that we will be able to satisfy the substantiation requirements in regards to our 5% Shareholders.

United States Federal Income Taxation In Absence of Section 883 Exemption

If the benefits of Section 883 are unavailable, our United States source shipping income would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, which we refer to as the “4% gross basis tax regime,” to the extent that such income is not considered to be “effectively connected” with the conduct of a United States trade or business, as described below. Since under the sourcing rules described above, no more than 50% of our shipping income would be treated as being United States source shipping income, the maximum effective rate of United States federal income tax on our shipping income would never exceed 2% under the 4% gross basis tax regime.

To the extent our United States source shipping income is considered to be “effectively connected” with the conduct of a United States trade or business, as described below, any such “effectively connected” United States source shipping income, net of applicable deductions, would be subject to United States federal income tax, currently imposed at rates of up to 35%. In addition, we would generally be subject to the 30% “branch profits” tax on earnings effectively connected with the conduct of such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of our United States trade or business.

Our United States source shipping income would be considered “effectively connected” with the conduct of a United States trade or business only if:

• we have, or are considered to have, a fixed place of business in the United States involved in the earning of United States source shipping income; and

• substantially all of our United States source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States.

We do not currently have, intend to have, or permit circumstances that would result in having, any vessel sailing to or from the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other activities, it is anticipated that none of our United States source shipping income will be “effectively connected” with the conduct of a United States trade or business.

United States Federal Income Taxation of Gain on Sale of Vessels

If we qualify for exemption from tax under Section 883 in respect of the shipping income derived from the international operation of our vessels, then gain from the sale of any such vessel should likewise be exempt from United States federal income tax under Section 883. If, however, our shipping income from such vessels does not for whatever reason qualify for exemption under Section 883, then any gain on the sale of a vessel will be subject to United States federal income tax if such sale occurs in the United States. To the extent possible, we intend to structure the sales of our vessels so that the gain therefrom is not subject to United States federal income tax. However, there is no assurance we will be able to do so.

United States Federal Income Taxation of United States Holders

The following is a discussion of the material United States federal income tax considerations relevant to an investment decision by a United States Holder, as defined below, with respect to our common shares. This discussion does not purport to deal with the tax consequences of owning common shares to all categories of investors, some of which may be subject to special rules. This discussion only addresses considerations relevant to those United States Holders who hold the common shares as capital assets, that is, generally for investment purposes. You are encouraged to consult your own tax advisors concerning the overall tax consequences arising in your own particular situation under United States federal, state, local or foreign law of the ownership of common shares.

As used herein, the term “United States Holder” means a beneficial owner of common shares that is an individual United States citizen or resident, a United States corporation or other United States entity taxable as a corporation, an estate the income of which is subject to United States federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust.

If a partnership holds our common shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding common shares, you are encouraged to consult your tax advisor.

Distributions

Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to our common shares to a United States Holder will generally constitute dividends to the extent of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Distributions in excess of such earnings and profits will be treated first as a nontaxable return of capital to the extent of the United States Holder’s tax basis in his common shares on a dollar-for-dollar basis and thereafter as capital gain. Because we are not a United States corporation, United States Holders that are corporations will not be entitled to claim a dividends received deduction with respect to any distributions they receive from us. Dividends paid with respect to our common shares will generally be treated as “passive category income” for purposes of computing allowable foreign tax credits for United States foreign tax credit purposes.

Dividends paid on our common shares to a United States Holder who is an individual, trust or estate (a “United States Non-Corporate Holder”) will generally be treated as “qualified dividend income” that is taxable to such United States Non-Corporate Holder at preferential tax rates provided that (1) the common shares are readily tradable on an established securities market in the United States (such as the NYSE, on which our common shares are traded); (2) we are not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (which, as discussed below, we believe we have not been, we believe we are not and do not anticipate being in the future); (3) the United States Non-Corporate Holder has owned the common shares for more than 60 days in the 121-day period beginning 60 days before the date on which the common shares become ex-dividend; and (4) the United States Non-Corporate Holder is not under an obligation to make related payments with respect to positions in substantially similar or related property. Any distributions out of earnings and profits we pay which are not eligible for these preferential rates will be taxed as ordinary income to a United States Non-Corporate Holder.

Special rules may apply to any “extraordinary dividend”—generally, a dividend in an amount which is equal to or in excess of 10% of a shareholder’s adjusted tax basis in his common shares—paid by us. If we pay an “extraordinary dividend” on our common shares that is treated as “qualified dividend income,” then any loss derived by a United States Non-Corporate Holder from the sale or exchange of such common shares will be treated as long-term capital loss to the extent of such dividend.

Sale, Exchange or Other Disposition of Common Shares

Assuming we do not constitute a passive foreign investment company for any taxable year, a United States Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our common shares in an amount equal to the difference between the amount realized by the United States Holder from such sale, exchange or other 94 disposition and the United States Holder’s tax basis in such shares. Such gain or loss will be treated as long-term capital gain or loss if the United States Holder’s holding period is greater than one year at the time of the sale, exchange or other disposition. Such capital gain or loss will generally be treated as United States source income or loss, as applicable, for United States foreign tax credit purposes. Long-term capital gains of United States Non-Corporate Holders are currently eligible for reduced rates of taxation. A United States Holder’s ability to deduct capital losses is subject to certain limitations.

3.8% Tax on Net Investment Income

For taxable years beginning after December 31, 2012, a United States Holder that is an individual will generally be subject to a 3.8% tax on the lesser of (1) the United States Holder’s net investment income for the taxable year and (2) the excess of the United States holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000). A United States Holder’s net investment income will generally include dividends paid on our common shares and net gains from the sale, exchange or other disposition of our common shares. Similar rules apply to estates and, in certain cases, trusts. If you are a United States Holder that is an individual, estate or trust, you are encouraged to consult your tax advisors regarding the applicability of these rules.

Passive Foreign Investment Company Status and Significant Tax Consequences

Special United States federal income tax rules apply to a United States Holder that holds shares in a foreign corporation classified as a “passive foreign investment company”, or a PFIC, for United States federal income tax purposes. In general, we will be treated as a PFIC with respect to a United States Holder if, for any taxable year in which such Holder holds our common shares, either:


	•	at least 75% of our gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or

	•	at least 50% of the average value of our assets during such taxable year produce, or are held for the production of, passive income.

For purposes of determining whether we are a PFIC, we will be treated as earning and owning our proportionate share of the income and assets, respectively, of any of our subsidiary corporations in which we own at least 25% of the value of the subsidiary’s stock. Income earned, or deemed earned, by us in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute “passive income” unless we were treated under specific rules as deriving our rental income in the active conduct of a trade or business.

Based on our current operations and future projections, we do not believe that we have been, are, nor do we expect to become, a passive foreign investment company with respect to any taxable year. Although there is no legal authority directly on point, our belief is based principally on the position that, for purposes of determining whether we are a passive foreign investment company, the gross income we derive or are deemed to derive from the time chartering and voyage chartering activities of our wholly-owned subsidiaries should constitute services income, rather than rental income. Accordingly, such income should not constitute passive income, and the assets that we own and operate in connection with the production of such income, in particular, the vessels, should not constitute assets that produce or are held for the production of passive income for purposes of determining whether we are a PFIC. Therefore, based on our current operations and future projections, we should not be treated as a PFIC with respect to any taxable year. There is substantial legal authority supporting this position, consisting of case law and IRS pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, there is also authority that characterizes time charter income as rental income rather than services income for other tax purposes. It should be noted that in the absence of any legal authority specifically relating to the statutory provisions governing PFICs, the IRS or a court could disagree with our position. Furthermore, although we intend to conduct our affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future.

As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a United States Holder would be subject to different United States federal income taxation rules depending on whether the United States Holder makes an election to treat us as a “Qualified Electing Fund,” which election we refer to as a “QEF election.” As an alternative to making a QEF election, a United States Holder should be able to make a “mark-to-market” election with respect to our common shares, as discussed below. In addition, if we were to be treated as a PFIC for any taxable year after 2010, a United States Holder would be required to file an annual report with the IRS for that year with respect to such Holder’s common shares.

Taxation of United States Holders Making a Timely QEF Election

If a United States Holder makes a timely QEF election, which United States Holder we refer to as an “Electing Holder,” the Electing Holder must report for United States federal income tax purposes his pro rata share of our ordinary earnings and net capital gain, if any, for each of our taxable years during which we are a PFIC that ends with or within the taxable year of the Electing Holder, regardless of whether distributions were received from us by the Electing Holder. No portion of any such inclusions of ordinary earnings will be treated as “qualified dividend income.” Net capital gain inclusions of United States Non-Corporate Holders would be eligible for preferential capital gain tax rates. The Electing Holder’s adjusted tax basis in the common shares will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the common shares and will not be taxed again once distributed. An Electing Holder would not, however, be entitled to a deduction for its pro rata share of any losses that we incur with respect to any taxable year. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our common shares. A United States Holder would make a timely QEF election for our shares by filing one copy of IRS Form 8621 with his United States federal income tax return for the first year in which he held such shares when we were a PFIC. If we were to be treated as a PFIC for any taxable year, we would provide each United States Holder with all necessary information in order to make the QEF election described above.

Taxation of United States Holders Making a “Mark-to-Market” Election

Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate will be the case, our common shares are treated as “marketable stock,” a United States Holder would be allowed to make a “mark-to-market” election with respect to our common shares, provided the United States Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made, the United States Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the common shares at the end of the taxable year over such Holder’s adjusted tax basis in the common shares. The United States Holder would also be permitted an ordinary loss in respect of the excess, if any, of the United States Holder’s adjusted tax basis in the common shares over its fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A United States Holder’s tax basis in his common shares would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the United States Holder.

Taxation of United States Holders Not Making a Timely QEF or Mark-to-Market Election

Finally, if we were to be treated as a PFIC for any taxable year, a United States Holder who does not make either a QEF election or a “mark-to-market” election for that year, whom we refer to as a “Non-Electing Holder,” would be subject to special rules with respect to (1) any excess distribution (i.e., the portion of any distributions received by the Non-Electing Holder on the common shares in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period for the common shares), and (2) any gain realized on the sale, exchange or other disposition of our common shares. Under these special rules:


•	the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s aggregate holding period for the common shares;

•	the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, would be taxed as ordinary income and would not be “qualified dividend income”; and

•	the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.

United States Federal Income Taxation of “Non-United States Holders”

A beneficial owner of common shares (other than a partnership) that is not a United States Holder is referred to herein as a “Non-United States Holder.”

If a partnership holds common shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding common shares, you are encouraged to consult your tax advisor.

Dividends on Common Stock

A Non-United States Holder generally will not be subject to United States federal income tax or withholding tax on dividends received from us with respect to his common shares, unless that income is effectively connected with the Non-United States Holder’s conduct of a trade or business in the United States. If the Non-United States Holder is entitled to the benefits of a United States income tax treaty with respect to those dividends, that income is subject to United Stated federal income tax only if it is attributable to a permanent establishment maintained by the Non-United States Holder in the United States.

Sale, Exchange or Other Disposition of Common Shares

Non-United States Holders generally will not be subject to United States federal income tax or withholding tax on any gain realized upon the sale, exchange or other disposition of our common shares, unless:


•	the gain is effectively connected with the Non-United States Holder’s conduct of a trade or business in the United States (and, if the Non-United States Holder is entitled to the benefits of a United States income tax treaty with respect to that gain, that gain is attributable to a permanent establishment maintained by the Non-United States Holder in the United States); or

•	the Non-United States Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met.

If the Non-United States Holder is engaged in a United States trade or business for United States federal income tax purposes, dividends on the common shares, and gains from the sale, exchange or other disposition of such shares, that are effectively connected with the conduct of that trade or business will generally be subject to regular United States federal income tax in the same manner as discussed in the previous section relating to the taxation of United States Holders. In addition, if you are a corporate Non-United States Holder, your earnings and profits that are attributable to the effectively connected income, subject to certain adjustments, may be subject to an additional “branch profits” tax at a rate of 30%, or at a lower rate as may be specified by an applicable United States income tax treaty.

Backup Withholding and Information Reporting

In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to information reporting requirements if you are a non-corporate United States Holder. Such payments or distributions may also be subject to backup withholding if you are a non-corporate United States Holder and you:


•	fail to provide an accurate taxpayer identification number;

•	are notified by the IRS that you have failed to report all interest or dividends required to be shown on your United States federal income tax returns; or

•	in certain circumstances, fail to comply with applicable certification requirements.

Non-United States Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on IRS Form W-8BEN, W-8ECI or W-8IMY, as applicable.

If you are a Non-United States Holder and you sell your common shares to or through a United States office of a broker, the payment of the proceeds is subject to both United States backup withholding and information reporting unless you certify that you are a non-United States person, under penalties of perjury, or you otherwise establish an exemption. If you sell your common shares through a non-United States office of a non-United States broker and the sales proceeds are paid to you outside the United States, then information reporting and backup withholding generally will not apply to that payment. However, United States information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made to you outside the United States, if you sell your common shares through a non-United States office of a broker that is a United States person or has some other contacts with the United States. Such information reporting requirements will not apply, however, if the broker has documentary evidence in its records that you are a non-United States person and certain other conditions are met, or you otherwise establish an exemption.

Backup withholding is not an additional tax. Rather, you generally may obtain a refund of any amounts withheld under backup withholding rules that exceed your United States federal income tax liability by filing a refund claim with the IRS.

Pursuant to recently enacted legislation, individuals who are United States Holders (and to the extent specified in applicable Treasury Regulations, certain individuals who are Non- United States Holders and certain United States entities) who hold “specified foreign financial assets” (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury regulations). Specified foreign financial assets would include, among other assets, our common shares, unless the shares are held through an account maintained with a United States financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, in the event an individual United States Holder (and to the extent specified in applicable Treasury Regulations, an individual Non- United States Holder or a United States entity) that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of United States federal income taxes of such holder for the related tax year may not close until three years after the date that the required IRS Form 8938 is filed. United States Holders (including United States entities) and Non- United States Holders are encouraged consult their own tax advisors regarding their reporting obligations under this legislation.


F.	Dividends and Paying Agents

	Not applicable.

G.	Statement by Experts

	Not applicable.

H.	Documents on Display

We file reports and other information with the SEC. These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the Commission at 100 F Street, N.E. Washington, D.C. 20549, or from the SEC’s website http://www.sec.gov . You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330, and you may obtain copies at prescribed rates.


I.	Subsidiary Information

	Not applicable.


I TEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Interest Rate Risk

We are exposed to the impact of interest rate changes primarily through our unhedged variable-rate borrowings. Significant increases in interest rates could adversely affect our operating margins, results of operations and our ability to service our debt. From time to time, we will use interest rate swaps to reduce our exposure to market risk from changes in interest rates. The principal objective of these contracts is to minimize the risks and costs associated with our variable-rate debt and is not for speculative or trading purposes. We had one interest rate swap which expired in April 2010 when the 2005 Credit Facility was repaid. We have six interest rate swaps which we entered into in August 2011 and went into effect on July 1, 2012 for an aggregate notional amount of $75 million, which was reduced to $66.0 million in September 2012. See Note 12 of the consolidated financial statements for further information. The fair market value of our interest rate swaps was a liability of $1.4 million at December 31, 2012.

Based on the floating rate debt at December 31, 2012, a one-percentage point increase in the floating interest rate would increase interest expense by $1.6 million per year. The following table presents the due dates for the principal payments on our fixed and floating rate debt:


	As of December 31, 2012
Amounts in thousands of US dollars	2013		2014 - 2015		2016 - 2017		Thereafter
Principal payments floating rate debt (unhedged)	$	3,007	$	27,410	$	26,784	$	76,913
Principal payments fixed rate debt (hedged)		4,600		7,564		—		—
Total principal payments on outstanding debt	$	7,607	$	34,974	$	26,784	$	76,913

Spot Market Rate Risk

The cyclical nature of the tanker industry causes significant increases or decreases in the revenue that we earn from our vessels, particularly those vessels that operate in the spot market or participate in pools that are concentrated in the spot market such as the Scorpio Group Pools. We currently do not have any vessels on time charter contracts. Additionally, we have the ability to remove our vessels from the pools on relatively short notice if attractive time charter opportunities arise.

Foreign Exchange Rate Risk

Our primary economic environment is the international shipping market. This market utilizes the US dollar as its functional currency. Consequently, virtually all of our revenues and the majority of our operating expenses are in US dollars. However, we incur some of our combined expenses in other currencies, particularly the Euro. The amount and frequency of some of these expenses (such as vessel repairs, supplies and stores) may fluctuate from period to period. Depreciation in the value of the US dollar relative to other currencies will increase the US dollar cost of us paying such expenses. The portion of our business conducted in other currencies could increase in the future, which could expand our exposure to losses arising from currency fluctuations.

There is a risk that currency fluctuations will have a negative effect on our cash flows. We have not entered into any hedging contracts to protect against currency fluctuations. However, we have some ability to shift the purchase of goods and services from one country to another and, thus, from one currency to another, on relatively short notice. We may seek to hedge this currency fluctuation risk in the future.

Bunker Price Risk

Our operating results are affected by movement in the price of fuel oil consumed by the vessels – known in the industry as bunkers. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the Organization of the Petroleum Exporting Countries, or OPEC, and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Further, fuel may become much more expensive in the future, which may reduce the profitability. We do not hedge our exposure to bunker price risk.

Inflation

We do not expect inflation to be a significant risk to direct expenses in the current and foreseeable economic environment.


I TEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES


	Not applicable.

P ART II


I TEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES


	Not applicable.


I TEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS


	Not applicable.


I TEM 15.	CONTROLS AND PROCEDURES


A.	Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Our controls and procedures are designed to provide reasonable assurance of achieving their objectives.

We carried out an evaluation under the supervision, and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15e under the Securities Act of 1934) as of December 31, 2012. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2012 to provide reasonable assurance that (1) information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.


B.	Management’s Annual Report on Internal Control Over Financial Reporting.

In accordance with Rule 13a-15(f) of the Securities Exchange Act of 1934, the management of Scorpio Tankers Inc. and its subsidiaries (the “Company”) is responsible for the establishment and maintenance of adequate internal 100 controls over financial reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Management has performed an assessment of the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2012 based on the provisions of Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment, management determined that the Company’s internal controls over financial reporting was effective as of December 31, 2012 based on the criteria in Internal Control—Integrated Framework issued by COSO.

The Company’s internal control over financial reporting, at December 31, 2012, has been audited by Deloitte LLP, an independent registered public accounting firm, who also audited the Company’s consolidated financial statements. Their audit report on the effectiveness of internal control over financial reporting is presented below.


C.	Attestation Report of the Registered Public Accounting Firm.

To the Board of Directors and Shareholders of Scorpio Tankers Inc.

Majuro, Marshall Island

We have audited the internal control over financial reporting of Scorpio Tankers Inc. and subsidiaries (the “Company”) as of December 31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting . Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2012 of the Company and our report dated March 28, 2013 expressed an unqualified opinion on those financial statements.

/s/ DELOITTE LLP

London, United Kingdom

March 28, 2013

100


D.	Changes in Internal Control Over Financial Reporting.

None


I TEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has determined that Mr. Ademaro Lanzara, who serves on the Audit Committee, qualifies as an “audit committee financial expert” and that he is “independent” according to Securities and Exchange Commission rules.


I TEM 16B.	CODE OF ETHICS

We have adopted a code of ethics applicable to officers, directors and employees, which complies with applicable guidelines issued by the SEC. Our code of ethics is filed as an exhibit to this annual report and can be found on our website at www.scorpiotankers.com. We will also provide a hard copy of our code of ethics free of charge upon written request to Scorpio Tankers Inc., 9 Boulevard Charles III, Monaco, 98000.


I TEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES


A.	Audit Fees

Our principal accountant for fiscal years ended December 31, 2012, 2011 and 2010 was Deloitte LLP (London, United Kingdom), and the audit fees for those periods were $434,247, $380,174 and $218,167, respectively.


B.	Audit-Related Fees

None.


C.	Tax Fees

None.


D.	All Other Fees

During 2012, our principal accountant provided services related to SEC comment letter review and follow-on offerings were completed in April and December 2012. The fees for these services were $38,743, $80,675 and $97,128, respectively. During 2011, our principal accountant provided services related to our F-3 shelf registration and follow-on offerings were completed on May 10, 2011, May 18, 2011 and December 6, 2011, respectively. The fees for these services were $28,982, $72,896 and $86,206, respectively.


E.	Audit Committee’s Pre-Approval Policies and Procedures

Our Audit Committee pre-approves all audit, audit-related and non-audit services not prohibited by law to be performed by our independent auditors and associated fees prior to the engagement of the independent auditor with respect to such services.

101


F.	Audit Work Performed by Other Than Principal Accountant if Greater Than 50%

Not applicable.


I TEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.


I TEM 16E.	PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

On July 9, 2010, the board of directors authorized a share buyback program of $20 million. We repurchase these shares in the open market at the time and prices that we consider to be appropriate. During the year ended December 31, 2012, 447,322 shares have been purchased under the plan at an average price of $5.4546 per share, including commissions. As of the date of this report, 1,170,987 shares have been purchased under the plan at an average price of $6.7793 per share. The amounts purchased during 2012, by month, are set out in the table below:


Issuer Purchases of Equity Securities
Period	(A) Total Number of Shares Purchased		(B) Average Price Paid Per Shares		( C ) Total Number of Shares Purchased as Part of Publicly Announced Programs		(D) Maximum Amount in US $ million that may Yet Be Expected on Share Repurchases Under Programs
June 2012		365,000	$	5.48		365,000	$	12,501,305
August 2012		75,422	$	5.35		75,422	$	12,098,149
September 2012		6,900	$	5.30		6,900	$	12,061,547
Total		447,322	$	5.45		447,322	$	12,061,547

Officers and directors acquired 163,994 shares during 2012.


I TEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.


I TEM 16G.	CORPORATE GOVERNANCE

Pursuant to an exception for foreign private issuers, we, as a Marshall Islands company, are not required to comply with the corporate governance practices followed by U.S. companies under the NYSE listing standards. We believe that our established practices in the area of corporate governance are in line with the spirit of the NYSE standards and provide adequate protection to our shareholders. In this respect, we have voluntarily adopted NYSE required practices, such as (i) having a majority of independent directors, (ii) establishing audit, compensation and nominating committees and (iii) adopting a Code of Ethics.

There are two significant differences between our corporate governance practices and the practices required by the NYSE. The NYSE requires that non-management directors meet regularly in executive sessions without management. The NYSE also requires that all independent directors meet in an executive session at least once a year. The Marshall Islands law and our bylaws do not require our non-management directors to regularly hold executive sessions without management. During 2012 and through the date of this annual report, our non-management directors met in executive session four times. The NYSE requires companies to adopt and disclose corporate governance guidelines. The guidelines must address, among other things: director qualification standards, director responsibilities, director access to management and independent advisers, director compensation, director orientation and continuing education, management succession and an annual performance evaluation. We are not required to adopt such guidelines under Marshall Islands law and we have not adopted such guidelines.

102

I TEM 16H. Mine Safety Disclosure

Not applicable

P ART III


I TEM 17.	FINANCIAL STATEMENTS

Not applicable


I TEM 18.	FINANCIAL STATEMENTS

The financial information required by this Item is set forth on pages F-1 to F-42 and is filed as part of this annual report.


I TEM 19.	EXHIBITS


Exhibit Number		Description
1.1		Amended and Restated Articles of Incorporation of the Company (1)
1.2		Amended and Restated Bylaws of the Company (3)
2.1		Form of Stock Certificate (1)
2.3		Form of Senior Debt Securities Indenture (5)
2.4		Form of Subordinated Debt Securities Indenture (5)
4.1		Amended and Restated Loan Agreement for $150 Million Revolving Credit Facility, dated July 12, 2011 (6)
4.2		Letter Agreement to July 12, 2011 Amended and Restated Loan Agreement, dated September 22, 2011(6)
4.3		First Amendatory Agreement to July 12, 2011 Amended and Restated Loan Agreement, dated December 22, 2011 (6)
4.4		2010 Equity Incentive Plan (3)
4.5		Administrative Services Agreement between the Company and Liberty Holding Company Ltd. (2)
4.6		Master Agreement between the Company, SSM and SCM dated January 24, 2013
4.7		Loan Agreement for STI Spirit, dated March 9, 2011 (4)
4.8		Letter Agreement to March 9, 2011 Loan Agreement, dated September 28, 2011 (6)
4.9		First Amendatory Agreement to March 9, 2011 Loan Agreement, dated December 30, 2011 (6)
4.10		Loan Agreement for $150 Million Term Loan Credit Facility, dated May 3, 2011 (6)
4.11		Letter Agreement to May 3, 2011 Loan Agreement, dated September 22, 2011 (6)
4.12		First Amendatory Agreement to May 3, 2011 Loan Agreement, dated June 27, 2011 (6)
4.13		Second Amendatory Agreement to May 3, 2011 Loan Agreement, dated December 22, 2011 (6)
4.14		Loan Agreement for a $92,000,000 Term Loan Credit Facility, dated December 21, 2011 (6)
8.1		Subsidiaries of the Company
11.1		Code of Ethics
11.2		Whistleblower Policy
12.1		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
12.2		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

103


13.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1		Consent of Independent Registered Public Accounting Firm
15.2		Consent of Drewry Shipping Consultants, Ltd.



(1)	Filed as an Exhibit to the Company’s Amended Registration Statement on Form F-1/A (Amendment No. 1) (File No. 333-164940) on March 10, 2010.

(2)	Filed as an Exhibit to the Company’s Amended Registration Statement on Form F-1/A (Amendment No. 2) (File No. 333-164940) on March 18, 2010.

(3)	Filed as an Exhibit to the Company’s Annual Report filed on Form 20-F on June 29, 2010.

(4)	Filed as an Exhibit to the Company’s Annual Report filed on Form 20-F on April 21, 2011.

(5)	Filed as an Exhibit to the Company’s Registration Statement on Form F-3 (File No. 333-173929) on May 4, 2011.

(6)	Filed as an Exhibit to the Company’s Annual Report on Form 20-F on April 13, 2012, as amended.

104

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf.


	Scorpio Tankers Inc.
	(Registrant)
Dated: March 28, 2013
	/s/Emanuele Lauro
	Emanuele Lauro
	Chief Executive Officer

105

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm		F-2
*Audited Consolidated Financial Statements*
Consolidated Balance Sheets as of December 31, 2012 and 2011		F-3
Consolidated Statements of Profit or Loss for the years ended December 31, 2012, 2011 and 2010		F-4
Consolidated Statements of Comprehensive Income or Loss for the years ended December 31, 2012, 2011 and 2010		F-5
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2012, 2011 and 2010		F-6
Consolidated Cash Flow Statements for the years ended December 31, 2012, 2011 and 2010		F-7
Notes to the Consolidated Financial Statements		F-8

F- 1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Scorpio Tankers Inc.

Majuro, Marshall Island

We have audited the accompanying consolidated balance sheets of Scorpio Tankers Inc. and subsidiaries (the "Company") as of December 31, 2012 and 2011, and the related consolidated statements of profit or loss, consolidated statements of comprehensive loss or income, consolidated statements of changes in shareholders’ equity, and consolidated cash flow statements for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Scorpio Tankers Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 28, 2013 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE LLP

London, United Kingdom

March 28, 2013

F- 2

Scorpio Tankers Inc. and Subsidiaries

Consolidated balance sheets

December 31, 2012 and 2011

			As of
In thousands of U.S. dollars	Notes		December 31, 2012			December 31, 2011
Assets
Current assets
Cash and cash equivalents			$	87,165		$	36,833
Accounts receivable		3		36,438			20,386
Prepaid expenses and other current assets		4		956			1,535
Inventories		5		2,169			2,696
Total current assets				126,728			61,450
Non-current assets
Vessels and drydock		6		395,412			322,458
Vessels under construction		6		50,251			60,333
Other assets		8		889			3,989
Total non-current assets				446,552			386,780
Total assets			$	573,280		$	448,230

Current liabilities
Bank loans		11		7,475			2,889
Accounts payable		9		11,387			11,732
Accrued expenses		10		3,057			3,376
Derivative financial instruments		12		844			237
Total current liabilities				22,763			18,234
Non-current liabilities
Bank loans		11		134,984			142,679
Derivative financial instruments		12		743			464
Total non-current liabilities				135,727			143,143
Total liabilities				158,490			161,377

Shareholders' equity
Issued, authorized and fully paid in share capital:
Share capital		14		650			391
Additional paid in capital		14		519,493			363,210
Treasury shares		14		(7,938	)		(5,498	)
Hedging reserve		12		(329	)		(701	)
Accumulated deficit				(97,086	)		(70,549	)
Total shareholders' equity				414,790			286,853
Total liabilities and shareholders' equity			$	573,280		$	448,230

The accompanying notes are an integral part of these consolidated financial statements.

F- 3

Scorpio Tankers Inc. and Subsidiaries

Consolidated statements of profit or loss

For the years ended December 31, 2012, 2011 and 2010

			For the year ended December 31,
In thousands of U.S. dollars except per share and share data	Notes		2012			2011			2010
Revenue:
Vessel revenue	16	$	115,381		$	82,110		$	38,798

Operating expenses:
Vessel operating costs			(30,353	)		(31,370	)		(18,440	)
Voyage expenses			(21,744	)		(6,881	)		(2,542	)
Charterhire	17		(43,701	)		(22,750	)		(276	)
Impairment	7		—			(66,611	)		—
Depreciation	6		(14,818	)		(18,460	)		(10,179	)
Loss from sale of vessels	6		(10,404	)		—			—
General and administrative expenses	18		(11,536	)		(11,637	)		(6,200	)
Total operating expenses			(132,556	)		(157,709	)		(37,637	)
Operating (loss)/profit			(17,175	)		(75,599	)		1,161
Other (expense) and income, net
Financial expenses	19		(8,512	)		(7,060	)		(3,231	)
Earnings from profit or loss sharing agreements	12		443			—			—
Realized loss on derivative financial instruments	12		—			—			(280	)
Unrealized loss on derivative financial instruments	12		(1,231	)		—			—
Financial income			35			51			37
Other expenses, net			(97	)		(119	)		(509	)
Total other expense, net			(9,362	)		(7,128	)		(3,983	)
Net loss		($	26,537	)	($	82,727	)	($	2,822	)

Attributable to:
Equity holders of the parent		($	26,537	)	($	82,727	)	($	2,822	)

Loss per share

Basic and diluted	21	($	0.64	)	($	2.88	)	($	0.18	)
Basic and diluted weighted average shares outstanding	21		41,413,339			28,704,876			15,600,813

The accompanying notes are an integral part of these consolidated financial statements.

F- 4

Scorpio Tankers Inc. and Subsidiaries

Consolidated statements of comprehensive income or loss

For the years ended December 31, 2012, 2011 and 2010

	For the year ended December 31,
In thousands of U.S. dollars	2012			2011			2010
Net loss	($	26,537	)	($	82,727	)	($	2,822	)
Other comprehensive income / (loss):
Items that may be reclassified subsequently to profit or loss
Cash flow hedges
Unrealized loss on derivative financial instruments		(904	)		(701	)		—
Reclassification adjustment for derivative financial instruments included in net loss		1,276			—			—
Other comprehensive income / (loss)		372			(701	)		—

Total comprehensive loss	($	26,165	)	($	83,428	)	($	2,822	)

Attributable to:
Equity holders of the parent	($	26,165	)	($	83,428	)	($	2,822	)

The accompanying notes are an integral part of these consolidated financial statements.

F- 5

Scorpio Tankers Inc. and Subsidiaries

Consolidated statements of changes in shareholders’ equity

For the years ended December 31, 2012, 2011 and 2010

In thousands of U.S. dollars	Number of			Share		Additional			Treasury			Merger			Accumulated			Hedging
except share data	shares outstanding			capital		paid-in capital			shares			reserve			deficit			reserve			Total

Balance at January 1, 2010		5,589,147		$	56	$	46,272		$	0		$	13,292		$	1,708		$	0		$	61,328
Net loss for the period		—			—		—			—			—			(2,822	)		—			(2,822	)
Net proceeds from offerings		18,721,454			187		207,750			—			—			—			—			207,937
Issuance of restricted shares		568,458			6		(6	)		—			—			—			—			—
Amortization of restricted shares		—			—		988			—			—			—			—			988
Purchase of treasury shares		(244,146	)		—		—			(2,647	)		—			—			—			(2,647	)
Balance at December 31, 2010		24,634,913		$	249	$	255,004		($	2,647	)	$	13,292		($	1,114	)	$	0		$	264,784

Balance as of January 1, 2011		24,634,913		$	249	$	255,004		($	2,647	)	$	13,292		($	1,114	)	$	0		$	264,784
Net loss for the period		—			—		—			—			—			(82,727	)		—			(82,727	)
Other comprehensive loss		—			—		—			—			—			—			(701	)		(701	)
Net proceeds from follow on offerings		13,900,000			139		104,847			—			—			—			—			104,986
Issuance of restricted stock		290,000			3		(3	)		—			—			—			—			—
Amortization of restricted stock		—			—		3,362			—			—			—			—			3,362
Purchase of treasury shares		(479,519	)		—		—			(2,851	)		—			—			—			(2,851	)
Transfer to/ (from) reserves		—			—		—			—			(13,292	)		13,292			—			—
Balance as of December 31, 2011		38,345,394		$	391	$	363,210		($	5,498	)	$	0		($	70,549	)	($	701	)	$	286,853

Balance as of January 1, 2012		38,345,394		$	391	$	363,210		($	5,498	)	$	0		($	70,549	)	($	701	)	$	286,853
Net loss for the period		—			—		—			—			—			(26,537	)		—			(26,537	)
Other comprehensive income		—			—		—			—			—			—			372			372
Net proceeds from follow on offerings		25,639,774			256		152,796			—			—			—			—			153,052
Issuance of restricted stock		290,000			3		(3	)		—			—			—			—			—
Amortization of restricted stock		—			—		3,490			—			—			—			—			3,490
Purchase of treasury shares		(447,322	)		—		—			(2,440	)		—			—			—			(2,440	)
Balance as of December 31, 2012		63,827,846		$	650	$	519,493		($	7,938	)	$	0		($	97,086	)	($	329	)	$	414,790

The accompanying notes are an integral part of these consolidated financial statements.

F- 6

Scorpio Tankers Inc. and Subsidiaries

Consolidated cash flow statements

For the years ended December 31, 2012, 2011 and 2010

			For the year ended December 31,
In thousands of U.S. dollars			2012			2011			2010
	Notes
Operating activities
Net loss			($	26,537	)	($	82,727	)	($	2,822	)
Loss from sale of vessels				10,404			—			—
Depreciation		6		14,818			18,460			10,179
Impairment		7		—			66,611			—
Amortization of restricted stock				3,490			3,362			988
Amortization of deferred financing fees				4,093			986			246
Amortization of acquired time charter contracts				—			—			2,345
Write off of vessel purchase options				—			126			—
Straight-line adjustment for charterhire expense				41			84			—
Unrealized loss on derivative financial instruments				1,231			—			—
				7,540			6,902			10,936
Changes in assets and liabilities:
Drydock payments				(1,702	)		(2,516	)		(974	)
Decrease/(increase) in inventories				526			(1,410	)		(853	)
Increase in accounts receivable				(16,052	)		(13,031	)		(5,915	)
Decrease/(increase) in prepaid expenses and other current assets				547			(1,075	)		123
Decrease/(increase) in other assets				2,443			(1,374	)		(1,428	)
Increase/(decrease) in accounts payable				3,966			(954	)		2,600
Increase in accrued expenses				804			1,006			175
Decrease in the value of derivative financial instruments				—			—			165
Interest rate swap termination payment				—			—			(1,850	)
Decrease in shareholder receivable				—			—			1,928
				(9,468	)		(19,354	)		(6,029	)
Net cash (outflow)/inflow from operating activities				(1,928	)		(12,452	)		4,907
Investing activities
Acquisition of vessels and payments for vessels under construction				(191,490	)		(122,573	)		(243,122	)
Proceeds from disposal of vessels				101,335			—			—
Acquisition of time charter contracts				—			—			(2,344	)
Purchases of other assets				—			—			(129	)
Net cash outflow from investing activities				(90,155	)		(122,573	)		(245,595	)
Financing activities
Bank loan repayment				(129,076	)		(109,638	)		(44,625	)
Bank loan drawdown				124,172			115,308			150,000
Debt issuance costs				(3,293	)		(4,134	)		(2,232	)
Net proceeds from issuance of common stock				153,052			104,986			207,936
Purchase of treasury shares				(2,440	)		(2,851	)		(2,648	)
Net cash inflow from financing activities				142,415			103,671			308,431
Increase/(decrease) in cash and cash equivalents				50,332			(31,354	)		67,743
Cash and cash equivalents at January 1,				36,833			68,187			444
Cash and cash equivalents at December 31,			$	87,165		$	36,833		$	68,187

Supplemental information:
Interest paid			$	6,618		$	5,349		$	2,277

As of December 31,2012 and 2011, we accrued $3.5 million and $9.4 million, respectively, for installment payments on our newbuilding vessels (see Note 6) which represent significant non-cash transactions. These payments were made in January 2013 and 2012, respectively. There were no non-cash transactions during 2010 requiring disclosure.

The accompanying notes are an integral part of these consolidated financial statements.

F- 7

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

1. General information and significant accounting policies

Company

Scorpio Tankers Inc. and its subsidiaries (together “we”, “our” or the “Company”) are engaged in seaborne transportation of refined petroleum products and crude oil in the international shipping markets. Scorpio Tankers Inc. was incorporated in the Republic of the Marshall Islands on July 1, 2009.

On April 6, 2010, we closed on our initial public offering. The stock trades on the New York Stock Exchange under the symbol STNG.

Our owned fleet at December 31, 2012 consisted of 12 tankers (one LR2 tanker, four LR1 tankers, one Handymax tanker, five MR tankers, and one post-Panamax tanker), 19 time chartered-in tankers (three LR2, three LR1, eight MR and five Handymax tankers), and 11 newbuilding MR’s under construction.

Our vessels are commercially managed by Scorpio Commercial Management S.A.M. (“SCM”), which is currently owned by the Lolli-Ghetti family of which, Emanuele Lauro, our founder, Chairman and Chief Executive Officer is a member. SCM’s services include securing employment, in pools, in the spot market and on time charters.

Our vessels are technically managed by Scorpio Ship Management S.A.M. (“SSM”), which is also owned by the Lolli-Ghetti family. SSM facilitates vessel support such as crew, provisions, deck and engine stores, insurance, maintenance and repairs, and other services as necessary to operate the vessels such as drydocks and vetting/inspection under a technical management agreement.

Until March 13, 2012, we had an administrative services agreement with Liberty Holding Company (“Liberty”), which is owned by the Lolli-Ghetti family. On March 13, 2012, the agreement was assigned to Scorpio Services Holding Ltd (“SSH”), an entity also owned by the Lolli-Ghetti family. The administrative services provided under the agreement primarily include accounting, legal compliance, financial, information technology services, and the provision of administrative staff and office space, which are contracted to SCM. We pay our managers fees for these services and reimburse them for direct or indirect expenses that they incur in providing these services.

Basis of accounting

The consolidated financial statements incorporate the financial statements of Scorpio Tankers Inc. and its subsidiaries. The consolidated financial statements have been presented in United States dollars (USD or $), which is the functional currency of Scorpio Tankers Inc. and all its subsidiaries and have been authorized for issue on March 28, 2013. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board and on a historical cost basis, except for the revaluation of certain financial instruments.

All inter-company transactions, balances, income and expenses were eliminated on consolidation. During the year-ended December 31, 2012, our revenue recognition policy with regards to voyage charter revenue was amended to the policy indicated below. This amendment did not have a material impact on each of vessel revenues, operating loss, and net loss as of and for the years ended December 31, 2012, December 31, 2011 and December 31, 2010.

Going concern

The financial statements have been prepared in accordance with the going concern basis of accounting as described further in the “Liquidity risk” section of Note 22.

Significant Accounting Policies

Revenue recognition

Vessel revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts, and other sales-related or value added taxes.

Vessel revenue is comprised of time charter revenue, voyage revenue and pool revenue.

(1) Time charter revenue is recognized as services are performed based on the daily rates specified in the time charter contract.

(2) Voyage charter agreements are charter hires, where a contract is made in the spot market for the use of a vessel for a specific voyage for a specified charter rate. Revenue from voyage charter agreements is recognized as voyage revenue on a pro-rata basis over the duration of the voyage on a discharge to discharge basis. In the application of this policy, we do not begin recognizing revenue until (i) the amount of revenue can be measured reliably, (ii) it is probable that the economic benefits associated with the transaction will flow to the entity, (iii) the transactions stage of completion at the balance sheet date can be measured reliably and (iv) the costs incurred and the costs to complete the transaction can be measured reliably.

F- 8

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

(3) Pool revenue for each vessel is determined in accordance with the profit sharing terms specified within each pool agreement. In particular, the pool manager aggregates the revenues and expenses of all of the pool participants and distributes the net earnings to participants based on:

· the pool points (vessel attributes such as cargo carrying capacity, fuel consumption, and construction characteristics are taken into consideration); and

· the number of days the vessel participated in the pool in the period.

We recognize pool revenue on a monthly basis, when the vessel has participated in a pool during the period and the amount of pool revenue for the month can be estimated reliably. We receive estimated vessel earnings based on the known number of days the vessel has participated in the pool, the contract terms, and the estimated monthly pool revenue. On a quarterly basis, we receive a report from the pool which identifies the number of days the vessel participated in the pool, the total pool points for the period, the total pool revenue for the period, and the calculated share of pool revenue for the vessel. We review the quarterly report for consistency with each vessel's pool agreement and vessel management records. The estimated pool revenue is reconciled quarterly, coinciding with our external reporting periods, to the actual pool revenue earned, per the pool report. Consequently, in our financial statements, reported revenues represent actual pooled revenues. While differences do arise in the performance of these quarterly reconciliations, such differences are not material to total reported revenues.

Voyage expenses

Voyage expenses, which primarily include bunkers, port charges, canal tolls, cargo handling operations and brokerage commissions paid by us under voyage charters are expensed ratably over the estimated length of each voyage, which can be allocated between reporting periods based on the timing of the voyage. The impact of recognizing voyage expenses ratably over the length of each voyage is not materially different on a quarterly and annual basis from a method of recognizing such costs as incurred. Consistent with our revenue recognition for voyage charters, voyage expenses are calculated on a discharge-to-discharge basis. The procurement of these services is managed on our behalf by our commercial manager, SCM (see Note 15).

Vessel operating costs

Vessel operating costs, which include crewing, repairs and maintenance, insurance, stores, lube oils, communication expenses, and technical management fees, are expensed as incurred. The procurement of these services is managed on our behalf by our technical manager, SSM (see Note 15).

Loss per share

Basic loss per share is calculated by dividing the net loss attributable to equity holders of the common shares by the weighted average number of common shares outstanding. Diluted earnings per share are calculated by adjusting the net loss attributable to equity holders of the parent and the weighted average number of common shares used for calculating basic per share for the effects of all potentially dilutive shares. Such dilutive common shares are excluded when the effect would be to increase earnings per share or reduce a loss per share. In the years ended December 31, 2012, 2011 and 2010, there were dilutive items as a result of our restricted stock plan (see Note 14). However, we were in a loss making position for those years, and therefore there was no impact of these dilutive items on earnings per share.

Charterhire expense

Charterhire expense is the amount we pay the owner for time chartered-in vessels. The amount is usually for a fixed period of time at rates that are generally fixed, but may contain a variable component based on inflation, interest rates, profit sharing , or current market rates. The vessel’s owner is responsible for crewing and other vessel operating costs. Charterhire expense is recognized ratably over the charterhire period.

Operating leases

Costs in respect of operating leases are charged to the consolidated statement of profit or loss on a straight line basis over the lease term.

F- 9

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Foreign currencies

The individual financial statements of Scorpio Tankers Inc. and each of its subsidiaries are presented in the currency of the primary economic environment in which we operate (its functional currency), which in all cases is US dollars. For the purpose of the consolidated financial statements, our results and financial position are also expressed in US dollars.

In preparing the financial statements of Scorpio Tankers Inc. and each of its subsidiaries, transactions in currencies other than the US dollar are recorded at the rate of exchange prevailing on the dates of the transactions. At the end of each reporting period, monetary assets and liabilities denominated in other currencies are retranslated into the functional currency at rates ruling at that date. All resultant exchange differences have been recognized in the consolidated profit or loss statement. The amount charged to the consolidated profit or loss statement during 2012, 2011 and 2010 was not material.

Segment reporting

During the years ended December 31, 2012 and 2011, we owned or chartered-in vessels spanning four different classes, Handymax, MR, Panamax/LR1, and Aframax/LR2, all of which earn revenues in the seaborne transportation of crude oil and refined petroleum products in the international shipping markets. Each vessel within its respective class qualifies as an operating segment under IFRS. However, each vessel also exhibits similar long-term financial performance and similar economic characteristics to the other vessels within the respective vessel class, thereby meeting the aggregation criteria in IFRS. We have therefore chosen to present our segment information by vessel class using the aggregated information from the individual vessels.

Segment results are evaluated based on reported profit or loss from each segment. The accounting policies applied to the reportable segments are the same as those used in the preparation of our consolidated financial statements.

It is not practical to report revenue or non-current assets on a geographical basis due to the international nature of the shipping market.

Vessels under construction

As of December 31, 2012 and 2011, we had 11 and six vessels under construction, respectively. Vessels under construction are measured at cost and include costs incurred that are directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. These costs include installment payments made to the shipyards, directly attributable financing costs, professional fees and other costs deemed directly attributable to the construction of the asset.

Vessels and drydock

Our fleet is measured at cost, which includes directly attributable financing costs and the cost of work undertaken to enhance the capabilities of the vessels, less accumulated depreciation and impairment losses.

Depreciation is calculated on a straight-line basis to the estimated residual value over the anticipated useful life of the vessel from date of delivery. Vessels under construction are not depreciated until such time as they are ready for use. The residual value is estimated as the lightweight tonnage of each vessel multiplied by scrap value per ton. The scrap value per ton is estimated taking into consideration the historical four year average scrap market rates at the balance sheet date with changes accounted for in the period of change and in future periods.

The vessels are required to undergo planned drydocks for replacement of certain components, major repairs and maintenance of other components, which cannot be carried out while the vessels are operating, approximately every 30 months or 60 months depending on the nature of work and external requirements. These drydock costs are capitalized and depreciated on a straight-line basis over the estimated period until the next drydock. We only include in deferred drydocking those direct costs that are incurred as part of the drydocking to meet regulatory requirements, or are expenditures that add economic life to the vessel, increase the vessel’s earnings capacity or improve the vessel’s efficiency. Direct costs include shipyard costs as well as the costs of placing the vessel in the shipyard. Expenditures for normal maintenance and repairs, whether incurred as part of the drydocking or not, are expensed as incurred.

For an acquired or newly built vessel, a notional drydock is allocated from the vessel’s cost. The notional drydock cost is estimated by us, based on the expected costs related to the next drydock, which is based on experience and past history of similar vessels, and carried separately from the cost of the vessel. Subsequent drydocks are recorded at actual cost incurred. The drydock asset is amortized on a straight-line basis to the next estimated drydock. The estimated amortization period for a drydock is based on the estimated period between drydocks. We estimate the period between drydocks to be 30 months to 60 months. When the drydock expenditure is incurred prior to the expiry of the period, the remaining balance is expensed.

F- 10

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Impairment of vessels and drydock and vessels under construction

At each balance sheet date, we review the carrying amount of our vessels and drydock and vessels under construction to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the vessels and drydock and vessels under construction is estimated in order to determine the extent of the impairment loss (if any). We treat each vessel and the related drydock as a cash generating unit.

Recoverable amount is the higher of the fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of the cash generating unit is estimated to be less than its carrying amount, the carrying amount of the cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the cash generating unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the cash generating unit in the prior years. A reversal of impairment is recognized as income immediately.

Inventories

Inventories consist of lubricating oils and other items including stock provisions, and are stated at the lower of cost and net realizable value. Cost is determined using the first in first out method. Stores and spares are charged to vessel operating costs when purchased.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

To the extent that variable rate borrowings are used to finance a qualifying asset and are hedged in an effective cash flow hedge of interest rate risk, the effective portion of the derivative is recognised in other comprehensive income and released to profit or loss when the qualifying asset impacts profit or loss. To the extent that fixed rate borrowings are used to finance a qualifying asset and are hedged in an effective fair value hedge of interest rate risk, the capitalised borrowing costs reflect the hedged interest rate.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in the consolidated profit or loss statement in the period in which they are incurred .

Financial instruments

Financial assets and financial liabilities are recognized in our balance sheet when we become a party to the contractual provisions of the instrument.

Financial assets

All financial assets are recognized and derecognized on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Financial assets are classified into the following specified categories: financial assets 'at fair value through profit or loss' (FVTPL), and 'loans and receivables'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL.

F- 11

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Financial assets at FVTPL

Financial assets are classified as at FVTPL where the financial asset is held for trading.

A financial asset is classified as held for trading if:

it has been acquired principally for the purpose of selling in the near future; or

it is a part of an identified portfolio of financial instruments that we manage together and has a recent actual pattern of short-term profit-taking; or

it is a derivative that is not designated and effective as a hedging instrument.

Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset. Fair value is determined in the manner described in Note 22.

Loans and receivables

Amounts due from the pool and other receivables that have fixed or determinable payments and are not quoted in an active market are classified as accounts receivable. Accounts receivable are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

Financial assets objective evidence of impairment could include:

l significant financial difficulty of the issuer or counterparty; or

l default or delinquency in interest or principal payments; or

l it becomes probable that the borrower will enter bankruptcy or financial re-organization.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly-liquid investments with original maturities of three months or less, and that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these instruments.

Financial liabilities

Financial liabilities are classified as either financial liabilities 'at FVTPL' or 'other financial liabilities'.

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL where the financial liability is held for trading, using the criteria set out above for financial assets.

Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability. Fair value is determined in the manner described in Note 22.

Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method.

Effective interest method

The effective interest method is a method of calculating the amortized cost of a financial asset and a financial liability. It allocates interest income and interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash flows (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) over the expected life of the financial asset and financial liability, or, where appropriate, a shorter period.

F- 12

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Derivative financial instruments

Derivatives are initially recognized at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. A derivative with a positive fair value is recognized as a financial asset whereas a derivative with a negative fair value is recognized as a financial liability. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedging relationship. We designate certain derivatives as hedges of highly probable forecast transactions (cash flow hedges) as described further below.

A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months, and it is not expected to be realized or settled within 12 months.

Our derivative financial instruments for the years ended December 31, 2012, 2011 and 2010 consisted of interest rate swaps and profit or loss sharing arrangements on time-chartered in vessels with third parties. See Notes 12 and 22 to the consolidated financial statements for further description.

Hedge accounting for cash flow hedges

Our policy is to designate certain hedging instruments, which can include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. At the inception of the hedge relationship, we document the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, we document whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.

For the years ended December 31, 2012, 2011, and 2010 we were party to derivative financial instruments to manage our exposure to interest rate fluctuations. In August 2011, we entered into six interest rate swap agreements to manage interest costs and the risk associated with changing interest rates on our 2011 Credit Facility and 2010 Revolving Credit Facility. The swaps relating to the 2011 Credit Facility were designated and accounted for as cash flow hedges at December 31, 2012. The swaps relating to the 2010 Credit Facility were de-designated at December 31, 2012 as further described below.

Derivative financial instruments are initially recognized in the balance sheet at fair value at the date the derivative contract is entered into and are subsequently measured at their fair value as other assets or other liabilities, respectively. Changes in fair value of derivative financial instruments, which are designated as cash flow hedges and deemed to be effective, are recognized directly in other comprehensive income and classified as ‘hedging reserves’. Changes in fair value of a portion of a hedge deemed to be ineffective are recognized in net profit or loss. Hedge effectiveness is measured quarterly.

Amounts previously recognized in other comprehensive income and accumulated in the hedging reserve are reclassified to profit or loss in the periods when the hedged item is recognized in profit or loss, in the same line of the statement of profit or loss as the recognized hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued when we revoke the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any gain or loss recognized in other comprehensive income at that time is accumulated in the hedge reserve and is recognized when the forecast transaction is ultimately recognized in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in the hedge reserve is recognized immediately in profit or loss.

In conjunction with the sales of STI Diamond and STI Coral in August and September 2012, respectively, we reduced the notional amount on the interest rate swaps relating to the 2011 Credit Facility to $15.0 million from $24.0 million in aggregate. As a result of the reduction, we recognized a loss of $0.2 million which was recorded as a component of the loss from sale of STI Coral , which was reclassified out of Other Comprehensive Loss.

In December 2012, we raised net proceeds of $127.2 million from a registered direct placement of common shares and as part of the use of proceeds of this offering, we voluntarily repaid $50.0 million into our 2010 Revolving Credit Facility, as described in Note 11. After the payment, we had $17.2 million of debt outstanding under the 2010 Credit Facility, which is less than the total notional amount of the three interest rate swaps related to the facility of $51.0 million. As such, the swaps relating to the 2010 Revolving Credit Facility no longer met the criteria for hedge accounting, and we therefore de-designated the hedge relationship prospectively and reclassified all amounts accumulated in other comprehensive loss for the 2010 Revolving Credit Facility to the statement of profit or loss as of December 31, 2012.

F- 13

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Equity instruments

An equity instrument is any contract that evidences a residual interest in our assets after deducting all of its liabilities. Equity instruments issued by us are recorded at the proceeds received, net of direct issue costs.

We had 63,827,846 registered shares authorized and issued with a par value of $0.01 per share at December 31, 2012. These shares provide the holders with rights to dividends and voting rights.

Provisions

Provisions are recognized when we have a present obligation as a result of a past event, and it is probable that we will be required to settle that obligation. Provisions are measured at our best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

Dividends

A provision for dividends payable is recognized when the dividend has been declared in accordance with the terms of the shareholder agreement.

Dividend per share presented in these consolidated financial statements is calculated by dividing the aggregate dividends declared by all of our subsidiaries by the number of our shares assuming these shares have been outstanding throughout the periods presented.

Restricted stock

The restricted stock awards granted to our employees and directors in June 2010, January 2011 and January 2012 (Note 14) contain only service conditions and are classified as equity settled. Accordingly, the fair value of our restricted stock awards was calculated by multiplying the average of the high and low share price on the grant date and the number of restricted stock shares granted that are expected to vest. We believe that the share price at the grant date serves as a proxy for the fair value of services to be provided by the employees and directors under the plan.

Compensation expense related to the awards is recognized ratably over the vesting period, based on our estimate of the number of awards that will eventually vest. The vesting period is the period during which an employee or director is required to provide service in exchange for an award and is updated at each balance sheet date to reflect any revisions in estimates of the number of awards expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimate, if any, is recognized in the profit or loss statement such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

Critical accounting judgements and key sources of estimation uncertainty

In the application of the accounting policies, we are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The significant judgements and estimates are as follows:

Revenue recognition

We currently generate all revenue from time charters, spot voyages, or pools. Revenue recognition for time charters and pools is generally not as complex or as subjective as voyage charters (spot voyages). Time charters are for a specific period of time at a specific rate per day. For long-term time charters, revenue is recognized on a straight-line basis over the term of the charter. Pool revenues are determined by the pool managers from the total revenues and expenses of the pool and allocated to pool participants using a mechanism set out in the pool agreement.

We generated revenue from spot voyages during the years ended December 31, 2012, 2011 and 2010. Within the shipping industry, there are two methods used to account for spot voyage revenue: (1) ratably over the estimated length of each voyage or (2) completed voyage. The recognition of voyage revenues ratably over the estimated length of each voyage is the most prevalent method of accounting for voyage revenues and the method used by us. Under each method, voyages may be calculated on either a load-to-load or discharge-to-discharge basis. In applying our revenue recognition method, we believe that the discharge-to-discharge basis of calculating voyages more accurately estimates voyage results than the load-to-load basis. In the application of this policy, we do not begin recognizing revenue until (i) the amount of revenue can be measured reliably, (ii) it is probable that the economic benefits associated with the transaction will flow to the entity, (iii) the transactions stage of completion at the balance sheet date can be measured reliably and (iv) the costs incurred and the costs to complete the transaction can be measured reliably.

F- 14

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Vessel impairment

We evaluate the carrying amounts of our vessels and vessels under construction to determine whether there is any indication that those vessels have suffered an impairment loss. If any such indication exists, the recoverable amount of vessels is estimated in order to determine the extent of the impairment loss (if any).

At December 31, 2012, the carrying amounts of all our vessels were greater than their fair values less costs to sell (determined by taking into consideration two independent broker valuations) which served as indicators of impairment. In line with our policy, for each vessel and vessel under construction we performed a value in use calculation where we estimated the vessel’s future cash flows based on a combination of the latest, published, forecast time charter rates for the next three years, a steady growth rate in freight rates in each period thereafter which is based on management’s long-term view of the market, and our best estimate of vessel operating expenses and drydock costs. These cash flows were then discounted to their present value, using a pre-tax discount rate based on our current borrowing rates adjusted for certain credit risks. The value in use calculations were greater than the carry amounts of the vessels in all instances, which resulted in no impairment being recognized.

Vessel lives and residual value

When regulations place significant limitations over the ability of a vessel to trade on a worldwide basis, the vessel's useful life is adjusted to end at the date such regulations become effective. The estimated salvage value of the vessels may not represent the fair market value at any one time since market prices of scrap values tend to fluctuate.

Deferred drydock cost

We recognize drydock costs as a separate component of the each vessel’s carrying amount and amortize the drydock cost on a straight-line basis over the estimated period until the next drydock. We use judgment when estimating the period between drydocks performed, which can result in adjustments to the estimated amortization of the drydock expense. If the vessel is disposed of before the next drydock, the remaining balance of the deferred drydock is written-off and forms part of the gain or loss recognized upon disposal of vessels in the period when contracted. We expect that our vessels will be required to be drydocked approximately every 30 to 60 months for major repairs and maintenance that cannot be performed while the vessels are operating. Costs capitalized as part of the drydock include actual costs incurred at the drydock yard and parts and supplies used in making such repairs.

F- 15

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Standards and Interpretations adopted during the period

IAS 24 (amended) Related party disclosures

Improvements to IFRS (May 2010)

This standard did not have an impact on these consolidated financial statements.

Standards and Interpretations in issue not yet adopted

At the date of authorization of these consolidated financial statements, the following Standards and Interpretations which have not been applied in these consolidated financial statements were in issue but not yet effective:


IFRS 7	Financial Instruments: Disclosures
Amendments to IFRS 7 (Oct 2010)	Disclosures – Transfers of Financial Assets
IFRS 9	Financial Instruments
IFRS 10	Consolidated Financial Statements
IFRS 11	Joint Arrangements
IFRS 12	Disclosure of Interests in Other Entities
IFRS 13	Fair Value Measurement
IFRIC 19	Extinguishing Financial Liabilities with Equity Instruments
IAS 27 (revised May 2011)	Separate Financial Statements
IAS 32	Financial Instruments: Presentation
Amendment to IAS 32 (Oct. 2009)	Classification of Rights Issues

We do not expect that the adoption of these Standards and Interpretations in future periods will have a material impact on our financial statements.

2. Cash and cash equivalents

	At December 31,
In thousands of U.S. dollars	2012		2011
Cash at banks	$	87,023	$	26,678
Deposits ⁽¹⁾		—		10,000
Cash on vessels		142		155
	$	87,165	$	36,833

(1)

Represents bank deposits with original maturities of three months or less

3. Accounts receivable

	At December 31,
In thousands of US dollars	2012		2011
Scorpio MR Pool Limited	$	12,010	$	—
Scorpio Panamax Tanker Pool Limited		11,289		6,405
Scorpio Handymax Tanker Pool Limited		6,369		6,062
Scorpio LR2 Tanker Pool Limited		3,244		1,721
Freight receivables		2,192		3,197
Insurance receivables		191		282
Scorpio Aframax Tanker Pool Limited		—		1,127
Other receivables		1,143		1,592
	$	36,438	$	20,386

F- 16

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Scorpio MR Pool Limited, Scorpio Panamax Tanker Pool Limited, Scorpio Handymax Tanker Pool Limited, Scorpio LR2 Tanker Pool Limited, and Scorpio Aframax Tanker Pool Limited are related parties, as described in Note 15. The Scorpio MR Pool was established in August 2012 and accordingly, no vessels were in that pool during the year ended December 31, 2011.

Freight receivables primarily represent amounts collectible from customers for our vessels operating in the spot market.

Insurance receivables primarily represent the amounts collectible on our insurance policies in relation to vessel repairs.

We consider that the carrying amount of accounts receivable approximates their fair value due to the short maturity thereof. Accounts receivable are non-interest bearing. At December 31, 2012 and December 31, 2011, no material receivable balances were either past due or impaired.

4. Prepaid expenses and other current assets

	At December 31,
In thousands of US dollars	2012		2011
Vessel related prepaid expenses	$	683	$	1,231
Prepaid insurance		247		304
Derivative financial instruments (profit and loss agreements)		26		—
	$	956	$	1,535

5. Inventories

	At December 31,
In thousands of US dollars	2012		2011
Lubricating oils	$	1,796	$	1,629
Stock bunkers		329		1,028
Other		44		39
	$	2,169	$	2,696

The balance in stock bunkers as of December 31, 2012 relates to Pacific Duchess , which was our only vessel operating in the spot market at year end. The balance in stock bunkers as of December 31, 2011 relates to STI Coral and STI Diamond which were operating in the spot market at year end.

During the years ended December 31, 2012 and 2011, we expensed inventory items of $16.7 million and $6.9 million, respectively.

F- 17

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

6. Vessels

Vessels and drydock

In thousands of US dollars	Vessels			Drydock			Total
Cost
As of January 1, 2012	$	450,658		$	7,137		$	457,795
Additions ⁽¹⁾		192,413			6,619			199,032
Disposals ⁽²⁾		(142,375	)		(2,023	)		(144,398	)
Write-offs ⁽³⁾		—			(809	)		(809	)
As of December 31, 2012		500,696			10,924			511,620

Accumulated depreciation and impairment
As of January 1, 2012		(132,019	)		(3,319	)		(135,338	)
Charge for the period		(12,595	)		(2,038	)		(14,634	)
Disposals ⁽²⁾		32,039			1,098			33,137
Write-offs ⁽³⁾		—			625			625
As of December 31, 2012		(112,575	)		(3,634	)		(116,209	)
Net book value
As of December 31, 2012	$	388,121		$	7,291		$	395,412

Cost
As of January 1, 2011	$	379,723		$	4,589		$	384,312
Additions ⁽⁴⁾		70,935			3,168			74,103
Write-offs ⁽⁵⁾		—			(620	)		(620	)
As of December 31, 2011		450,658			7,137			457,795

Accumulated depreciation and impairment
As of January 1, 2011		(49,502	)		(1,385	)		(50,887	)
Charge for the period		(15,907	)		(2,292	)		(18,199	)
Impairment ⁽⁶⁾		(66,611	)		—			(66,611	)
Write-offs ⁽⁵⁾		—			358			358
As of December 31, 2011		(132,019	)		(3,319	)		(135,337	)
Net book value
As of December 31, 2011	$	318,639		$	3,818		$	322,458

(1)	Additions in 2012 relate to (i) the delivery of the first five vessels under our Newbuilding program and corresponding calculation of notional drydock on these vessels and (ii) $2.9 million of drydock costs for STI Spirit and STI Heritage .

(2)	Represents the write off of the net book value of vessels sold during 2012 as further described below.

(3)	Represents the write off of the net book value of drydock costs for STI Spirit of $0.2 million, which was drydocked in November 2012.

(4)	Additions in 2011 relate to the purchases of STI Coral and STI Diamond in May 2011 and corresponding calculation of notional drydock on these vessels.

(5)	Represents the write off of the net book value of drydock costs for STI Harmony of $0.2 million, which was drydocked in August 2011 and STI Highlander of $37,869 which was drydocked in October 2011.

(6)	See Note 7 for impairment discussion.

Loss from sale of vessels

In March, April and May 2012, we sold three of our Handymax vessels, STI Conqueror for $21.0 million, STI Gladiator for $16.2 million, and STI Matador for $16.2 million; as part of these sales, we recorded a $4.5 million loss from disposal. Additionally, the availability of our 2010 Revolving Credit Facility decreased by $31.0 million as a consequence of these disposals.

In August and September 2012, we sold STI Diamond and STI Coral for $25.25 million each. As part of these sales, we recorded a $5.9 million total loss from disposal. See Note 11 for the impact on our 2011 Credit Facility resulting from these sales.

Total proceeds from the sale of vessels was $103.9 million and was reduced by selling costs of $2.5 million.

F- 18

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Newbuilding vessel deliveries

During the third quarter of 2012, we took delivery of the first five vessels under our Newbuilding program, STI Amber in July, STI Topaz in August and STI Ruby, STI Garnet and STI Onyx in September 2012. As a result of these deliveries, we transferred $195.3 million from Vessels under construction to Vessels and drydock (the remaining 2012 additions of $0.8 million of costs related to the newbuilding vessels recorded directly into Vessels and drydock and $2.9 million related to drydock expenditures for STI Heritage and STI Spirit .)

Vessels under construction

We had eleven newbuilding MR’s (seven with Hyundai Mipo Dockyard Co. Ltd of South Korea (“HMD”) and four with SPP Shipbuilding Co. Ltd. of South Korea(“SPP”) under construction as of December 31, 2012 for an aggregate purchase price of $376.3 million, of which $45.3 million was paid as of that date. Subsequent to December 31, 2012, we signed agreements for an additional 24 newbuilding vessels at these yards as further described in Note 23

A roll-forward of activity within Vessels under construction is as follows:

In thousands of US dollars
Balance as of January 1, 2011	$	—
Installment payments and other capitalized expenses		59,760
Capitalized interest		573
Balance as of December 31, 2011	$	60,333

Installment payments and other capitalized expenses		182,016
Capitalized interest		3,221
Transferred to Vessels and drydock		(195,319	)
Balance as of December 31, 2012	$	50,251

The following table is a timeline of future expected payments and dates as of December 31, 2012*:

Q1 2013	$	71.0	million**
Q2 2013		31.6	million
Q3 2013		22.7	million
Q4 2013		22.5	million
Q1 2014		58.4	million
Q2 2014		104.5	million
Q3 2014		20.3	million
Total	$	331.0	million

*These are estimates only and are subject to change as construction progresses.

**As of the date of this report, all Q1 2013 payments have been made, which includes the delivery instalments of STI Sapphire and STI Emerald in January 2013 and March 2013, respectively.

Capitalized interest

In accordance with IAS 23 “Borrowing Costs”, applicable interest costs are capitalized during the period that vessels are under construction. For the years ended December 31, 2012 and 2011, we capitalized interest expense for the vessels under construction of $3.2 million and $0.6 million, respectively. The interest capitalized was calculated by applying a rate of 4.5% to expenditure on such assets.

F- 19

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Collateral agreements

Noemi, Senatore , Venice, STI Harmony, STI Heritage, and STI Highlander with an aggregated net book value of $164.4 million as of December 31, 2012 were provided as collateral under a loan agreement dated June 2, 2010 and amended on July 13, 2011 (the "2010 Revolving Credit Facility", See Note 11).

In August and September 2012, we sold STI Diamond and STI Coral for $25.25 million each, which were provided as collateral under a loan agreement dated May 3, 2011 and amended on July 20, 2012 (the “2011 Credit Facility, See Note 11”). A portion of the proceeds from the sales was used to repay $16.1 million of debt outstanding under the 2011 Credit Facility relating to STI Coral . The fifth newbuilding vessel, STI Onyx with a net book value of $38.8 million as of December 31, 2012, was substituted as collateral under the 2011 Credit Facility on the outstanding borrowing relating to STI Diamond .

STI Spirit, with a net book value of $37.4 million as of December 31, 2012, was provided as collateral under a loan agreement dated March 9, 2011 (the “STI Spirit Credit Facility,” See Note 11).

STI Amber, STI Topaz, STI Ruby and STI Garnet , with an aggregated net book value of $154.8 million as of December 31, 2012 were provided as collateral under a loan agreement dated December 21, 2011 (the “Newbuilding Credit Facility,” See Note 11).

The vessels which collateralize the 2011 Credit Facility and 2010 Revolving Credit Facility also serve as collateral for the designated interest rate swap agreements (as described in Note 12), subordinated to the outstanding borrowings under each credit facility.

7. Carrying Values of Vessels

At the end of each reporting period, we evaluate the carrying amounts of vessels and related drydock costs and vessels under construction to determine if there is any indication that those vessels and related drydock costs and vessels under construction have suffered an impairment loss. If such indication exists, the recoverable amount of the vessels and related drydock costs is estimated in order to determine the extent of the impairment loss (if any). As part of this evaluation, we consider certain indicators of potential impairment, such as market conditions including forecast time charter rates and values for second hand product tankers, discounted projected vessel operating cash flows and our overall business plans.

At December 31, 2012, the carrying amounts of all our vessels were greater than their fair values less costs to sell (determined by taking into consideration two independent broker valuations) which served as indicators of impairment. In line with our policy, for each vessel and vessel under construction we performed a value in use calculation where we estimated the vessel’s future cash flows based on a combination of the latest forecast, published, time charter rates for the next three years, a steady growth rate in freight rates in each period thereafter which is based on management’s long-term view of the market, and our best estimate of vessel operating expenses and drydock costs. These cash flows were then discounted to their present value, using a pre-tax discount rate of 7.91% based on our current borrowing rates adjusted for certain credit risks. The value in use calculations were greater than the carrying amounts of the vessels and vessels under construction in all instances, which resulted in no impairment being recognized. The calculation of value in use is sensitive to changes in the key assumptions made above.

At December 31, 2011, we determined fair value less estimated costs to sell for our vessels, taking into consideration three independent broker valuations for each vessel and adjusting for estimated disposal costs. Our estimate of fair value less costs to sell was then compared to each vessel’s respective carrying amount. The fair value less estimated costs to sell were lower than the carrying amount for all vessels indicating that an impairment might exist. We then performed a value in use calculation and the value in use calculations for all vessels were less than the fair value less estimated costs to sell and accordingly, the recoverable amount of all vessels was determined to be its fair value less costs to sell. As a result, we recorded an impairment loss of $66.6 million to adjust the carrying amounts of our vessels to their fair value less estimated selling costs. The value in use calculations were greater than the carrying amounts for our vessels under construction in all instances, which resulted in no impairment being recognized.

F- 20

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

At December 31, 2010, the carrying amounts of our vessels were greater than the independent broker valuations (after adjusting for estimated selling costs) for six of our ten owned vessels, which served as indicators of impairment. In line with our policy, for each of the aforementioned six vessels we performed a value in use calculation using similar principles to those outlined above. The value in use calculations were greater than the carrying amounts of the vessels in all instances, which resulted in no impairment being recognized.

8. Other non-current assets

	At December 31,
In thousands of US dollars	2012		2011
Capitalized loan fees ⁽¹⁾	$	530	$	1,187
Scorpio Handymax Tanker Pool Ltd. pool working capital contributions ⁽²⁾		359		2,802
	$	889	$	3,989

(1)

Primarily represents upfront loan fees on our Newbuilding credit facilities being used to finance our newbuilding vessels. These are reclassified to Bank Loans when the tranche of the loan to which the newbuilding vessel relates is drawn.

(2)

Upon entrance into the Scorpio Handymax Tanker Pool (“SHTP”), all vessels are required to make working capital contributions of both cash and bunkers. The contribution amount is repaid, without interest, upon a vessel’s exit from the SHTP no later than six months after the exit date. Bunkers on board a vessel exiting the SHTP are credited against such repayment at the actual invoice price of the bunkers. For all owned vessels we assume that these contributions will not be repaid within 12 months and for time chartered-in vessels we classify the amounts according to the expiration of the contract. The decrease from December 31, 2011 is attributable to (i) the sale of three Handymax vessels during 2012 and (ii) the reclassification of amounts relating to time chartered-in vessels whose terms expire within one year of the balance sheet date to current assets (other receivables within accounts receivable).

9. Accounts payable

	At December 31,
In thousands of US dollars	2012		2011
Suppliers	$	7,612	$	2,323
Progress payments due for vessels under construction ⁽¹⁾		3,500		9,351
Scorpio Commercial Management		146		—
Scorpio Ship Management		70		8
Scorpio Handymax Tanker Pool Limited		59		50
	$	11,387	$	11,732

⁽¹⁾ The progress payment of $3.5 million as of December 31, 2012 related to Hull 2369 and was made in January 2013.

The majority of accounts payable are settled with a cash payment within 90 days. No interest is charged on accounts payable. We consider that the carrying amount of accounts payable approximates fair value.

10. Accrued expenses

	At December 31,
In thousands of US dollars	2012		2011
Other accruals	$	3,057	$	2,189
Upfront fees due on loan facilities ⁽¹⁾		—		1,187
	$	3,057	$	3,376

(1)

Primarily represents upfront fees due for our Newbuilding Credit Facility at December 31, 2011. This facility was executed on December 21, 2011 and these fees were paid in February 2012.

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Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

11. Bank loans

The following is a breakdown of the current and non-current portion of our bank loans outstanding at December 31, 2012 and 2011:

	As of December 31,
In thousands of US dollars	2012		2011
Current portion ⁽¹⁾	$	7,475	$	2,889
Non-current portion ⁽¹⁾		134,984		142,679
	$	142,459	$	145,568

⁽¹⁾

The current portion and non-current portion at December 31, 2012 were net of unamortized deferred financing fees of $0.1 million and $3.3 million, respectively. The current portion and non-current portion at December 31, 2011 were net of unamortized deferred financing fees of $1.4 million and $3.9 million, respectively.

2010 Revolving Credit Facility

In March, April and May 2012, we sold three of our Handymax vessels, STI Conqueror for $21.0 million, STI Gladiator for $16.2 million, and STI Matador for $16.2 million. The availability of the 2010 Revolving Credit Facility decreased by $31.0 million as a consequence of these disposals. The total available commitments, after taking into consideration the impact of these sales, reduces by $3.1 million each quarter, with a lump sum reduction of $39.9 million at the maturity date of June 2, 2015. Our subsidiaries that own vessels that are collateralized by this loan act as guarantors under the amended and restated credit facility. All terms mentioned are defined in the agreement.

The credit facility requires us to comply with a number of covenants, including financial covenants; delivery of quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws (including environmental); compliance with ERISA (Employee Retirement Income Security Act); maintenance of flag and class of the initial vessels; restrictions on consolidations, mergers or sales of assets; approval on changes in the Manager of our initial vessels; limitations on liens; limitations on additional indebtedness; prohibitions on paying dividends if a covenant breach or an event of default has occurred or would occur as a result of payment of a dividend; prohibitions on transactions with affiliates; and other customary covenants.

The financial covenants include:

The ratio of net debt to capitalization shall be no greater than 0.60 to 1.00.

Consolidated tangible net worth (i.e. total shareholders’ equity) shall be no less than US$150,000,000 plus 25% of cumulative positive net income (on a consolidated basis) for each fiscal quarter from July 1, 2010 going forward and 50% of the value of any new equity issues from July 1, 2010 going forward.

F- 22

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

The ratio of EBITDA to interest expense shall be no less than 1.25 to 1.00 commencing with the fourth fiscal quarter of 2011 until the fourth quarter of 2012, at which point it will increase to 1.50 to 1.00 for the first quarter of 2013, 1.75 to 1.00 for the second quarter of 2013, 2.00 to 1.00 at all times thereafter. Such ratio shall be calculated quarterly on a trailing four quarter basis. In addition, we are restricted from paying dividends until our EBITDA to interest expense ratio is 2.00 to 1.00 or greater. EBITDA, as defined in the loan agreement, excludes non-cash charges such as impairment.

Consolidated liquidity (cash, cash equivalents, and availability under the 2010 Revolving Credit Facility) needs to be not less than $25.0 million, of which unrestricted cash and cash equivalents shall be not less than $15.0 million, until we own, directly or indirectly, more than 15 vessels, at which time the amount increases by $750,000 per each additional vessel.

The aggregate fair market value of the collateral vessels (see note 6) shall at all times be no less than 150% of the then aggregate outstanding principal amount of loans under the credit facility.

We drew down $16.0 million and $16.2 million in February and August 2012, respectively from the 2010 Revolving Credit Facility. We made payments of $14.0 million, $16.0 million, $26.0 million and $50 million in March, April, May, and December 2012, respectively.

The outstanding balance at December 31, 2012 and December 31, 2011 was $17.2 million and $91.0 million, respectively. There was $67.4 and $37.9 million available to be drawn at December 31, 2012 and December 31, 2011, respectively.

We were in compliance with the financial covenants relating to this facility as of December 31, 2012.

STI Spirit Credit Facility

On March 9, 2011, we executed a credit facility with DVB Bank SE for a senior secured term loan facility of $27.3 million for STI Spirit, which was acquired on November 10, 2010. The credit facility was drawn down on March 17, 2011 and matures on March 17, 2018. The loan bears interest at LIBOR plus a margin of 2.75% per annum. The loan will be repaid over 28 equal quarterly installments and a lump sum payment at maturity. The quarterly installments commenced three months after the drawdown and were calculated using an 18 year amortization profile. Our subsidiary, STI Spirit Shipping Company Limited, which owns the vessel, is the borrower and Scorpio Tankers Inc. is the guarantor. The credit facility requires us to comply with a number of covenants, including financial covenants; delivery of quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws (including environmental); compliance with ERISA (Employee Retirement Income Security Act); maintenance of flag and class of the vessel; restrictions on consolidations, mergers or sales of assets; approval of changes in the Manager of our vessels; limitations on liens; limitations on additional indebtedness; prohibitions on paying dividends if a covenant breach or an event of default has occurred or would occur as a result of payment of a dividend; prohibitions on transactions with affiliates; and other customary covenants.

All terms mentioned are defined in the agreement.

The financial covenants of the credit facility are described below.

The ratio of debt to capitalization shall be no greater than 0.60 to 1.00.

Consolidated tangible net worth (i.e. shareholders equity) shall be no less than $ 150.0 million plus 25% of cumulative positive net income (on a consolidated basis) for each fiscal quarter.

The ratio of EBITDA to interest expense shall be no less than 1.25 to 1.00 for the period commencing with the fourth quarter of 2011 through the fourth quarter of 2012, at which time it will increase to 1.50 to 1.00 for the first quarter of 2013, 1.75 to 1.00 for the second quarter of 2013 and 2.00 to 1.00 at all times thereafter. Such ratio shall be calculated quarterly on a trailing four quarter basis. In addition, we are restricted from paying dividends until our EBITDA to interest expense ratio is 2.00 to 1.00 or greater. EBITDA, as defined in the loan agreement, excludes non-cash charges such as impairment.

The aggregate fair market value of the STI Spirit shall at all times be no less than (i) 140% of the then outstanding loan balance if the vessel is operating in a pool or in the spot market or (ii) 130% of the then outstanding loan if the vessel is on time charter with a duration of at least one year.

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Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

As described above, the credit facility requires that the charter-free market value of the STI Spirit shall be no less than 140% of the then outstanding loan balance. In order to stay in compliance with this covenant, we made a prepayment of $0.8 million in June 2012, and a prepayment of $1.3 million in December 2012, which is being applied to the next four quarterly payments.

The outstanding balance at December 31, 2012 and December 31, 2011 was $23.4 million and $26.2 million, respectively, which considers the aforementioned payments along with principal payments of $0.4 million made in March 2012 and June 2012, respectively.

We were in compliance with the financial covenants relating to this facility as of December 31, 2012.

2011 Credit facility

On May 3, 2011, we executed a credit facility with Nordea Bank Finland plc, acting through its New York branch, DnB NOR Bank ASA, acting through its New York branch, and ABN AMRO Bank N.V., for a senior secured term loan facility of up to $150.0 million. On July 20, 2012, we extended the availability period of the 2011 Credit Facility until January 31, 2014. The availability period was previously scheduled to expire in May 2013. Due to the amendment, we wrote-off $3.0 million in deferred financing fees within Financial Expenses (see note 19), which includes all loan fees from May 2011.

All terms mentioned in this section are defined in the agreement.

Drawdowns under this credit facility are available until January 31, 2014 and bear interest as follows: (1) until December 29, 2011, at LIBOR plus an applicable margin of (i) 2.75% per annum when our debt to capitalization (total debt plus equity) ratio is less than 45%, (ii) 3.00% per annum when our debt to capitalization ratio is greater than or equal to 45% but less than or equal to 50% and (iii) 3.25% when our debt to capitalization ratio is greater than 50%; (2) from December 30, 2011 through September 30, 2013, at LIBOR plus an applicable margin of 3.50% per annum and (3) from October 1, 2013 and at all times thereafter, at LIBOR plus an applicable margin of (i) 3.25% per annum when our debt to capitalization (total debt plus equity) ratio is equal to or less than 50% and (ii) 3.50% per annum when our debt to capitalization ratio is greater than 50%. A commitment fee equal to 40% of the applicable margin is payable on the unused daily portion of the credit facility. The credit facility matures on May 3, 2017 and can only be used to finance up to 50% of the cost of future vessel acquisitions, which vessels would be the collateral for the credit facility.

Borrowings for each vessel financed under this facility represent a separate tranche, with repayment terms dependent on the age of the vessel at acquisition. Each tranche under the credit facility is repayable in equal quarterly installments, with a lump sum payment at maturity, based on a full repayment of such tranche when the vessel to which it relates is sixteen years of age. Our subsidiaries, which may at any time, own one or more of our vessels, will act as guarantors under the credit facility.

The credit facility requires us to comply with a number of covenants, including financial covenants; delivery of quarterly and annual financial statements and annual projections; maintaining adequate insurances; compliance with laws (including environmental); compliance with ERISA (Employee Retirement Income Security Act); maintenance of flag and class of the initial vessels; restrictions on consolidations, mergers or sales of assets; approvals on changes in the Manager of our initial vessels; limitations on liens; limitations on additional indebtedness; prohibitions on paying dividends if a covenant breach or an event of default has occurred or would occur as a result of payment of a dividend; prohibitions on transactions with affiliates; and other customary covenants.

The financial covenants include:

The ratio of net debt to capitalization shall be no greater than 0.60 to 1.00.

Consolidated tangible net worth (i.e. shareholders’ equity) shall be no less than $150.0 million plus 25% of cumulative positive net income (on a consolidated basis) for each fiscal quarter from July 1, 2010 going forward and 50% of the value of any new equity issues from July 1, 2010 going forward.

The ratio of EBITDA to interest expense shall be no less than 1.25 to 1.00 commencing with the fourth fiscal quarter of 2011 until the fourth quarter of 2012, at which point it will increase to 1.50 to 1.00 for the first quarter of 2013, 1.75 to 1.00 for the second quarter of 2013 and 2.00 to 1.00 at all times thereafter. Such ratio shall be calculated quarterly on a trailing four quarter basis. In addition, we are restricted from paying dividends until our EBITDA to interest expense ratio is 2.00 to 1.00 or greater. EBITDA, as defined in the loan agreement, excludes non-cash charges such as impairment.

F- 24

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Consolidated liquidity (cash, cash equivalents, and availability under the 2010 Revolving Credit Facility) needs to be not less than $25 million, of which unrestricted cash and cash equivalents shall be not less than $15.0 million, until we own, directly or indirectly, more than 15 vessels, at which time the amount increases by $750,000 per each additional vessel.

The aggregate fair market value of the collateral vessels shall at all times be no less than 150% of the then aggregate outstanding principal amount of loans under the credit facility.

In August and September 2012, we sold STI Diamond and STI Coral for $25.25 million each. A portion of the proceeds from the sales was used to repay $16.1 million of debt outstanding on the 2011 Credit Facility relating to STI Coral . In addition, the fifth newbuilding vessel, STI Onyx was substituted as collateral under the 2011 Credit Facility on the outstanding borrowing relating to STI Diamond .

As of December 31, 2012, there was $115 million available for borrowing which can be used to finance up to 50% of future vessel acquisitions. $2.0 million of principal payments were made during 2012 in addition to the $16.1 million repayment relating to the sale of STI Coral . The outstanding balance at December 31, 2012 and December 31, 2011 was $15.5 million and $33.6 million, respectively.

We were in compliance with the financial covenants relating to this facility as of December 31, 2012.

Newbuilding Credit Facility

On December 21, 2011, we executed a credit facility agreement with Credit Agricole Corporate and Investment Bank and Skandinaviska Enskilda Banken AB for a senior secured term loan facility of up to $92.0 million. During the year ended December 31, 2012, we drew down an aggregate of $92.0 million from this facility to partially finance the deliveries of STI Amber, STI Topaz, STI Ruby and STI Garnet ($23.0 million per vessel). These vessels are owned individually by certain of our subsidiaries, who together are the borrowers under this credit facility, and Scorpio Tankers Inc. is the guarantor. Borrowings under the credit facility bear interest at LIBOR plus an applicable margin of 2.70% per annum. A commitment fee equal to 1.10% per annum was payable on the unused daily portion of the credit facility, and the facility was fully drawn as of December 31, 2012.

All terms mentioned in this section are defined in the agreement.

The facility is separated into four tranches (one per each vessel) and repayment of the tranche relating to the respective vessel commenced after delivery of that vessel in quarterly installments of $375,000, which equates to a repayment profile of 15.33 years. Each tranche is scheduled to mature approximately seven years after delivery of the relevant vessel from the shipyard.

The financial covenants include:

The ratio of debt to capitalization shall be no greater than 0.60 to 1.00.

Consolidated tangible net worth (i.e. shareholders equity) shall be no less than US$ 150,000,000 plus 25% of cumulative positive net income (on a consolidated basis) for each fiscal quarter from July 1, 2010 going forward and 50% of the value of any new equity issues from July 2, 2010 going forward.

The ratio of EBITDA to interest expense shall be no less than 2.00 to 1.00 commencing with the third fiscal quarter of 2011 until the fourth quarter of 2012, and 2.50 to 1.00 for all times thereafter. Such ratio shall be calculated quarterly on a trailing four quarter basis. EBITDA, as defined in the loan agreement, excludes non-cash charges such as impairment.

Unrestricted cash and cash equivalents shall at all times be no less than$15.0 million, until we own, directly or indirectly, more than 15 vessels, at which time the amount increases by $750,000 per each additional vessel.

The aggregate fair market value of the collateral vessels shall at all times be no less than 140% (120% if the vessel is subject to acceptable long term employment) of the aggregate principal amount outstanding plus a pro rata amount of any allocable swap exposure for the credit facility .

F- 25

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

This facility is now fully drawn, and there is currently $89.8 million outstanding under this facility as of December 31, 2012, which reflects principal payments of $0.7 million and $1.5 million made in September and December 2012, respectively.

We had no borrowings under this facility outstanding at December 31, 2011. We were in compliance with the financial covenants relating to this facility as of December 31, 2012.

12. Derivative financial instruments

Interest rate swaps

In August 2011, we entered into six interest rate swap agreements to manage interest costs and the risk associated with changing interest rates on our 2011 and 2010 Credit Facilities with three different banks. Pursuant to these interest rate swap contracts, we agreed to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable us to partially mitigate the risk of changing interest rates on the cash flow exposures on the issued variable rate debt held. We determined the estimated fair value of our derivatives by discounting the future cash flows using the curves at the reporting date and the credit risk inherent in the contract. These swaps have been designated and accounted for as cash flow hedges.

In August and September 2012, we completed the sales of STI Coral and STI Diamond , respectively and as a result, we reduced the notional amount on the interest rate swaps relating to the 2011 Credit Facility to $15.0 million from $24.0 million in aggregate. As a result of the reduction, we recognized a realized loss of $0.2 million, which was reclassified out of other comprehensive loss and recorded as a component of loss from sale of vessels.

The notional principal amounts of these swaps aggregate $66 million, the details of which are as follows as of December 31, 2012 and 2011, respectively:

As of December 31, 2012

Hedged item

Notional amount

Start date

Expiration date

Fixed interest rate

Floating interest rate

2010 Credit Facility

$51 million

July 2, 2012

June 2, 2015

1.27%

3 mo. LIBOR

2011 Credit Facility

$15 million

July 2, 2012

June 30, 2015

1.30%

3 mo. LIBOR

As of December 31, 2011

Hedged item

Notional amount

Start date

Expiration date

Fixed interest rate

Floating interest rate

2010 Credit Facility

$51 million

July 2, 2012

June 2, 2015

1.27%

3 mo. LIBOR

2011 Credit Facility

$24 million

July 2, 2012

June 30, 2015

1.30%

3 mo. LIBOR

The vessels which collateralize the 2011 Credit Facility and 2010 Revolving Credit Facility also serve as collateral for the designated interest rate swap agreements, subordinated to the outstanding borrowings under each credit facility.

In December 2012, we raised net proceeds of $127.2 million from a registered direct placement of common shares and as part of the use of proceeds of this offering, we voluntarily repaid $50.0 million into our 2010 Revolving Credit Facility. After the payment, we had $17.2 million of debt outstanding under the 2010 Credit Facility, which is less than the total notional amount of $51 million for the three interest rate swaps related to the facility. As such, the swaps related to the 2010 Revolving Credit Facility no longer met the criteria for hedge accounting and we therefore de-designated the hedge relationship prospectively and reclassified all amounts accumulated in other comprehensive income ($1.0 million) to the statement of profit or loss for the year ended December 31, 2012 as a component of Financial Expenses.

The interest rate swaps relating to the 2011 Credit Facility continue to qualify for hedge accounting. Accordingly, changes in their fair value, which the hedge is deemed to be effective, are recognized directly in other comprehensive income and classified as ‘hedging reserves’. Changes in their fair value for any portion deemed to be ineffective are recognized in the consolidated statement of profit or loss.

F- 26

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Profit or loss sharing agreements

In July 2012, we entered into a profit or loss sharing arrangement on the earnings of an LR1 vessel that is not owned or operated by us. The agreement stipulates that 50% of the profits and losses will be shared with the counterparty. The counterparty to this agreement was time chartering-in this vessel for a period of six months at $12,750 per day and this agreement expired in January 2013.

Both of these agreements are being treated as derivatives, recorded at fair value with any resultant gain or loss recognized in the statement of profit or loss. Changes in fair value are recorded as unrealized gains and losses on derivative financial instruments and actual earnings are recorded as earnings from profit or loss sharing agreements, within the consolidated statement of profit or loss. The fair value of these instruments is determined by comparing published time charter rates to the charterhire rate and discounting those cash flows to their estimated present value.

The following table summarizes the fair value of our derivative financial instruments as of December 31, 2012 and 2011, which are included in the consolidated balance sheet:

	At December 31,
In thousands of US dollars	2012			2011
Assets
Prepaid expenses and other current assets (profit and loss agreements)	$	26		$	—

Liabilities
Derivative financial instrument (profit and loss agreements - current)		(211	)		—
Derivative financial instrument (interest rate swap - current)		(633	)		(237	)
Total current liabilities		(844	)		(237	)

Derivative financial instrument (interest rate swap - non-current)		(743	)		(464	)
Total liabilities	$	(1,587	)	$	(701	)

The following has been recorded as realized and unrealized losses from changes in the fair value of our derivative financial instruments:

	Fair value adjustments
	Statement of profit or loss
In thousands of US dollars	Realized gain/ (loss)			Unrealized gain/ (loss)			Recognized in equity
Profit and loss agreements		443			(184	)	$	—
Interest rate swap		(229	)(1)		(1,047	)		(904	)

Total period ended December 31, 2012	$	214		$	(1,231	)	$	(904	)

Interest rate swap		—			—			(701	)

Total period ended December 31, 2011	$	—		$	—		$	(701	)

Interest rate swap		(280	)(2)		—			—

Total period ended December 31, 2010	$	(280	)	$	—		$	—

(1)

The realized loss on our interest rate swaps related to the 2011 Credit Facility due to the disposal of STI Coral and STI Diamond was recorded as a component of the loss from sale of vessels on the consolidated statement of profit or loss.

(2)

The realized loss of $0.3 million in the year ended December 31, 2010 relates to the loss recorded upon settlement of an interest rate swap in April 2010

F- 27

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

13. Segment reporting

Information about our reportable segments for the years ended December 31, 2012, 2011 and 2010 is as a follows:

For the year ended December 31, 2012
In thousands of US dollars	Panamax/LR1			Handymax			Aframax/LR2			MR			Reportable segments subtotal			Corporate and eliminations			Total

Vessel revenue	$	28,602		$	35,381		$	4,541		$	46,857		$	115,381		$	0		$	115,381
Vessel operating costs		(14,137	)		(5,428	)		(3,304	)		(7,484	)		(30,353	)		—			(30,353	)
Voyage expenses		(999	)		(2,741	)		(25	)		(17,979	)		(21,744	)		—			(21,744	)
Charterhire		(1,629	)		(23,192	)		(1,287	)		(17,593	)		(43,701	)		—			(43,701	)
Depreciation		(7,352	)		(1,716	)		(1,735	)		(4,015	)		(14,818	)		—			(14,818	)
Loss from sale of vessels		—			(4,525	)		—			(5,879	)		(10,404	)		—			(10,404	)
General and administrative expenses		(495	)		(195	)		(100	)		(398	)		(1,188	)		(10,348	)		(11,536	)
Financial expenses		—			—			(1,086	)		—			(1,086	)		(7,426	)		(8,512	)
Earnings from profit and loss sharing agreements		443			—			—			—			443			—			443
Unrealized loss on derivative financial instruments		(184	)		—			—			—			(184	)		(1,047	)		(1,231	)
Financial income		—			—			—			6			6			29			35
Other expenses, net		—			—			(11	)		(51	)		(62	)		(35	)		(97	)
Segment profit or loss	$	4,249		($	2,416	)	($	3,007	)	($	6,536	)	($	7,710	)	($	18,827	)	($	26,537	)

For the year ended December 31, 2011
In thousands of US dollars	Panamax/LR1			Handymax			Aframax/LR2			MR			Reportable segments subtotal			Corporate and eliminations			Total
Vessel revenue	$	31,101		$	32,238		$	6,484		$	12,287		$	82,110			—		$	82,110
Vessel operating costs		(14,428	)		(11,217	)		(2,547	)		(3,178	)		(31,370	)		—			(31,370	)
Voyage expenses		(13	)		(26	)		—			(6,842	)		(6,881	)		—			(6,881	)
Charterhire		(4,554	)		(17,357	)		(839	)		—			(22,750	)		—			(22,750	)
Impairment		(28,616	)		(12,962	)		(12,459	)		(12,574	)		(66,611	)		—			(66,611	)
Depreciation		(9,279	)		(5,069	)		(2,074	)		(2,038	)		(18,460	)		—			(18,460	)
General and administrative expenses		(692	)		(762	)		(136	)		(314	)		(1,904	)		(9,733	)		(11,637	)
Financial expenses		—			—			(841	)		—			(841	)		(6,219	)		(7,060	)
Financial income		—			—			—			—			—			51			51
Other expenses, net		23			—			(134	)		—			(111	)		(8	)		(119	)
Segment profit or loss	($	26,458	)	($	15,155	)	($	12,546	)	($	12,659	)	($	66,818	)	($	15,909	)	($	82,727	)

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Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

For the year ended December 31, 2010
In thousands of US dollars	Panamax/LR1			Handymax			Aframax/LR2			MR		Reportable segments subtotal			Corporate and eliminations			Total
Vessel revenue	$	29,345		$	8,812		$	641		$	0	$	38,798		$	0		$	38,798
Vessel operating costs		(12,364	)		(5,650	)		(427	)		—		(18,440	)		—			(18,440	)
Voyage expenses		(253	)		(2,289	)		—			—		(2,542	)		—			(2,542	)
Charterhire		(276	)		—			—			—		(276	)		—			(276	)
Depreciation		(7,494	)		(2,390	)		(293	)		—		(10,177	)		(2	)		(10,179	)
General and administrative expenses		(600	)		(267	)		(15	)		—		(882	)		(5,318	)		(6,200	)
Financial expenses		(135	)		—			—			—		(135	)		(3,096	)		(3,231	)
Financial income		1			1			1			—		3			34			37
Realized loss on derivative financial instruments		(280	)		—			—			—		(280	)		—			(280	)
Other expense, net		(4	)		—			—			—		(4	)		(505	)		(509	)
Segment profit or loss	$	7,940		($	1,782	)	($	93	)	$	0	$	6,065		($	8,887	)	($	2,822	)

The Panamax/LR1and Handymax segments each contained revenue from at least one major customer representing greater than 10% of total revenue. The revenue from those customers within their respective segments was:

In thousands of US dollars
Segment		Customer	2012		2011		2010
	Panamax/LR1	Scorpio Panamax Tanker Pool Limited ⁽¹⁾	$	26,884	$	22,594	$	9,645
		King Dustin ⁽¹⁾		—		8,507		8,700
		Liberty ⁽¹⁾		—		—		4,780
		BP		—		—		5,937

	Handymax	Scorpio Handymax Tanker Pool Limited ⁽¹⁾		31,280		32,238		5,178
			$	58,164	$	63,339	$	34,240

⁽¹⁾ These customers are related parties (see Note 15)

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Notes to the consolidated financial statements

14. Common shares

At December 31, 2010, we had 24,634,913 registered shares authorized and issued with a par value of $0.01 per share. These shares provide the holders with rights to dividends and voting rights.

In May 2011, we closed on a follow-on public offering of 6,000,000 shares of common stock at $10.50 per share. On the same day, the underwriters exercised their over-allotment option to purchase an additional 900,000 shares at $10.50 per share After deducting underwriters’ discounts and paying offering expenses, the net proceeds of the follow-on public offering and the over-allotment were approximately $68.5 million. Total fees and commissions relating to the follow-on offering and exercise of the over-allotment option were $4.0 million and were recorded as a reduction to additional paid-in capital.

In December 2011, we closed on the sale 7,000,000 shares of common stock in an underwritten public offering at an offering price of $5.50 per share. We received net proceeds of approximately $36.5 million, after deducting underwriters' discounts and offering expenses. Total fees and commissions relating to the follow-on offering and exercise of the over-allotment option were $2.0 million and were recorded as a reduction to additional paid-in capital.

In April 2012, we closed on the sale of 4,000,000 shares common stock in a registered direct placement of common shares at an offering price of $6.75 per share. We received net proceeds of approximately $25.9 million, after deducting the placement agents’ discounts and offering expenses. Total fees and commissions relating to the registered direct placement were $1.1 million and were recorded as a reduction to additional paid-in capital.

In December 2012, we closed on the sale of 21,639,774 shares of common stock in a registered direct placement of common shares at an offering price of $6.10 per share. We received net proceeds of approximately $127.2 million, after deducting the placement agents' discount and offering expenses. Total fees and commissions relating to the registered direct placement were $4.8 million and were recorded as a reduction to additional paid-in capital.

Stock buyback plan

On July 9, 2010, the board of directors authorized a share buyback program of $20.0 million. We repurchase these shares in the open market at the times and prices that we consider to be appropriate. During 2012, we repurchased 447,322 shares at an average price of $5.4546 per share, including commissions. As of December 31, 2012 and December 31, 2011, 1,170,987 and 723,665 shares, respectively have been purchased under the plan at an average price of $6.7793 and $7.5981, respectively, per share including commissions. As of December 31, 2012, the remaining stock buyback authorization was $12.1 million.

Restricted stock issuance

On June 18, 2010, we issued 559,458 shares of restricted stock to our employees for no cash consideration. The share price at the date of issue was $10.99 per share. The vesting schedule of the restricted stock is (i) one-third of the shares vest on April 6, 2013, (ii) one-third of the shares vest on April 6, 2014, and (iii) one-third of the shares vest on April 6, 2015. Compensation expense is recognized ratably over the vesting periods for each tranche using the straight-line method.

On June 18, 2010, we issued 9,000 shares of restricted stock to our directors for no cash consideration. The share price at the date of issue was $10.85 per share and these shares vested on April 6, 2011.

On January 31, 2011, we issued 281,000 shares of restricted stock to the employees for no cash consideration. The share price at the date of issue was $9.83 per share. The vesting schedule of the restricted stock is (i) one-third of the shares vest on January 31, 2012, (ii) one-third of the shares vest on January 31, 2013, and (iii) one-third of the shares vest on January 31, 2014. Compensation expense is recognized ratably over the vesting periods for each tranche using the straight-line method. 93,667 shares vested on January 31, 2012.

On January 31, 2011, we issued 9,000 shares of restricted stock to our independent directors for no cash consideration. The share price at the date of issue was $9.83 per share. These shares vested on January 31, 2012.

On January 31, 2012, we issued 281,000 shares of restricted stock to employees for no cash consideration. The share price at the date of issue was $5.65 per share. The vesting schedule of the restricted stock is (i) one-third of the shares vest on January 31, 2013, (ii) one-third of the shares vest on January 31, 2014, and (iii) one-third of the shares vest on January 31, 2015. Compensation expense is recognized ratably over the vesting periods for each tranche using the straight-line method.

On January 31, 2012, we issued 9,000 shares of restricted stock to our independent directors for no cash consideration. The share price at the date of issue was $5.65 per share. These shares vest on January 31, 2013.

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Notes to the consolidated financial statements

We recognized $3.5 million, $3.4 million and $0.9 million in expense relating to these issuances during the years ended December 31, 2012, 2011 and 2010, respectively. No shares were forfeited during these periods.

Assuming that all the restricted stock will vest, the stock compensation expense in future periods, including that related to restricted stock issued in prior periods will be:

In thousands of US dollars	Employees		Directors		Total
For the year ending December 31, 2013	$	1,982	$	4	$	1,986
For the year ending December 31, 2014		787		—		787
For the year ending December 31, 2015		122		—		122
	$	2,891	$	4	$	2,895

Shares outstanding

As of December 31, 2012, we had 275,000,000 registered shares of which 250,000,000 are designated as common shares with a par value of $0.01 and 25,000,000 designated as preferred shares with a par value of $0.01,

As of December 31, 2012 we had 63,827,846 shares outstanding.

15. Related party transactions

Transactions with entities controlled by the Lolli-Ghetti family (herein referred to as related party affiliates) in the consolidated profit or loss statement and balance sheet are as follows:

	For the year ended December 31,
In thousands of US dollars	2012			2011			2010
Pool revenue ⁽¹⁾
Scorpio Panamax Tanker Pool Limited	$	26,884		$	22,594		$	9,645
Scorpio Handymax Tanker Pool Limited		31,280			32,238			5,178
Scorpio MR Pool Limited		9,558			—			—
Scorpio LR2 Pool Limited		4,540			5,195			—
Scorpio Aframax Tanker Pool Limited		—			170			641
Time charter revenue ⁽²⁾
King Dustin		—			8,507			8,700
Liberty and subsidiaries		—			—			4,780
Vessel operating costs ⁽³⁾		(2,280	)		(2,203	)		(1,059	)
Commissions ⁽⁴⁾		(532	)		(270	)		(234	)
Administrative expenses ⁽⁵⁾		(1,862	)		(1,937	)		(932	)
Other ⁽⁶⁾		—			—			(131	)

⁽¹⁾

These transactions relate to revenue earned in the Scorpio LR2, Scorpio Aframax, Scorpio Panamax, Scorpio MR and Scorpio Handymax Tanker Pools (the Pools). The Pools are owned by Scorpio LR2 Tanker Pool Limited, Scorpio Aframax Pool Limited, Scorpio Panamax Tanker Pool Limited,Scorpio MR Pool Limited and Scorpio Handymax Tanker Pool Limited, respectively. The Pools are related party affiliates.

⁽²⁾

The revenue earned was for Noemi's time charter with King Dustin (which is 50% jointly controlled by a related party affiliate). In 2010, STI Harmony and STI Heritage were on a time charter with Liberty, a related party affiliate. See Note 16 for the terms of this time charter.

⁽³⁾

These transactions represent technical management fees charged by SSM, a related party affiliate, and included in the vessel operating costs in the consolidated statement of profit or loss. We believe our technical management fees for the years ended December 31, 2012, 2011 and 2010 were at market rates because they were the same rates charged to other vessels managed by SSM. Each vessel pays $548 per day for technical management, which was, lower than that charged to third parties by SSM.

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Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

⁽⁴⁾

These transactions represent the expense due to SCM for commissions related to the commercial management services provided by SCM under the Commercial Management Agreement (see description below). Each of the vessels pays a commission of 1.25% of their revenue when not in the Pools. When our vessels were in the Pools, SCM, the pool manager, charged fees of $250 per vessel per day with respect to our Panamax/LR1 and LR2 vessels, $300 per vessel per day with respect to each of our Handymax and MR vessels, plus 1.25% commission on gross revenues per charter fixture. These were the same fees that SCM charges other vessels in these pools, including third party owned vessels.

⁽⁵⁾

We have an Administrative Services Agreement with Scorpio Services Holding Limited, or SSH or our Administrator, for the provision of administrative staff and office space, and administrative services, including accounting, legal compliance, financial and information technology services. SSH is a related party to us. Liberty Holding Company Ltd., or Liberty, a company affiliated with us, acted as our Administrator until March 13, 2012 when the Administrative Services Agreement was assigned to SSH. The effective date of the novation was November 9, 2009, the date that we first entered into the agreement with Liberty. We reimburse our current Administrator for the reasonable direct or indirect expenses it incurs in providing us with the administrative services described above. Our Administrator also arranges vessel sales and purchases for us. The services provided to us by our Administrator may be sub-contracted to other entities within the Scorpio Group.

Our Commercial Management Agreement with SCM includes a daily flat fee charged payable to SCM for the vessels that are not in one of the pools managed by SCM. The flat fee was $250 per day for Panamaxes/LR1 and Aframax/LR2 vessels and $300 per day for Handymax and MR vessels. The flat fee was the same rate charged by SCM for vessels in the pools managed by SCM.

The expense for the year ended December 31, 2012 of $1.9 million included the flat fee of $0.7 million charged by SCM and administrative fees of $1.2 million charged by SSH and were included in voyage expenses and general and administrative expenses in the consolidated statement of profit or loss.

The expense for the year ended December 31, 2011 of $1.9 million included the flat fee of $0.3 charged by SCM and administrative fees of $1.7 million charged by SSH and were both included in general and administrative expenses in the consolidated statement of profit or loss.

The expense for the year ended December 31, 2010 of $0.9 million included the flat fee of $0.2 million charged by SCM and administrative fees of $0.7 million charged by SSH and were both included in general and administrative expenses in the consolidated statement of profit or loss.

⁽⁶⁾

In accordance with our Administrative Services Agreement with SSH, we have to reimburse SSH for any direct expenses. These transactions represent reimbursements of $0.1 million to SSH for the year ended December 31, 2010 for expenses related to the registration of the existing shares in the initial public offering which closed on April 6, 2010. In addition, $0.3 million related to expenses for the registration of the shares in the initial public offering were recorded as an offset against the proceeds from the offering. The cash payment was made in 2010.

Furthermore, the Administrative Services Agreement with SSH includes a fee for arranging vessel purchases and sales, on our behalf, equal to 1% of the gross purchase or sale price, payable upon the consummation of any such purchase or sale. These fees are capitalized as part of the carrying value of the related vessel for a vessel purchase and are included as part of the gain or loss on sale for a vessel disposal. In the year ended December 31, 2012, we paid SSH an aggregate fee of $2.4 million, which consisted of $0.5 million (recorded within loss from sale of vessels) on the sales of STI Conqueror, STI Gladiator, and STI Matador and $1.9 million on the purchase and delivery of the first five Newbuilding vessels. In the year ended December 31, 2011, we paid SSH an aggregate fee of $0.7 million in May 2011 for the purchase of the STI Coral and STI Diamond . In the year ended December 31, 2010, we paid SSH an aggregate fee of $2.4 million for the purchases of the STI Harmony , STI Heritage , STI Conqueror, STI Matador, STI Gladiator, STI Highlander and STI Spirit.

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Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

We had the following balances with related parties, which have been included in the consolidated balance sheets:

	As of December 31,
In thousands of US dollars	2012		2011
Assets:
Accounts receivable (due from the Pools)	$	33,271	$	18,102

Liabilities:
Accounts payable (owed to the Pools)		59		50
Accounts payable (SSM)		70		8
Accounts payable (SCM)		146		52

In 2011, we also entered into an agreement to reimburse costs to SSM as part of its supervision agreement for newbuilding vessels. $0.1 million has been charged under this agreement during the year ended December 31, 2012 and capitalized within vessels under construction. No amounts were charged under this agreement during the year ended December 31, 2011.

Key management remuneration

Prior to April 6, 2010, our executive management services were provided by a related party affiliate and included in the management fees described in (5) above. If we were not part of a related party affiliate, and had the same ownership structure and a contract for administrative services for the periods up to April 6, 2010, we estimate our executive management remuneration would have been comparable with the executive management remuneration presented within general and administrative expenses in subsequent periods. The table below therefore depicts key management remuneration for the periods April 6, 2010 through December 31, 2010 and the years ended December 31, 2012 and 2011 as follows:

	For the period ended December 31,
In thousands of US dollars	2012		2011		2010
Short-term employee benefits (salaries)	$	2,896	$	2,875	$	2,060
Share-based compensation ⁽¹⁾		3,368		3,189		922
Total	$	6,264	$	6,064	$	2,982

⁽¹⁾

Represents the amortization of restricted stock issued under our equity incentive plans in June 2010, January 2011 and January 2012. See note 14.

There are no post employment benefits.

16. Vessel revenue

During the years ended December 31, 2011, and 2010 we had two and four vessels, respectively that earned revenue through time charter contracts. During the year ended December 31, 2012, there were no vessels on time charter contracts. The remaining revenue was generated from vessels operating in pools or in the spot market.

Revenue Sources

	For the year ended December 31,
In thousands of US dollars	2012		2011		2010
Pool revenue	$	72,262	$	60,197	$	15,464
Voyage revenue		43,119		12,287		3,917
Time charter revenue		—		9,626		19,417
	$	115,381	$	82,110	$	38,798

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Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Time charter out contracts:

	Time Charter Out
Vessel	From	To		Daily rate
Noemi ⁽¹⁾	Jan 2007		Dec 2011	$	24,500
Senatore ⁽²⁾	Sep 2007		Aug 2010	$	26,000
STI Spirit ⁽³⁾	Jan 2011		Mar 2011	$	15,000
STI Harmony ⁽⁴⁾	Jun 2010		Sep 2010	$	25,500
STI Heritage ⁽⁴⁾	Jun 2010		Nov 2010	$	25,500

⁽¹⁾

The time charter contract with the Noemi was terminated on December 22, 2011.

⁽²⁾

The time charter contract with the Senatore was terminated on August 26, 2010.

⁽³⁾

The STI Spirit was on a short term time charter from January 11, 2011 through March 3, 2011 at a charterhire rate of $15,000 per day. From March 4, 2011 through March 26, 2011, the date the vessel entered the Scorpio LR2 Pool, the charterhire rate increased to $17,000 per day.

⁽⁴⁾

STI Harmony and STI Heritage were acquired in June 2010 with existing time charter contracts that commenced in October 2007 and January 2008, respectively. The vessels were chartered to subsidiaries of Liberty, which are related parties. `

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Notes to the consolidated financial statements

17. Charterhire

The following table depicts our time chartered-in vessel commitments during the years ended December 31, 2012, 2011 and 2010:

	Name	Year built		Type		Delivery		Charter Expiration ⁽¹⁾		Rate ($/ day)
Active as of December 31, 2012
1	Kraslava		2007		Handymax		January-11		July-13		12,070	(2)
2	Krisjanis Valdemars		2007		Handymax		February-11		June-13		12,000	(3)
3	Histria Azure		2007		Handymax		April-12		April-14		12,000	(4)
4	Histria Coral		2006		Handymax		July-11		July-13		13,000	(5)
5	Histria Perla		2005		Handymax		July-11		July-13		13,000	(5)
6	Endeavour		2004		MR		July-12		February-13		11,525	(6)
7	STX Ace 6		2007		MR		May-12		May-14		14,150	(7)
8	Pacific Duchess		2009		MR		March-12		March-13		13,800	(8)
9	Targale		2007		MR		May-12		May-14		14,500	(9)
10	Freja Lupus		2012		MR		April-12		April-14		14,760	(10)
11	Valle Bianca		2007		MR		August-12		March-13		12,000	(11)
12	Gan-Trust		2013		MR		January-13		January-16		16,250	(12)
13	Usma		2007		MR		January-13		January-14		13,500	(13)
14	SN Federica		2003		LR1		February-13		February-15		11,250	(14)
15	Hellespont Promise		2007		LR1		December-12		December-13		12,500	(15)
16	FPMC P Eagle		2009		LR1		September-12		September-13		12,800	(16)
17	FPMC P Hero		2011		LR2		April-13		October-13		14,750	(17)
18	FPMC P Ideal		2012		LR2		January-13		July-13		14,750	(17)
19	Fair Seas		2008		LR2		January-13		July-13		16,000	(18)
Expired as of December 31, 2012
1	Kazdanga		2007		Handymax		May-11		June-12		12,345
2	BW Zambesi		2010		LR1		December-10		November-11		13,850
3	Khawr Aladid		2006		LR2		October-11		April-12		12,000

(1)	Redelivery is plus or minus 30 days from the expiry date.
(2)	We have an option to extend the charter for an additional year at $13,070 per day.
(3)	We have an option to extend the charter for an additional year at $13,000 per day. The agreement also contains a 50% profit and loss sharing provision whereby we split all of the vessel's profits and losses above or below the daily base rate with the vessel’s owner.
(4)	In April 2013, the daily base rate will increase to $12,600 per day for one year thereafter. We have an option to extend the term of the charter for an additional year at $13,550 per day.
(5)	Represents the average rate for the two year duration of the agreement. The rate for the first year is $12,750 per day and the rate for the second year is $13,250 per day. We have an option to extend the charter for an additional year at $14,500 per day.
(6)	This vessel was redelivered in February 2013.
(7)	We have an option to extend the charter for an additional year at $15,150 per day.
(8)	We have an option to extend the charter for an additional year at $14,800 per day.
(9)	We have options to extend the charter for up to three consecutive one year periods at $14,850 per day, $15,200 per day and $16,200 per day, respectively.
(10)	We have an option to extend the charter for an additional year at $16,000 per day.

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Notes to the consolidated financial statements

(11)	We have an option to extend the charter for an additional six months at $13,000 per day.
(12)	The daily base rate represents the average rate for the three year duration of the agreement. The rate for the first year is $15,750 per day, the rate for the second year is $16,250 per day, and the rate for the third year is $16,750 per day. We have options to extend the charter for up to two consecutive one year periods at $17,500 per day and $18,000 per day, respectively.
(13)	We have an option to extend the charter for an additional year at $14,500 per day.
(14)	We have an option to extend the charter for an additional year at $12,500 per day. We have also entered into an agreement with the owner whereby we split all of the vessel's profits above the daily base rate.
(15)	We have an option to extend the charter for an additional six months at $14,250 per day.
(16)	We have options to extend the charter for up to two consecutive one year periods at $13,400 per day and $14,400 per day, respectively. We have also entered into an agreement with a third party whereby we split all of the vessel's profits and losses above or below the daily base rate.
(17)	We have options to extend the charters for three consecutive six month periods at $15,000 per day, $15,250 per day, and $15,500 per day respectively. FPMC P Hero is expected to be delivered in April 2013 and FPMC P Ideal was delivered in January 2013.
(18)	We have options to extend the charter for three consecutive six month periods at $16,250 per day, $16,500 per day, and $16,750 per day respectively.

The undiscounted remaining future minimum lease payments under these arrangements as of December 31, 2012 are $86.3 million. The obligations under these agreements will be repaid as follows:

	As of December 31,
In thousands of US dollars	2012		2011
Less than 1 year	$	62,612	$	21,004
1-5 years		23,771		5,943
5+ years		—		—
Total	$	86,383	$	26,947

The total expense recognized under charter hire agreements during the year ended December 31, 2012, 2011 and 2010 was $43.7 million, $22.8 million and $0.3 million, respectively.

18. General and administrative expenses

General and administrative expenses primarily represent employee benefit expenses, professional fees and administration/commercial management fees (see note 15). Employee benefit expenses consist of:

	For the year ended December 31,
In thousands of US dollars	2012		2011		2010
Short term employee benefits (salaries)	$	4,066	$	3,796	$	2,390
Share based compensation (see note 14)		3,490		3,362		988
	$	7,556	$	7,158	$	3,378

19. Financial expenses

Financial expenses comprise:

	For the year ended December 31,
In thousands of US dollars	2012		2011		2010
Interest payable on bank loans	$	3,421	$	4,951	$	2,985
Amortization of deferred financing fees		4,093		986		246
Commitment fees on undrawn portions of bank loans		998		1,123		—
Total financial expenses	$	8,512	$	7,060	$	3,231

The amortization of deferred financing fees in the year ended December 31, 2012 includes a $3.0 million charge arising from the amendment of the 2011 Credit Facility (see note 11).

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Notes to the consolidated financial statements

20. Tax

Scorpio Tankers Inc. and its subsidiaries are incorporated in the Republic of the Marshall Islands, and in accordance with the income tax laws of the Marshall Islands, are not subject to Marshall Islands' income tax. We are also exempt from income tax in other jurisdictions including the United States of America due to tax treaties; therefore, we did not have any tax charges, benefits, or balances as of or for the periods ended December 31, 2012, 2011 and 2010.

21. Loss per share

The calculation of both basic and diluted loss/earnings per share is based on net loss attributable to equity holders of the parent and weighted average outstanding shares of:

	For the year ended December 31,
In thousands of US dollars except for share data	2012			2011			2010
Net loss attributable to equity holders of the parent	$	(26,537	)	$	(82,727	)	$	(2,822	)
Basic and diluted weighted average number of shares		41,413,339			28,704,876			15,600,813

We incurred a loss in the years ended December 31, 2012, 2011 and 2010. As a result, the inclusion of potentially dilutive shares (being the restricted shares outlined in note 14) in the diluted loss per share calculation would have an antidilutive effect on the loss per share for the period. Therefore, all restricted shares (1,036,791, 849,458 and 568,458 for the years ended December 31, 2012, 2011 and 2010, respectively) have been excluded from the diluted loss per share calculation for these periods.

22. Financial instruments

Funding and capital risk management

We manage our funding and capital resources to ensure our ability to continue as a going concern while maximizing the return to the shareholder through optimization of the debt and equity balance.

Categories of financial instruments

	Carrying value
	As of December 31
In thousands of US dollars	2012		2011
Financial assets
Cash and cash equivalents	$	87,165	$	36,833
Loans and receivables		36,797		23,187
Derivatives at fair value through profit or loss		26		—

Financial liabilities
Derivatives designated in a cash flow hedge		329		701
Derivatives at fair value through profit or loss		1,257		—
Other liabilities (at amortized cost)		156,903		160,676

Derivative financial instruments in 2012 consisted of(i) interest rate swaps, recorded at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates to determine the fair value, and (ii) profit or loss sharing agreements on time charter-in agreements with third parties, where the fair value of these instruments is determined by comparing published time charter rates to the charterhire rate and discounting those cash flows to their estimated present value.

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Notes to the consolidated financial statements

Derivative financial instruments in 2011 and 2010 solely comprised of interest rate swaps, recorded at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates to determine the fair value.

IFRS 7 requires classification of fair value measures into Levels 1, 2 and 3. Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). In accordance with IFRS 7, the fair value measurement for the interest rate swaps and profit or loss sharing agreements in 2012, 2011 and 2010 were classified as Level 2.

The fair value of other financial assets and liabilities are approximately equal to their carrying values .

Financial risk management objectives

We identify and evaluate significant risks on an ongoing basis with the objective of managing the sensitivity of our results and financial position to those risks. These risks include market risk, credit risk, liquidity risk and foreign exchange risk.

The use of financial derivatives is governed by our policies as approved by the board of directors.

Market risk

Our activities expose us to the financial risks of changes in interest rates.

In the years ended December 31, 2012, 2011, and 2010, we were party to interest rate swaps to mitigate the risk of rising interest rates. In August 2011, we entered into six interest rate swap agreements to manage interest costs and the risk associated with changing interest rates on our 2011 Credit Facility and 2010 Revolving Credit Facility with three different banks. Additionally, in April 2010, we paid $1.9 million to settle an interest rate swap that was entered into in April 2005.

Details of the amounts recorded in the consolidated statement of profit or loss and statement of other comprehensive income in respect of such instruments are provided in note 12.

Sensitivity analysis – Interest rate risk

The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at balance sheet date was outstanding for the whole year.

If interest rates had been 1% higher/lower and all other variables were held constant, our net income for the year ended December 31, 2012 would have decreased/increased by $1.6 million. This is mainly attributable to our exposure to interest rate movements on our Newbuilding Credit Facility, 2010 Revolving Credit Facility, 2011 Credit Facility and STI Spirit Credit Facility.

If interest rates had been 1% higher/lower and all other variables were held constant, our net income for the year ended December 31, 2011 would have decreased/increased by $1.6 million. This is mainly attributable to our exposure to interest rate movements on our 2010 Revolving Credit Facility, 2011 Credit Facility and STI Spirit Credit Facility.

If interest rates had been 1% higher/lower and all other variables were held constant, our net income for the year ended December 31, 2010 would have decreased/increased by $0.7 million. This is mainly attributable to our exposure to interest rate movements in our 2010 Revolving Credit Facility.

Credit risk

Credit risk is the potential exposure of loss in the event of non-performance by customers and derivative instrument counterparties.

We only place cash deposits with major banks covered with strong and acceptable credit ratings.

Accounts receivable are generally not collateralized; however, we believe that the credit risk is partially offset by the creditworthiness of our counterparties including the commercial and technical managers. We did not experience material credit losses on our accounts receivables portfolio in the years ended December 31, 2012, 2011, and 2010.

F- 38

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

The carrying amount of financial assets recognized in the consolidated financial statements represents the maximum exposure to credit risk without taking account of the value of any collateral obtained. We did not experience any impairment losses on financial assets in the years ended December 31, 2012, 2011, and 2010.

We monitor exposure to credit risk, and believe that there is no substantial credit risk arising from counterparties.

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments.

We manage liquidity risk by maintaining adequate reserves and borrowing facilities and by continuously monitoring forecast and actual cash flows.

Current economic conditions make forecasting difficult, and there is the possibility that our actual trading performance during the coming year may be materially different from expectations. It is also likely that additional, currently uncommitted, sources of financing will be required to fully meet the financial commitments under our newbuilding program, further details of which are provided in note 6 and note 23. However, based on internal forecasts and projections that take into account reasonably possible changes in our trading performance, we believe that we have adequate financial resources to continue in operation and meet our financial commitments (including but not limited to newbuilding instalments, debt service obligations and charterhire commitments) for a period of at least twelve months from the date of approval of these consolidated financial statements. Accordingly, we continue to adopt the going concern basis in preparing our financial statements.

Remaining contractual maturity on secured bank loans (Note 11)

The following table details our remaining contractual maturity for our secured bank loan. The amounts represent the future undiscounted cash flows of the financial liability based on the earliest date on which we can be required to pay. The table includes both interest and principal cash flows and takes into consideration the amount fixed via the interest rate swap discussed above.

As the interest cash flows are not fixed, the interest amount included has been determined by reference to the projected interest rates as illustrated by the yield curves existing at the reporting date.

To be repaid as follows:

	As of December 31
Amounts in thousands of US dollars	2012		2011
Less than 1 month	$	—	$	—
1-3 months		3,228		2,768
3 months to 1 year		10,042		8,376
1-5 years		78,804		126,827
5+ years		80,404		39,686
Total	$	172,478	$	177,657

The following table details our remaining contractual maturity for our interest rate swaps. The amounts represent the future undiscounted cash flows of the financial liability based on the earliest date on which we can be required to pay.

	As of December 31
In thousands of US dollars	2012		2011
Less than 1 month	$	—	$	—
1 - 3 months		160		—
3 months to 1 year		475		238
1 - 5 years		748		469
5+ years		—		—
	$	1,383	$	707

All other current liabilities fall due within less than one month.

F- 39

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Foreign Exchange Rate Risk

Our primary economic environment is the international shipping market. This market utilizes the U.S. Dollar as its functional currency. Consequently, virtually all of our revenues and the majority of our operating expenses are in U.S. Dollars. However, we incur some of our combined expenses in other currencies, particularly the Euro. The amount and frequency of some of these expenses (such as vessel repairs, supplies and stores) may fluctuate from period to period. Depreciation in the value of the U.S. dollar relative to other currencies will increase the U.S. dollar cost of us paying such expenses. The portion of our business conducted in other currencies could increase in the future, which could expand our exposure to losses arising from currency fluctuations.

23. Subsequent events

2013 Credit Facility

In February 2013, we signed a commitment letter for a $267.0 million senior secured credit facility, or the 2013 Credit Facility, with Nordea Bank Finland plc, acting through its New York branch, ABN AMRO Bank N.V., and Skandinaviska Enskilda Banken AB.

Under the terms outlined in the commitment letter, the term loan shall be repaid and the revolving loans reduced, in each case, in an amount equal to 1/60th of such loan on a consecutive quarterly basis until final maturity on the sixth anniversary of the facility.

minimum liquidity of at least the greater of $25 million or 5% of total indebtedness;

a consolidated tangible net worth no less than (i) $150 million plus 25% of cumulative positive net income (on a consolidated basis) for each fiscal quarter beginning on July 1, 2010 and (ii) 50% of the value of any new equity issues from July 1, 2010 going forward;

a ratio of net debt to total capitalization no greater than 0.60 to 1.00;

a ratio of EBITDA to net interest expense greater than 2.00 to 1.00 through September 30, 2013 and 2.50 to 1.00 thereafter;

the aggregate fair market value of the Collateral Vessels shall at all times be no less than 140% of the then aggregate outstanding principal amount of loans under the credit facility.

F- 40

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Follow-on offerings

In February 2013, we closed on the sale of 30,672,000 shares of common stock in a registered direct placement of common shares at an offering price of $7.50 per share. We received net proceeds of approximately $222.1 million, after deducting the placement agents’ discount and offering expenses.

February 2013 Shelf Registration statement

On February 22, 2013, we filed a Form F-3 with the Securities and Exchange Commission, with an effective date of February 25, 2013, which can be used to issue common shares, preferred shares, debt securities, warrants, purchase contracts, and units. If a debt security is issued, all of our subsidiaries may guarantee the securities issued by the parent company. Each subsidiary is 100% owned and each guarantee of the registered security will be full, unconditional, and join and several with all other subsidiary guarantees.

Delivery of Newbuilding Vessels

In January and March 2013, we took delivery of our sixth and seventh vessels under our Newbuilding program, STI Sapphire and STI Emerald, respectively. These vessels were partially financed by drawing down $34.4 million from our 2011 Credit Facility. As of the date of this report, there is $49.9 million outstanding under this facility and $80.6 million available for borrowing which can be used to finance up to 50% of future vessel acquisitions.

Time chartered-in vessels

In January 2013, we agreed to time charter-in and took delivery of a 2007 built MR ice-class 1B product tanker on a one year time charter-in agreement at $14,000 per day. The agreement also contains an option for us to extend the charter by one year at $15,000 per day.

In January 2013, we took delivery of a 2013 built MR product tanker. This vessel is a sister ship of our newbuilding vessels from HMD. The vessel will be chartered-in for three years at $15,750 per day in year one, $16,250 per day in year two and $16,750 per day in year three. The agreement includes two consecutive options for us to extend the charter for up to two consecutive one year periods at $17,500 per day and $18,000 per day.

In January 2013, we took delivery of a 2007 built MR ice-class 1B product tanker on a one year time charter-in agreement at $13,500 per day. The agreement includes an option for us to extend the charter for an additional year at $14,500 per day.

In January 2013, we took delivery of a 2003 built LR1product tanker on a two year time charter-in agreement at $11,250 per day with a 50% profit sharing provision whereby we split any of the vessel's profits above $11,250 per day with the vessel owner. The agreement includes an option for us to extend the charter for an additional year at $12,500 per day with a 50% profit sharing provision.

In January 2013, we took delivery of a 2012 built LR2 product tanker on a six month time charter-in agreement at $14,750 per day. We have options to extend the charter for three consecutive six month periods at $15,000 per day, $15,250 per day, and $15,500 per day respectively.

In January 2013, we took delivery of a 2008 built LR2 product tanker on a six month time charter-in agreement at $16,000 per day. We have options to extend the charter for three consecutive six month periods at $16,250 per day, $16,500 per day, and $16,750 per day respectively.

In March 2013, we took delivery of a 2013 built MR product tanker on a two year time charter-in agreement at $ 14,300 per day. We have an option to extend the charter for an additional year at $15,700 per day.

In March 2013, we agreed to time charter-in a 2010 built LR2 product tanker and a 2011 built LR2 product tanker, each on a one year time charter-in agreements at $16,125 per day. We expect to take delivery of these two vessels in April 2013.

In March 2013, we agreed to time charter-in 2004 built ice class 1B Handymax product tanker for one year at $12,700 per day. We have an option to extend the charter for an additional year at $14,000 per day. This vessel is expected to be delivered by the middle of April 2013.

F- 41

Scorpio Tankers Inc. and Subsidiaries

Notes to the consolidated financial statements

Newbuilding vessels

In January 2013, we reached an agreement with HMD for the construction of two MR product tankers for $32.5 million each. These vessels will be delivered in May and June 2014.

In February 2013, we exercised options with HMD for the construction of four MR product tankers for approximately $33.0 million each and two Handymax ice class-1A product tankers for $31.25 million each. Two of the MR’s will deliver in the second quarter of 2014 with the third and fourth MR’s to be delivered in the third and fourth quarter of 2014, respectively. The two Handymax vessels will be delivered in the second quarter of 2014.

In February 2013, we exercised options with HMD for the construction of four Handymax, ice class 1A product tankers for $31.3 million each. These vessels will be delivered in the third quarter of 2014.

In February 2013, we reached an agreement with SPP for the construction of four MR product tankers for $32.5 million each. These vessels will be delivered in the third and fourth quarters of 2014.

In March 2013, we reached an agreement with Hyundai Samho Heavy Industries Co. Ltd., or HSHI for the construction of six additional 114,000 dwt LR2 product tankers for approximately $50.5 million each. These vessels are expected to be delivered to us in the third and fourth quarter of 2014.

In March 2013, we reached an agreement with and Daewoo Shipbuilding & Marine Engineering Co., Ltd or DSME for the construction of two 114,000 dwt LR2 product tankers for approximately $50.0 million each. These vessels are expected to be delivered to us in the fourth quarter of 2014.

As of the date of this report, we have a total of 33 newbuilding product tanker orders with HMD, SPP, HSHI and DSME which include 19 MR, six Handymax ice class-1A vessels and eight LR2. One of the newbuildings is expected to be delivered to us by April 2013 and the remaining 32 within 2014. We also have fixed-price options to construct additional newbuilding product tankers at these yards.

We made $152.5 million of installment payments during the first quarter of 2013, which includes $44.2 million in aggregate for the delivery installment payments on STI Sapphire in January 2013 and STI Emerald in March 2013. Our commitments at the date of this report under all newbuilding vessel agreements, including the above mentioned vessels are as follows*:

Q2 2013	$	41.6	million
Q3 2013		114.3	million
Q4 2013		74.1	million
Q1 2014		77.6	million
Q2 2014		302.0	million
Q3 2014		241.0	million
Q4 2014		250.9	million
Total	$	1,101.5	million

*These are estimates only and are subject to change as construction progresses.

F- 42

SCORPIO TANKERS INC.

Exhibit 4.6

MASTER AGREEMENT

This master agreement (the “ Master ”) is effective as of 24 January 2013

BETWEEN:


(1)	SCORPIO TANKERS INC. , a company incorporated under the laws of The Marshall Islands and having its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960 (“ STNG ”) on its own account and as agent for and on behalf of each of its existing wholly owned subsidiaries (as set out in Schedule 1 ) (“ SPVs ”) as well as any future vessel owning subsidiaries wholly owned by STNG (“ Future SPVs ”) (the SPVs and Future SPVs jointly referred to as the “ STNG SPVs ”);

(2)	SCORPIO COMMERCIAL MANAGEMENT S.A.M. , a company incorporated under the laws of Monaco and having its registered office at 9 Boulevard Charles III, Monaco 98000 (“ SCM ”); and

(3)	SCORPIO SHIP MANAGEMENT S.A.M. , a company incorporated under the laws of Monaco and having its registered office at 9 Boulevard Charles III, Monaco 98000 (“ SSM ”);

	(each a “ Party ” and together the “ Parties ”).

	WHEREAS:



(1)	The STNG SPVs: (i) control a number of vessels already on the water; (ii) will control vessels to be delivered from Hyundai Mipo Dockyard of South Korea or other shipyards; and (iii) may in the future control vessels purchased or chartered in from third parties (together the “ Vessels ”). References to “control” or “controlled” herein means owned or chartered.

(2)	SSM and SCM provide technical and commercial management services (respectively). The Vessels require technical and/or commercial management services from SSM and/or SCM (respectively).

(3)	The relevant SPVs, SSM and SCM have previously entered into various technical and commercial management agreements, as amended and supplemented from time to time (“ Management Agreements ”).

(4)	The Parties have agreed on a standard set of terms for technical and commercial management services, which shall be applicable to all Vessels.

(5)	The standard set of terms for the commercial management of the Vessels is hereby attached as Annex I (“ Standard Commercial Management Terms ”) and the standard set of terms for the technical management of the Vessels is hereby attached as Annex II (“ Standard Technical Management Terms ”). Both the Standard Commercial Management Terms and the Standard Technical Management Terms (together the “ Standard Management Terms ”) form an integral part of this Master.

(6)	The Standard Management Terms as confirmed and amended by the relevant Confirmation (as defined below) will supersede the Management Agreements.

NOW THEREFORE in consideration of the payment of $1 by each Party to the other, the receipt and sufficiency of which is acknowledged by each IT IS AGREED as follows:

Page 1 of 6


	1.	The Standard Management Terms contain the terms and conditions concerning the commercial and/or technical management provided by SCM and SSM respectively, to each Vessel controlled by the STNG SPVs.

	2.	All Vessels, existing and future , will be governed by the Standard Commercial Management Terms and/or Standard Technical Management Terms, in each case as amended by the terms detailed in the Confirmation. The entry by a Vessel under management by SCM and/or SSM and any amendments to those terms, will be evidenced by a written confirmation (substantially in the form set out in Schedule 2 ) executed by and between STNG as agent for and on behalf of the relevant STNG SPV on the one hand and SCM and/or SSM on the other hand (the “ Confirmation ”).

	3.	The management by SCM and/or SSM pursuant to the Standard Management Terms (as applicable) as amended by the terms detailed in the Confirmation shall be effective as of the date prescribed in the Confirmation (the “ Effective Date ”).

	4.	The Standard Management Terms (as applicable) as amended by the terms detailed in the Confirmation will supersede the terms of the Management Agreements as from the Effective Date. For the avoidance of doubt: (i) the Parties agree that the Management Agreements will be terminated as of the Effective Date notwithstanding the applicable duration and notice provisions as provided in the Management Agreements; and (ii) SCM and/or SSM (as applicable) agree to waive any management fees due to them by the SPVs for the period after the Effective Date as provided in the Management Agreements.

	5.	This Master may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

	6.	The governing law and dispute resolution provisions in Clause 23 of the Standard Management Terms shall apply to this Master.

	7.	No provision of this Master shall be enforceable under the Contracts (Rights of Third Parties) Act 1999 by any person who is not a party to this Master.

IN WITNESS WHEREOF this Master has been executed the day and year first above written.


Signed by	Luca Forgione	)
For and on behalf of		)
Scorpio Tankers Inc.		)

Signed by	Luca Forgione	)
For and on behalf of		)
Scorpio Tankers Inc.
As agent for and on behalf of each of the STNG SPVs:		)

Signed by	Aldo Poma	)
For and on behalf of		)
Scorpio Commercial Management S.A.M.:		)

Signed by	Francesco Bellusci	)
For and on behalf of		)
Scorpio Ship Management S.A.M.:		)

Page 2 of 6

Schedule 1 – LIST OF SPVs


Number	Entity Name

1	STI Amber Shipping Company Limited, of Marshall Islands

2	STI Beryl Shipping Company Limited, of Marshall Islands

3	STI Duchessa Shipping Company Limited, of Marshall Islands

4	STI Emerald Shipping Company Limited, of Marshall Islands

5	STI Garnet Shipping Company Limited, of Marshall Islands

6	STI Harmony Shipping Company Limited, of Marshall Islands

7	STI Heritage Shipping Company Limited, of Marshall Islands

8	STI Highlander Shipping Company Limited, of Marshall Islands

9	Noemi Shipping Company Limited, of Marshall Islands

10	STI Onyx Shipping Company Limited, of Marshall Islands

11	STI Opera Shipping Company Limited, of Marshall Islands

12	STI Ruby Shipping Company Limited, of Marshall Islands

13	STI Sapphire Shipping Company Limited, of Marshall Islands

14	Senatore Shipping Company Limited, of Marshall Islands

15	STI Spirit Shipping Company Limited, of Marshall Islands

16	STI Topaz Shipping Company Limited, of Marshall Islands

17	Venice Shipping Company Limited, of Marshall Islands

18	STI Chartering and Trading Ltd, of Marshall Islands

Page 3 of 6

Schedule 2 – FORM OF CONFIRMATION TO THE MASTER AGREEMENT DATED [X] JANUARY 2013




VESSEL NAME	VESSEL DETAILS	REGISTERED OWNER OR DISPONENT OWNER	DATE OF ENTRY INTO STNG FLEET	DATE OF ENTRY INTO MANAGEMENT BY [SCM AND/OR SSM] ON [STANDARD COMMERCIAL MANAGEMENT TERMS AND STANDARD TECHNICAL MANAGEMENT TERMS (RESPECTIVELY)] (the “Effective Date”)	NOTES / AMENDMENTS TO STANDARD MANAGEMENT TERMS


	Scorpio Tankers Inc. as agent for and on behalf of [ insert name of STNG SPV ]:
	Name:
	Position:
	Date:

	[Scorpio Commercial Management S.A.M.] [if applicable]

	Name:
	Position:
	Date:

	[Scorpio Ship Management S.A.M.] [if applicable]

	Name:
	Position:
	Date:

Page 4 of 6

Annex I – STANDARD COMMERCIAL MANAGEMENT TERMS

Page 5 of 6

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				SHIPMAN 2009 STANDARD SHIP MANAGEMENT AGREEMENT PART I
	1.	Place and date of Agreement		2. Date of commencement of Agreement (Cls. 2 , 12 , 21 and 25 )

	3.	Owners (name, place of registered office and law of registry) ( Cl. 1 )		4. Managers (name, place of registered office and law of registry) ( Cl. 1 )
		(i) Name: As per Confirmation			(i) Name: Scorpio Commercial Management Sam

		(ii) Place of registered office: Trust Company Complex, Ajeltake Road, Ajeltake Island, Majure, Marshall Islands 96960			(ii) Place of registered office: 9 blvd Charles III, MC98000, Monaco, Principality of Monaco

		(iii) Law of registry: Marshall Islands			(iii) Law of registry: Principality of Monaco

	5.	The Company (with reference to the ISM/ISPS Codes) (state name and IMO Unique Company Identification number. If the Company is a third party then also state registered office and principal place of business) (Cls. 1 and 9(c)(i) )		6. Technical Management (state “yes” or “no” as agreed) ( Cl. 4 ) No
		(i) Name: Scorpio Ship Management sam
		(ii) IMO Unique Company Identification number: 0531141 (iii) Place of registered office: 9 blvd Charles III, MC98000, Monaco, Principality of Monaco (iv) Principal place of business: Principality of Monaco		7. Crew Management (state “yes” or “no” as agreed) ( Cl. 5(a) )
				No

				8. Commercial Management (state “yes” or “no” as agreed) ( Cl. 6 )
				Yes


	9. Chartering Services period (only to be filled in if “yes” stated in Box 8 ) (Cl.6(a) )			10. Crew Insurance arrangements (state “yes” or “no” as agreed)
					(i) Crew Insurances* ( Cl. 5(b) ): No
Up to twelve (12) months
					(ii) Insurance for persons proceeding to sea on board ( Cl. 5(b)(i) ): No

					*only to apply if Crew Management ( Cl. 5(a) ) agreed (see Box 7 )

	11. Insurance arrangements (state “yes” or “no” as agreed) ( Cl. 7 ) No			12.	Optional insurances (state optional insurance(s) as agreed, such as piracy, kidnap and ransom, loss of hire and FD & D) ( Cl. 10(a)(iv) )
				n/a

	13.	Interest (state rate of interest to apply after due date to outstanding sums) ( Cl. 9(a) )		14.	Annual management fee (state annual amount) ( Cl. 12(a) )
n/a				As per Confirmation

	15.	Manager’s nominated account ( Cl.12(a) )		16.	Daily rate (state rate for days in excess of those agreed in budget) ( Cl. 12(c) )
	Beneficiary name and address: Scorpio Commercial Management sum, 9 blvd. Charles III, MC98000 Monaco			n/a

	Bank full name and address:			17. Lay-up period / number of months ( Cl.12(d) )
				n/a
	A/C No: IBAN: Swift code:

	18.	Minimum contract period (state number of months) ( Cl. 21(a) )		19.	Management fee on termination (state number of months to apply) ( Cl. 22(g) )
See clause 21(a)			Three (3) months of flat management fee

	20. n/a	Severance Costs (state maximum amount) ( Cl. 22(h)(ii) )		21.	Dispute Resolution (state alternative Cl. 23(a) , 23(b) or 23(c) : if Cl. 23(c) place of arbitration must be stated) ( Cl. 23 )
			Clause 23(a) to apply

	22.	Notices (state full style contact details for serving notice and communication to the Owners ) ( Cl. 24 )		23.	Notices (state full style contact details for serving notice and communication to the Managers ) ( Cl. 24 )
As per Confirmation			Scorpio Commercial Management sam, 9 blvd Charles III, MC98000 Monaco. Phone +377 97985850 Fax +377 97985058. E-mail: management@scorpiogroup.net

Continued

This document is a computer generated SHIPMAN 2009 form printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In the event of any modification made to the pre-printed text of this document which is not clearly visible, the text of the original BIMCO approved document shall apply. BIMCO assumes no responsibility for any loss, damage or expense as a result of discrepancies between the original BIMCO approved document and this computer generated document.

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Printed by BIMCO’s idea	SHIPMAN 2009 Standard ship management agreement	PART 1

(Continued)

It is mutually agreed between the party stated in Box 3 and the party stated in Box 4 that this Agreement consisting of PART I and PART II as well as Annexes “A” (Details of Vessel or Vessels), “B” (Details of Crew), “C” (Budget), “D” (Associated Vessels) and “E” (Fee Schedule) attached hereto, shall be performed subject to the conditions contained herein. In the event of a conflict of conditions, the provisions of PART I and Annexes “A”, “B”, “C”, “D” and “E” shall prevail over those of PART ll to the extent of such conflict but no further.


Signature(s) (Owners)			Signature(s) (Managers)

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Printed by BIMCO’s idea

ANNEX “A” (DETAILS OF VESSEL OR VESSELS)

TO THE BIMCO STANDARD SHIP MANAGEMENT AGREEMENT

CODE NAME: SHIPMAN 2009

Date of Agreement:

Name of Vessel(s):

Particulars of Vessal(s): As per Confirmation

Continued

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Printed by BIMCO’s idea

ANNEX “B” (DETAILS OF CREW)

TO THE BIMCO STANDARD SHIP MANAGEMENT AGREEMENT

CODE NAME: SHIPMAN 2009

Date of Agreement:

Details of Crew:


Numbers	Rank	Nationality

NOT APPLICABLE

Continued

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Printed by BIMCO’s idea

ANNEX “C” (BUDGET)

TO THE BIMCO STANDARD SHIP MANAGEMENT AGREEMENT

CODE NAME: SHIPMAN 2009

Date of Agreement:

Managers’ initial budget with effect from the commencement date of this Agreement (see Box 2 ):

NOT APPLICABLE

Continued

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Printed by BIMCO’s idea

ANNEX “D” (ASSOCIATED VESSELS)

TO THE BIMCO STANDARD SHIP MANAGEMENT AGREEMENT

CODE NAME: SHIPMAN 2009

NOTE: PARTIES SHOULD BE AWARE THAT BY COMPLETING THIS ANNEX “D” THEY WILL BE SUBJECT TO THE PROVISIONS OF SUB- CLAUSE 22(b)(i) OF THIS AGREEMENT.

Date of Agreement:

Details of Associated Vessels: As per Confirmation

Continued

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Printed by BIMCO’s idea

ANNEX “E” (FEE SCHEDULE)

TO THE BIMCO STANDARD SHIP MANAGEMENT AGREEMENT

CODE NAME: SHIPMAN 2009

NOT APPLICABLE

Continued

PART II
SHIPMAN 2009
Standard ship management agreement

SECTION 1 – Basis of the Agreement


1. Definitions
	In this Shipman 2009 form (together with the Confirmation, any additional clauses of even date herewith and any Annexes hereto (the “Agreement “)) save where the context otherwise requires, the following words and expressions shall have the meanings hereby assigned to them:

	“Company” (with reference to the ISM Code and the ISPS Code) means the organization identified in Box 5 or any replacement organization appointed by the Owners from time to time (see Sub- clauses 9(b)(i) or 9(c) (ii) , whichever is applicable).

	“Crew” means the personnel of the numbers, rank and nationality specified in Annex “B” hereto.

	“Crew Insurances” means insurance of liabilities in respect of crew risks which shall include but not be limited to death, permanent disability, sickness, injury, repatriation, shipwreck unemployment indemnity and loss of personal effects (see Sub- clause 5(b) (Crew Insurances) and Clause 7 (Insurance Arrangements) and Clause 10 (Insurance Policies) and Boxes 10 and 11 ).

	“Crew Support Costs” means all expenses of a general nature which are not particularly referable to any individual vessel for the time being managed by the Managers and which are incurred by the Managers for the purpose of providing an efficient and economic management service and, without prejudice to the generality of the foregoing, shall include the cost of crew standby pay, training schemes for officers and ratings, cadet training schemes, sick pay, study pay, recruitment and interviews.

	“Flag State” means the State whose flag the Vessel is flying.

	“ISM Code” means the International Management Code for the Safe Operation of Ships and for Pollution Prevention and any amendment thereto or substitution therefor.

	“ISPS Code” means the International Code for the Security of Ships and Port Facilities and the relevant amendments to Chapter XI of SOLAS and any amendment thereto or substitution therefor.

	“Managers” means the party identified in Box 4 .

	“Management Services” means the services specified in SECTION 2 - Services ( Clauses 4 through 7 ) as indicated affirmatively in Boxes 6 throu gh 8 , 10 and 11 , and all other functions performed by the Managers under the terms of this Agreement.

	“Owners” means the party identified in Box 3 .

	“Severance Costs” means the costs which are legally required to be paid to the Crew as a result of the early termination of any contracts for service on the Vessel.

	“SMS” means the Safety Management System (as defined by the ISM Code).

	“STCW 95” means the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, 1978, as amended in 1995 and any amendment thereto or substitution therefor.

	“Vessel” means the vessel or vessels details of which are set out in Annex “A” attached hereto.

2. Commencement and Appointment
	With effect from the date stated in Box 2 for the commencement of the Management Services and continuing unless and until terminated as provided herein, the Owners hereby appoint the Managers and the Managers hereby agree to act as the Managers of the Vessel in respect of the Management Services.

3. Authority of the Managers
	Subject to the terms and conditions herein provided, during the period of this Agreement the Managers shall carry out the Management Services in respect of the Vessel as agents for and on behalf of the Owners. The Managers shall have authority to take such actions as they may from time to time in their absolute discretion consider to be necessary to enable them to perform the Management Services in accordance with sound

PART II
SHIPMAN 2009
Standard ship management agreement


	ship management practice, including but not limited to compliance with all relevant rules and regulations.

PART II
SHIPMAN 2009
Standard ship management agreement

SECTION 2 – Services


~~4. Technical Management~~
	~~(only applicable if agreed according to Box 6* ).~~*
	~~The Managers shall provide technical management which includes, but is not limited to, the following~~ ~~services:~~

	~~(a)~~ ~~ensuring that the Vessel complies with the requirements of the law of the Flag State;~~

	~~(b)~~ ~~ensuring compliance with the ISM Code;~~

	~~(c)~~ ~~ensuring compliance with the ISPS Code;~~

	~~(d)~~ ~~providing competent personnel to supervise the maintenance and general efficiency of the Vessel;~~

	~~(e)~~ ~~arranging and supervising dry dockings, repairs, alterations and the maintenance of the Vessel to the~~ ~~standards agreed with the Owners provided that the Managers shall be entitled to incur the necessary~~ ~~expenditure to ensure that the Vessel will comply with all requirements and recommendations of the~~ ~~classification society, and with the law of the Flag State and of the places where the Vessel is required to~~ ~~trade;~~

	~~(f)~~ ~~arranging the supply of necessary stores, spares and lubricating oil;~~

	~~(g)~~ ~~appointing surveyors and technical consultants as the Managers may consider from time to time to be~~ ~~necessary;~~

	~~(h)~~ ~~in accordance with the Owners’ instructions, supervising the sale and physical delivery of the Vessel~~ ~~under the sale agreement. However services under this Sub-clause 4(h) shall not include negotiation of the~~ ~~sale agreement or transfer of ownership of the Vessel;~~

	~~(i)~~ ~~arranging for the supply of provisions unless provided by the Owners; and~~

	~~(j)~~ ~~arranging for the sampling and testing of bunkers.~~

~~5. Crew Management and Crew Insurances~~
	~~(a)~~ ~~Crew Management~~
	~~(only applicable if agreed according to Box 7* )~~*
	The Managers shall provide suitably qualified Crew who shall comply with the requirements of STCW 95. The provision of such crew management services includes, but is not limited to, the following services:

	~~(i)~~	~~selecting, engaging and providing for the administration of the Crew, including, as applicable, payroll~~ ~~arrangements, pension arrangements, tax, social security contributions and other mandatory dues related~~ ~~to their employment payable in each Crew member’s country of domicile;~~

	~~(ii)~~	~~ensuring that the applicable requirements of the law of the Flag State in respect of rank, qualification~~ ~~and certification of the Crew and employment regulations, such as Crew’s tax and social insurance, are~~ ~~satisfied;~~

	~~(iii)~~	~~ensuring that all Crew have passed a medical examination with a qualified doctor certifying that they are~~ ~~fit for the duties for which they are engaged and are in possession of valid medical certificates issued in~~ ~~accordance with appropriate Flag State requirements or such higher standard of medical examination~~ ~~as may be agreed with the Owners. In the absence of applicable Flag State requirements the medical~~ ~~certificate shall be valid at the time when the respective Crew member arrives on board the Vessel and~~ ~~shall be maintained for the duration of the service on board the Vessel;~~

	~~(iv)~~	~~ensuring that the Crew shall have a common working language and a command of the English language~~ ~~of a sufficient standard to enable them to perform their duties safely;~~

	~~(v)~~	~~arranging transportation of the Crew, including repatriation;~~

	~~(vi)~~	~~training of the Crew;~~

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	~~(vii)~~	~~conducting union negotiations; and~~

	~~(viii)~~	if the Managers are the Company, ensuring that the Crew, on joining the Vessel, are given proper familiarisation with their duties in relation to the Vessel’s SMS and that instructions which are essential to the SMS are identified, documented and given to the Crew prior to sailing.

	~~(ix)~~	~~if the Managers are not the Company:~~

		~~(1)~~ ~~ensuring that the Crew, before joining the Vessel, are given proper familiarisation with their duties in relation to the ISM Code; and~~

		~~(2)~~ ~~instructing the Crew to obey all reasonable orders of the Company in connection with the operation of the SMS.~~

	~~(x)~~	~~Where Managers are not providing technical management services in accordance with Clause 4 (Technical Management):~~

		~~(1)~~ ensuring that no person connected to the provision and the performance of the crew management services shall proceed to sea on board the Vessel without the prior consent of the Owners (such consent not to be unreasonably withheld); and

		~~(2)~~ ~~ensuring that in the event that the Owners’ drug and alcohol policy requires measures to be taken prior to the Crew joining the Vessel, implementing such measures;~~

	~~(b)~~ ~~Crew Insurances~~
	~~( only applicable if Sub-clause 5(a) applies and if agreed according to Box 10 )~~
	~~The Managers shall throughout the period of this Agreement provide the following services:~~

	~~(i)~~	arranging Crew Insurances in accordance with the best practice of prudent managers of vessels of a similar type to the Vessel, with sound and reputable insurance companies, underwriters or associations. Insurances for any other persons proceeding to sea onboard the Vessel may be separately agreed by the Owners and the Managers (see Box 10 );

	~~(ii)~~	~~ensuring that the Owners are aware of the terms, conditions, exceptions and limits of liability of the insurances in Sub- clause 5(b)(i) ;~~

	~~(iii)~~	~~ensuring that all premiums or calls in respect of the insurances in Sub- clause 5(b)(i) are paid by their due date;~~

	~~(iv)~~	if obtainable at no additional cost, ensuring that insurances in Sub- clause 5(b)(i) name the Owners as a joint assured with full cover and, unless otherwise agreed, on terms such that Owners shall be under no liability in respect of premiums or calls arising in connection with such insurances.

	~~(v)~~	providing written evidence, to the reasonable satisfaction of the Owners, of the Managers’ compliance with their obligations under Sub- clauses 5(b)(ii) , and 5(b)(iii) within a reasonable time of the commencement of this Agreement, and of each renewal date and, if specifically requested, of each payment date of the insurances in Sub- clause 5(b)(i) .

6. Commercial Management
	(only applicable if agreed according to Box 8 ).
	The Managers shall provide the following services for the Vessel in accordance with the Owners’ instructions, which shall include but not be limited to:

	(a) seeking and negotiating employment for the Vessel and the conclusion (including the execution thereof) of charter parties or other contracts relating to the employment of the Vessel. If such a contract exceeds the period stated in Box 9 , consent thereto in writing shall first be obtained from the Owners;

	(b) arranging, in the name and for the account of the Owners, for the provision of bunker fuels of the quality specified by the Owners as required for the Vessel’s trade (see Annex A);

	(c) voyage estimating and accounting and calculation of hire, freights, demurrage and/or despatch monies due from or due to the charterers of the Vessel; assisting in the collection of any sums due to the Owners

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	related to the commercial operation of the Vessel in accordance with Clause 11 (Income Collected and Expenses Paid on Behalf of Owners);

	If any of the services under Sub- clauses 6(a) , 6(b) and 6(c) are to be excluded from the Management Fee, remuneration for these services must be stated in Annex E (Fee Schedule). See Sub- clause 12(e) .

	(d)	issuing voyage instructions including, but not limited to, authorising the Master to release cargo against relevant letter(s) of indemnity;

	(e)	appointing agents;

	(f)	appointing stevedores; and

	(g)	arranging surveys associated with the commercial operation of the Vessel.

7. Insurance Arrangements
	~~(only applicable if agreed according to Box 11 ).~~
	The Managers shall arrange insurances in accordance with Clause 10 (Insurance Policies), on such terms as the Owners shall have instructed or agreed, in particular regarding conditions, insured values, deductibles, franchises and limits of liability.

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SECTION 3 - Obligations


	8. Managers’ Obligations


	(a) The Managers undertake to use their best endeavours to provide the Management Services as agents for and on behalf of the Owners in accordance with sound ship management practice and to protect and promote the interests of the Owners in all matters relating to the provision of services hereunder.

	Provided however, that in the performance of their management responsibilities under this Agreement, the Managers shall be entitled to have regard to their overall responsibility in relation to all vessels as may from time to time be entrusted to their management and in particular, but without prejudice to the generality of the foregoing, the Managers shall be entitled to allocate available supplies, manpower and services in such manner as in the prevailing circumstances the Managers in their absolute discretion consider to be fair and reasonable.

	(b) Where the Managers are providing technical management services in accordance with Clause 4 (Technical Management), they shall procure that the requirements of the Flag State are satisfied and they shall agree to be appointed as the Company, assuming the responsibility for the operation of the Vessel and taking over the duties and responsibilities imposed by the ISM Code and the ISPS Code, if applicable.


	9. Owners’ Obligations


	(a) The Owners shall pay all sums due to the Managers punctually in accordance with the terms of this Agreement. In the event of payment after the due date of any outstanding sums the Manager shall be entitled to charge interest at the rate stated in Box 13 .

	(b) Where the Managers are providing technical management services in accordance with Clause 4 (Technical Management), the Owners shall:


	~~(i)~~	report (or where the Owners are not the registered owners of the Vessel procure that the registered owners report) to the Flag State administration the details of the Managers as the Company as required to comply with the ISM and ISPS Codes;

	~~(ii)~~	~~procure that any officers and ratings supplied by them or on their behalf comply with the requirements of STCW 95; and~~

	~~(iii)~~	~~instruct such officers and ratings to obey all reasonable orders of the Managers (in their capacity as the Company) in connection with the operation of the Managers’ safety management system.~~


	(c) Where the Managers are not providing technical management services in accordance with Clause 4 (Technical Management), the Owners shall:


	(i)	procure that the requirements of the Flag State are satisfied and notify the Managers upon execution of this Agreement of the name and contact details of the organization that will be the Company by completing Box 5 ;

	(ii)	if the Company changes at any time during this Agreement, notify the Managers in a timely manner of the name and contact details of the new organization;

	(iii)	procure that the details of the Company, including any change thereof, are reported to the Flag State administration as required to comply with the ISM and ISPS Codes. The Owners shall advise the Managers in a timely manner when the Flag State administration has approved the Company; and

	(iv)	unless otherwise agreed, arrange for the supply of provisions at their own expense.

	(d) Where the Managers are providing crew management services in accordance with Sub- clause 5(a) the Owners shall:

	~~(i)~~	inform the Managers prior to ordering the Vessel to any excluded or additional premium area under any of the Owners’ Insurances by reason of war risks and/or piracy or like perils and pay whatever additional costs may properly be incurred by the Managers as a consequence of such orders including, if necessary, the costs of replacing any member of the Crew. Any delays resulting from negotiation with or replacement of any member of the Crew as a result of the Vessel being ordered to such an area

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		~~shall be for the Owners’ account. Should the Vessel be within an area which becomes an excluded or additional premium area the above provisions relating to cost and delay shall apply;~~

	~~(ii)~~	agree with the Managers prior to any change of flag of the Vessel and pay whatever additional costs may properly be incurred by the Managers as a consequence of such change. If agreement cannot be reached then either party may terminate this Agreement in accordance with Sub- clause 22(e) ; and

	~~(iii)~~	~~provide, at no cost to the Managers, in accordance with the requirements of the law of the Flag State, or higher standard, as mutually agreed, adequate Crew accommodation and living standards.~~

	(e) Where the Managers are not the Company, the Owners shall ensure that Crew are properly familiarised with their duties in accordance with the Vessel’s SMS and that instructions which are essential to the SMS are identified, documented and given to the Crew prior to sailing.

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SECTION 4 - Insurance, Budgets, Income, Expenses and Fees


	10. Insurance Policies


	The Owners shall procurer , ~~whether by instructing the Managers under Clause 7 (Insurance Arrangements) or otherwise,~~ that throughout the period of this Agreement:

	(a) at the Owners’ expense, the Vessel is insured for not less than its sound market value or entered for its full gross tonnage, as the case may be for:

	(i) hull and machinery marine risks (including but not limited to crew negligence) and excess liabilities;

	(ii) protection and indemnity risks (including but not limited to pollution risks, diversion expenses and, except to the extent insured separately by the Managers in accordance with Sub- clause 5(b)(i) , Crew Insurances;

	NOTE: If the Managers are not providing crew management services under Sub- clause 5(a) (Crew Management) or have agreed not to provide Crew Insurances separately in accordance with Sub-clause 5(b)(i) , then such insurances must be included in the protection and indemnity risks cover for the Vessel (see Sub- clause 10(a)(ii) above).

	(iii) war risks (including but not limited to blocking and trapping, protection and indemnity, terrorism and crew risks); and

	(iv) such optional insurances as may be agreed (such as piracy, kidnap and ransom, loss of hire and FD & D) (see Box 12 )

	Sub- clauses 10(a)(i) through 10(a)(iv) all in accordance with the best practice of prudent owners of vessels of a similar type to the Vessel, with sound and reputable insurance companies, underwriters or associations (“the Owners’ Insurances”);

	(b) all premiums and calls on the Owners’ Insurances are paid by their due date;

	(c) the Owners’ Insurances name the Managers and, subject to underwriters’ agreement, any third party designated by the Managers as a ~~joint assured~~ co-assured (mis-direct arrow) , with full cover. It is understood that in some cases, such as protection and indemnity, the normal terms-for such cover may impose on the Managers and any such third party a liability in respect of premiums or calls arising in connection with the Owners’ Insurances.

	If obtainable at no additional cost, however, the Owners shall procure such insurances on terms such that neither the Managers nor any such third party shall be under any liability in respect of premiums or calls arising in connection with the Owners’ Insurances. In any event, on termination of this Agreement in accordance with Clause 21 (Duration of the Agreement) and Clause 22 (Termination), the Owners shall procure that the Managers and any third party designated by the Managers as ~~joint assured~~ co-assured shall cease to be ~~joint assured~~ co-assured and, if reasonably achievable, that they shall be released from any and all liability for premiums and calls that may arise in relation to the period of this Agreement; and

	(d) written evidence is provided, to the reasonable satisfaction of the Managers, of the Owners’ compliance with their obligations under this Clause 10 within a reasonable time of the commencement of the Agreement, and of each renewal date and, if specifically requested, of each payment date of the Owners’ Insurances.

	10.1 The Owners may, from time to time, require the Managers to arrange, in the name and for the account of the Owners, for operational insurance as envisaged in clause 10(a)(iv).


	11. Income Collected and Expenses Paid on Behalf of Owners


	(a) Except as provided in Sub- clause 11 (c) all monies collected by the Managers under the terms of this Agreement (other than monies payable by the Owners to the Managers) (if any) and any interest thereon shall be held to the credit of the Owners in a separate bank account.

	(b) All expenses incurred by the Managers under the terms of this Agreement on behalf of the Owners

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	(including expenses as provided in Clause 12(c)) (if any) may be debited against the Owners in the account referred to under Sub- clause 11(a) but shall in any event remain payable by the Owners to the Managers on demand.

	(c) All monies collected by the Managers under Clause 6 (Commercial Management) (if any) shall be paid into a bank account in the name of the Owners or as may be otherwise advised by the Owners in writing.

12. Management Fee and Expenses


	(a) The Owners shall pay to the Managers ~~an annual management fee as stated in Box 14~~ for their services as Managers under this Agreement, (i) a flat management fee as stated in the Confirmation and which shall be payable monthly in advance against proper invoice in equal monthly instalments in advance, the first instalment (pro rata if appropriate) being payable on the commencement of this Agreement (see Clause 2 (Commencement and Appointment) and Box 2 ) and subsequent instalments being payable at the beginning of every calendar month; and
	(ii) for providing chartering services in accordance with clause 6{a) a commission of one and a quarter percent (1.25%) on all monies earned by the Owners on each Vessel fixture. The management fee and commissions shall be payable to the Managers’ nominated account stated in Box 15 and shall become due and payable from the Owners to the Managers as from the Effective Date.

	(b) The management fee shall be subject to an annual review and the proposed fee shall be presented in the annual budget in accordance) with Sub clause l3 (a).

	(c) The Managers shall, at no extra cost to the Owners, provide their own office accommodation, office staff, facilities and stationery. Without limiting the generality of this Clause 12 (Management Fee and Expenses) the Owners shall reimburse the Managers for postage and communication expenses, travelling expenses, and other out of pocket expenses properly incurred by the Managers in pursuance of the Management Services. Any days used by the Managers’ personnel travelling to or from or attending on the Vessel or otherwise used in connection with the Management Services in excess of those agreed in the budget shall be charged at the daily rate stated in Box-16 .

	(d) If the Owners decide to layup the Vessel and such layup lasts for more than the number of months stated in Box 17 , an appropriate reduction of the Management Fee for the period exceeding such period until one month before the Vessel is again put into service shall be mutually agreed between the parties. If the Managers are providing crow management services in accordance with Sub clause 5(a) , consequential costs of reduction and reinstatement of the Crow shall be for the Owners’ account. If agreement cannot be reached then either party may terminate this Agreement in accordance with Sub clause 22(e) .

	(e) Save as otherwise provided in this Agreement, all discounts and commissions obtained by the Managers in the course of the performance of the Management Services shall be credited to the Owners.


	13. Budgets and Management of Funds


	(a) The Managers’ initial budget is set out in Annex “C” hereto. Subsequent budgets shall be for twelve month periods and shall be prepared by the Managers and presented to the Owners not less than three months before the end of the budget year.

	(b) The Owners shall state to the Managers in a timely manner, but in any event within one month of presentation, whether or not they agree to each proposed annual budget. The parties shall negotiate in good faith and if they fail to agree on the annual budget, including the management fee, either party may terminate this Agreement in accordance) with Sub clause 22(e) .

	(c) Following the agreement of the budget, the Managers shall prepare and present to the Owners their estimate of the working capital requirement for the Vessel and shall each month request the Owners in writing to pay the funds required to run the Vessel for the ensuing month, including the payment of any occasional or extraordinary item of expenditure, such as emergency repair costs, additional insurance premiums, bunkers or provisions. Such funds shall be received by the Managers within ten running days after the receipt by the Owners of the Managers’ written request and shall be hold to the credit of the Owners in a separate bank account.

	(d) The Managers shall at all times maintain and keep true and correct accounts in respect of the Management Services in accordance with the relevant International Financial Reporting Standards or such other standard

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	as the parties may agree, including records of-all-costs and expenditure incurred, and produce a comparison between budgeted and actual income and expenditure of the Vessel in such form and at such intervals as shall be mutually agreed.

	The Managers shall-make such accounts available for inspection and auditing by the Owners and/or their representatives in the Managers’ offices or by electronic means, provided reasonable notice is given by the Owners.

	(e) Notwithstanding anything contained herein, the Managers shall in no circumstances be required to use or commit their own funds to finance the provision of the Management Services.

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SECTION 5 – Legal, General and Duration of Agreement


14. Trading Restrictions
	If the Managers are providing crow management services in accordance with Sub clause 5(a) (Crow Management), the Owners and the Managers will, prior to the commencement of this Agreement, agree on any trading restrictions to the Vessel that may result from the terms and conditions of the Crew’s employment.

15. Replacement
	If the Managers are providing crow management services in accordance with Sub- clause 5(a) (Crew Management), the Owners may require the replacement, at their own expense, at the next reasonable opportunity, of any member of the Crow found on reasonable grounds to be unsuitable service. If the Managers have failed to fulfil their obligations in providing suitable qualified Crew within the moaning of Sub- clause 5(a) (Crew Management), then such replacement shall be at the Managers’ expense.

16. Managers’ Right to Sub-Contract
	Save as provided herein , The Managers shall not subcontract any of their obligations hereunder without the prior written consent of the Owners which shall not be unreasonably withheld. The Owners consent to the subcontract of (a) the chartering services to Scorpio Uk Ltd of 150 Aldersgate Street, London EC1A 4AB and Scorpio USA LLC of 2711 Centerville Road, Suite 400, Wilmington Delaware, 19808 County of New Castle; and (b) post-fixture operations to Scorpio Marine Management (India) Pvt Ltd, of A/301 Delphi, Hiranandany Business Park, Powai, Mumbai, 400076, Maharashtra, India. ~~In the event of such a sub contract~~ the Managers shall remain fully liable for the due performance of their obligations under this Agreement.

17. Responsibilities
	(a) Force Majeure
	Neither party shall be liable for any loss, damage or delay due to any of the following force majeure events and/or conditions to the extent that the party invoking force majeure is prevented or hindered from performing any or all of their obligations under this Agreement, provided they have made all reasonable efforts to avoid, minimize or prevent the effect of such events and/or conditions:

	(i) acts of God;

	(ii) any Government requisition, control, intervention, requirement or interference;

	(iii) any circumstances arising out of war, threatened act of war or warlike operations, acts of terrorism, sabotage or piracy, or the consequences thereof;

	(iv) riots, civil commotion, blockades or embargoes;

	(v) epidemics;

	(vi) earthquakes, landslides, floods or other extraordinary weather conditions;

	(vii) strikes, lockouts or other industrial action, unless limited to the employees (which shall not include the Crew) of the party seeking to invoke force majeure;

	(viii) fire, accident, explosion except where caused by negligence of the party seeking to invoke force majeure; and

	(ix) any other similar cause beyond the reasonable control of either party.

	(b) Liability to Owners
	(i) Without prejudice to Sub- clause 17 (a) , the Managers shall be under no liability whatsoever to the Owners for any loss, damage, delay or expense of whatsoever nature, whether direct or indirect, (including but not limited to loss of profit arising out of or in connection with detention of or delay to the Vessel) and howsoever arising in the course of performance of the Management Services UNLESS same is proved to have resulted solely from the negligence, gross negligence or wilful default of the Managers or their employees or agents, or sub-contractors employed by them in connection with the Vessel, in which case (save where loss, damage, delay or expense has resulted from the Managers’ personal act or omission committed with the intent to cause same or recklessly and with knowledge that such loss, damage, delay or expense would probably result) the Managers’ liability for each incident or series of incidents

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	giving rise to a claim or claims shall never exceed a total of ten (10) times the annual management fee as per Clause 12(a)(i)
	payable hereunder.

	(ii) Acts or omissions of the Crew - Notwithstanding anything that may appear to the contrary in this Agreement, the Managers shall not be liable for any acts or omissions of the Crew, even if such acts or omissions are negligent, grossly negligent or wilful, except only to the extent that they are shown to have resulted from a failure by the Managers to discharge their obligations under Clause 5(a) (Crew Management), in which case their liability shall be limited in accordance with the terms of this Clause 17 (Responsibilities).

	(c) Indemnity
	Except to the extent and solely for the amount therein set out that the Managers would be liable under Sub- clause 17(b), the Owners hereby undertake to keep the Managers and their employees agents and sub-contractors indemnified and to hold them harmless against all actions, proceedings, claims, demands or liabilities whatsoever or howsoever arising which may be brought against them or incurred or suffered by them arising out of or in connection with the performance of this Agreement, and against and in respect of all costs, loss, damages and expenses (including legal costs and expenses on a full indemnity basis) which the Managers may suffer or incur (either directly or indirectly) in the course of the performance of this Agreement.

	(d) “Himalaya”
	It is hereby expressly agreed that no employee or agent of the Managers (including every sub-contractor from time to time employed by the Managers) shall in any circumstances whatsoever be under any liability whatsoever to the Owners for any loss, damage or delay of whatsoever kind arising or resulting directly or indirectly from any act, neglect or default on his part while acting in the course of or in connection with his employment and, without prejudice to the generality of the foregoing provisions in this Clause 17 (Responsibilities), every exemption, limitation, condition and liberty herein contained and every right, exemption from liability, defence and immunity of whatsoever nature applicable to the Managers or to which the Managers are entitled hereunder shall also be available and shall extend to protect every such employee or agent of the Managers acting as aforesaid and for the purpose of all the foregoing provisions of this Clause 17 (Responsibilities) the Managers are or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of all persons who are or might be their servants or agents from time to time (including sub-contractors as aforesaid) and all such persons shall to this extent be or be deemed to be parties to this Agreement.

18. General Administration
	(a) The Managers shall keep the Owners and, if appropriate, the Company informed in a timely manner of any incident of which the Managers become aware which gives or may give rise to delay to the Vessel or claims or disputes involving third parties and which individually are reasonably estimated to be in excess of US$15,000.

	(b) The Managers shall handle and settle all claims and disputes arising out of the Management Services hereunder, unless the Owners instruct the Managers otherwise. The Managers shall keep the Owners appropriately informed in a timely manner throughout the handling of such claims and disputes.

	(c) The Owners may request the Managers to bring or defend other actions; suits or proceedings related to the Management Services, on terms to be agreed and subject to the provisions of clause 18(a) and 18(b).

	(d) The Managers shall have power to obtain appropriate legal or technical or other outside expert advice in relation to the handling and settlement of claims in relation to Sub- clauses 18(a) and 18(b) and disputes and any other matters affecting the interests of the Owners in respect of the Vessel, save Managers should obtain Owners approval prior to taking any action if time permits and unless the Owners instruct the Managers otherwise.

	(e) On giving reasonable notice, the Owners may request, and the Managers shall in a timely manner make available, all documentation, information and records in respect of the matters covered by this Agreement and in respect of the Management Services.
	either related to mandatory rules or regulations or other obligations applying to the Owners in respect of the Vessel (including but not limited to STCW 05, the ISM Code and ISPS Code) to the extent permitted by relevant legislation.

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	On giving reasonable notice, the Managers may request, and the Owners shall in a timely manner make available, all documentation, information and records reasonably required by the Managers to enable them to perform the Management Services.

	(f) The Owners shall arrange for the provision of any necessary guarantee bond or other security.

	(g) Any costs incurred by the Managers in carrying out their obligations according to this Clause 18 (General Administration) shall be reimbursed by the Owners.

19. Inspection of Vessel
	~~The Owners may at any time after giving reasonable notice to the Managers inspect the Vessel for any reason they consider necessary.~~

20. Compliance with Laws and Regulations
	The parties will not do or permit to be done anything which might cause any breach or infringement of the laws and regulations of the Flag State, or of the places where the Vessel trades.

21. Duration of the Agreement
	(a) This Agreement shall come into effect at the date stated in Box 2 and shall continue until terminated by either party by giving notice to the other; in which event this Agreement shall terminate upon the expiration of ~~the later of the number of months stated in Box 18 or~~ a period of ~~two (2)~~ twenty-four (24) months from the date on which such notice is received, unless terminated earlier in accordance with Clause 22 (Termination).

	(b) Where the Vessel is not at a mutually convenient port or place on the expiry of such period, this Agreement shall terminate on the subsequent arrival of the Vessel at the next mutually convenient port or place.

22. Termination
	(a) Owners’ or Managers’ default
	If either party fails to meet their obligations under this Agreement, the other party may give notice to the party in default requiring them to remedy it. In the event that the party in default fails to remedy it within a reasonable time to the reasonable satisfaction of the other party, that party shall be entitled to terminate this Agreement with immediate effect by giving notice to the party in default.
	If the Managers are convicted of, or admits guilt for, a crime, then the Owners shall be entitled to terminate the Agreement with immediate effect by notice in writing.

	(b) Notwithstanding Sub- clause 22(a) :

	(i) The Managers shall be entitled to terminate the Agreement with immediate effect by giving notice to the Owners if any monies payable by the Owners and/or the owners of any associated vessel, details of which are listed in Annex “D”, shall not have been received in the Managers’ nominated account within ten days (10) of receipt by the Owners of the Managers’ written request, or if the Vessel is repossessed by the Mortgagee(s).

	(ii) If the Owners proceed with the employment of or continue to employ the Vessel in the carriage of contraband, blockade running, or in an unlawful trade, or on a voyage which in the reasonable opinion of the Managers is unduly hazardous or improper, the Managers may give notice of the default to the Owners, requiring them to remedy it as soon as practically possible. In the event that the Owners fail to remedy it within a reasonable time to the satisfaction of the Managers, the Managers shall be entitled to terminate the Agreement with immediate effect by notice.

	( iii) If either party fails to meet their respective obligations under Sub- clause 5(b) (Crew Insurances) and Clause 10 (Insurance Policies), the other party may give notice to the party in default requiring them to remedy it within ten (10) days, failing which the other party may terminate this Agreement with immediate effect by giving notice to the party in default.

	(c) Extraordinary Termination
	This Agreement shall be deemed to be terminated in the case of the sale of the Vessel or, if the Vessel becomes a total loss or is declared as a constructive or compromised or arranged total loss or is requisitioned or has been declared missing or, if bareboat chartered, unless otherwise agreed, when the bareboat charter comes to an end or she is not delivered to the Owners on the Effective Date.

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	(d) For the purpose of Sub- clause 22(c) hereof:

	(i) the date upon which the Vessel is to be treated as having been sold or otherwise disposed of shall be the date on which the Vessel’s owners cease to be the registered owners of the Vessel;

	(ii) the Vessel shall be deemed to be lost either when it has become an actual total loss or agreement has been reached with the Vessel’s underwriters in respect of its constructive total loss or if such agreement with the Vessel’s underwriters is not reached it is adjudged by a competent tribunal that a constructive loss of the Vessel has occurred; and

	(iii) the date upon which the Vessel is to be treated as declared missing shall be ten (10) days after the Vessel was last reported or when the Vessel is recorded as missing by the Vessel’s underwriters, whichever occurs first. A missing vessel shall be deemed lost in accordance with the provisions of Sub- clause 22(d)(ii) .

	(e) In the event the parties fail to agree the annual budget in accordance with Sub- clause 13(b) , or to agree a change of flag in accordance with Sub clause 9(d)(ii) , or to agree to a reduction in the Management Fee in accordance with Sub clause 12(b) , either party may terminate this Agreement by giving the other party not less than one month’s notice, the result of which will be the expiry of the Agreement at the end of the current budget period or on expiry of the notice period, whichever is the later.

	(f) This Agreement shall terminate forthwith in the event of an order being made or resolution passed for the winding up, dissolution, liquidation or bankruptcy of either party (otherwise than for the purpose of reconstruction or amalgamation) or if a receiver or administrator is appointed, or if it suspends payment, ceases to carry on business or makes any special arrangement or composition with its creditors. Either party shall have the right to terminate this Agreement forthwith if the other party: has ceased to trade; suspend payment(s); has an order made or resolution passed for its winding up, dissolution, liquidation or bankruptcy (otherwise than for the purpose of solvent reconstruction or amalgamation); has a receiver, administrative receiver, administrator or other similar official appointed over all or substantially all of its assets or undertakings; has a secured party take possession of all or substantialy all its assets; has become insolvent or gone into liquidation (unless such liquidation is for the purpose of a solvent reconstruction or amalgamation); makes a general assignement, arrangement or composition with or for the benefit of its creditors; is unable to pay its debts as they become due; causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in the foregoing text: or, takes any action in furtherance of, or indicating its consent to, aproval of, or acquiescence in, any of the foregoing acts.

	(g) In the event of the termination of this Agreement for any reason other than default by the Managers the management fee payable to the Managers according to the provisions of Clause 12 (Management Fee and Expenses), shall continue to be payable for a further period of the number of months stated in Box 19 as from the effective date of termination. If Box 19 is left blank then ninety (90) days shall apply.

	(h) In addition, where the Managers provide Crew for the Vessel in accordance with Clause 5(a) (Crew Management):

	(i) the Owners shall pay continue to pay Crew Support Costs during the said further period of the number of months stated in Box 19 ; and

	(ii) the Owners shall pay an equitable proportion of any Severance Costs which may be incurred, not exceeding the amount stated in Box 20 . The Managers shall use their reasonable endeavours to minimise such Severance Costs.

	(i) On the termination, for whatever reason, of this Agreement, the Managers shall release to the Owners, if so requested, the originals where possible, or otherwise certified copies, of all accounts and all documents specifically relating to the Vessel and its operation.

	(j) The termination of this Agreement shall be without prejudice to all rights accrued due between the parties prior to the date of termination.

23. BIMCO Dispute Resolution Clause

	(a) This Agreement shall be governed by and construed in accordance with English law and any dispute arising out of or in connection with this Agreement shall be referred to arbitration in London in accordance with the Arbitration Act 1996 or any statutory modification or re-enactment thereof save to the extent necessary

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to give effect to the provisions of this Clause.

The arbitration shall be conducted in accordance with the London Maritime Arbitrators Association (LMAA) Terms current at the time when the arbitration proceedings are commenced.

The reference shall be to three arbitrators. A party wishing to refer a dispute to arbitration shall appoint its arbitrator and send notice of such appointment in writing to the other party requiring the other party to appoint its own arbitrator within 14 calendar days of that notice and stating that it will appoint its arbitrator as sole arbitrator unless the other party appoints its own arbitrator and gives notice that it has done so within the 14 days specified. If the other party does not appoint its own arbitrator and give notice that it has done so within the 14 days specified, the party referring a dispute to arbitration may, without the requirement of any further prior notice to the other party, appoint its arbitrator as sole arbitrator and shall advise the other party accordingly. The award of a sole arbitrator shall be binding on both parties as if he had been appointed by agreement.

Nothing herein shall prevent the parties agreeing in writing to vary these provisions to provide for the appointment of a sole arbitrator.

In cases where neither the claim nor any counterclaim exceeds the sum of USD50,000 (or such other sum as the parties may agree) the arbitration shall be conducted in accordance with the LMAA Small Claims Procedure current at the time when the arbitration proceedings are commenced.

(b) This Agreement shall be governed by and construed in accordance with Title 9 of the United States Code and the Maritime Law of the United States and any dispute arising out of or in connection with this Agreement shall be referred to three persons at New York, one to be appointed by each of the parties hereto, and the third by the two so chosen; their decision or that of any two of them shall be final, and for the purposes of enforcing any award, judgment may be entered on an award by any court of competent jurisdiction. The proceedings shall be conducted in accordance with the rules of the Society of Maritime Arbitrators, Inc.

In cases where neither the claim nor any counterclaim exceeds the sum of USD50,000 (or such other sum as the parties may agree) the arbitration shall be conducted in accordance with the Shortened Arbitration Procedure of the Society of Maritime Arbitrators, Inc. current at the time when the arbitration proceedings are commenced.

(c) This Agreement shall be governed by and construed in accordance with the laws of the place mutually agreed by the parties and any dispute arising out of or in connection with this Agreement shall be referred to arbitration at a mutually agreed place, subject to the procedures applicable there.

(d) Notwithstanding Sub- clauses 23(a) , 23(b) or 23(c) above, the parties may agree at any time to refer to mediation any difference and/or dispute arising out of or in connection with this Agreement.

(i) In the case of a dispute in respect of which arbitration has been commenced under Sub-clauses 23(a), 23(b) or 23(c) above, the following shall apply:

(ii) Either party may at any time and from time to time elect to refer the dispute or part of the dispute to mediation by service on the other party of a written notice (the “Mediation Notice”) calling on the other party to agree to mediation.

(iii) The other party shall thereupon within 14 calendar days of receipt of the Mediation Notice confirm that they agree to mediation, in which case the parties shall thereafter agree a mediator within a further 14 calendar days, failing which on the application of either party a mediator will be appointed promptly by the Arbitration Tribunal (“the Tribunal”) or such person as the Tribunal may designate for that purpose. The mediation shall be conducted in such place and in accordance with such procedure and on such terms as the parties may agree or, in the event of disagreement, as may be set by the mediator.

(iv) If the other party does not agree to mediate, that fact may be brought to the attention of the Tribunal and may be taken into account by the Tribunal when allocating the costs of the arbitration as between the parties.

(v) The mediation shall not affect the right of either party to seek such relief or take such steps as it considers necessary to protect its interest.

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	(vi) Either party may advise the Tribunal that they have agreed to mediation. The arbitration procedure shall continue during the conduct of the mediation but the Tribunal may take the mediation timetable into account when setting the timetable for steps in the arbitration.

	(vii) Unless otherwise agreed or specified in the mediation terms, each party shall bear its own costs incurred in the mediation and the parties shall share equally the mediator’s costs and expenses.

	(viii) The mediation process shall be without prejudice and confidential and no information or documents disclosed during it shall be revealed to the Tribunal except to the extent that they are disclosable under the law and procedure governing the arbitration.

	(Note: The parties should be aware that the mediation process may not necessarily interrupt time limits.)

	(e) If Box 21 in Part I is not appropriately filled in, Sub- clause 23(a) of this Clause shall apply.

	Note: Sub- clauses 23(a) , 23(b) and 23(c) are alternatives; indicate alternative agreed in Box 21. Sub-clause 23(d) shall apply in all cases.

24. Notices

	(a) All notices given by either party or their agents to the other party or their agents in accordance with the provisions of this Agreement shall be in writing and shall, unless specifically provided in this Agreement to the contrary, be sent to the address for that other party as set out in Boxes 22 and 23 or as appropriate or to such other address as the other party may designate in writing.

	A notice may be sent by registered or recorded mail, facsimile, electronically or delivered by hand in accordance with this Sub- clause 24(a).

	(b) Any notice given under this Agreement shall take effect on receipt by the other party and shall be deemed to have been received:

	(i) if posted, on the seventh (7th) day after posting;

	(ii) if sent by facsimile or electronically, on the day of transmission; and

	(iii) if delivered by hand, on the day of delivery.

	And in each case proof of posting, handing in or transmission shall be proof that notice has been given, unless proven to the contrary.

25. Entire Agreement

	This Agreement constitutes the entire agreement between the parties and no promise, undertaking, representation, warranty or statement by either party prior to the date stated in Box 2 shall affect this Agreement. Any modification of this Agreement shall not be of any effect unless in writing signed by or on behalf of the parties.

26. Third Party Rights

	Except to the extent provided in Sub- clauses 17(c) (Indemnity) and 17(d) (Himalaya), no third parties may enforce any term of this Agreement.

27. Partial Validity

	If any provision of this Agreement is or becomes or is held by any arbitrator or other competent body to be illegal, invalid or unenforceable in any respect under any law or jurisdiction, the provision shall be deemed to be amended to the extent necessary to avoid such illegality, invalidity or unenforceability, or, if such amendment is not possible, the provision shall be deemed to be deleted from this Agreement to the extent of such illegality, invalidity or unenforceability, and the remaining provisions shall continue in full force and effect and shall not in any way be affected or impaired thereby.

28. Interpretation

	In this Agreement:

	(a) Singular/Plural
	The singular includes the plural and vice versa as the context admits or requires.

	(b) Headings

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The index and headings to the clauses and appendices to this Agreement are for convenience only and shall not affect its construction or interpretation.

(c) Day
“Day” means a calendar day unless expressly stated to the contrary.

Any additional clauses attached hereto together with the Confirmation, any subsequent addenda, schedules, appendicies or otherwise, shall be construed as an integral part of this Agreement and shall be interpreted accordingly.

STNG / SCM-SSM 2013 Master Agreement EXECUTION COPY

Annex II – STANDARD TECHNICAL MANAGEMENT TERMS

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				SHIPMAN 2009 STANDARD SHIP MANAGEMENT AGREEMENT PART I
	1.	Place and date of Agreement		2. Date of commencement of Agreement (Cls. 2 , 12 , 21 and 25 )

	3.	Owners (name, place of registered office and law of registry) ( Cl. 1 )		4. Managers (name, place of registered office and law of registry) ( Cl. 1 )
		(i) Name: As per Confirmation			(i) Name: Scorpio Ship Management Sam

		(ii) Place of registered office: Ajeltake Road, Ajeltake Island, Majuro, MH 96960, Marshall Islands			(ii) Place of registered office: 9 Boulevard Charles III, 98000 Monaco - MC

		(iii) Law of registry: Marshall Islands			(iii) Law of registry: Monaco

	5.	The Company (with reference to the ISM/ISPS Codes) (state name and IMO Unique Company Identification number. If the Company is a third party then also state registered office and principal place of business) (Cls. 1 and 9(c)(i) )		6. Technical Management (state “yes” or “no” as agreed) ( Cl. 4 ) Yes
		(i) Name: Scorpio Ship Management sam
		(ii) IMO Unique Company Identification number: 0631141 (iii) Place of registered office: 9 Boulevard Charles III, 98000 Monaco - MC (iv) Principal place of business: Monaco		7. Crew Management (state “yes” or “no” as agreed) ( Cl. 5(a) )
				Yes

				8. Commercial Management (state “yes” or “no” as agreed) ( Cl. 6 )
				No


	9. Chartering Services period (only to be filled in if “yes” stated in Box 8 ) (Cl.6(a) )			10. Crew Insurance arrangements (state “yes” or “no” as agreed)
					(i) Crew Insurances* ( Cl. 5(b) ): within owner cover as per 10(a)(ii)
No
					(ii) Insurance for persons proceeding to sea on board ( Cl. 5(b)(i) ): within owner cover as per 10(a)(ii)

					*only to apply if Crew Management ( Cl. 5(a) ) agreed (see Box 7 )

	11. Insurance arrangements (state “yes” or “no” as agreed) ( Cl. 7 ) Yes			12.	Optional insurances (state optional insurance(s) as agreed, such as piracy, kidnap and ransom, loss of hire and FD & D) ( Cl. 10(a)(iv) )
				FD&D, Kidnap and Ransom while transiting extended GOA

	13.	Interest (state rate of interest to apply after due date to outstanding sums) ( Cl. 9(a) )		14.	Annual management fee (state annual amount) ( Cl. 12(a) )
per month

	15.	Manager’s nominated account ( Cl.12(a) )		16.	Daily rate (state rate for days in excess of those agreed in budget) ( Cl. 12(c) )
	Beneficiary: Scorpio Ship Management			USD in excess of 20 days per year travel included
	I.B.A.N:
	A/C no.:			17. Lay-up period / number of months ( Cl.12(d) )
	Bank:			2 months
	THROUGH:
	(IF NEEDED) BANK SWIFT CODE
	18.	Minimum contract period (state number of months) ( Cl. 21(a) )		19.	Management fee on termination (state number of months to apply) ( Cl. 22(g) )
NONE			3 (three) months

	20.	Severance Costs (state maximum amount) ( Cl. 22(h)(ii) )		21.	Dispute Resolution (state alternative Cl. 23(a) , 23(b) or 23(c) : if Cl. 23(c) place of arbitration must be stated) ( Cl. 23 )
			23(a)

Continued

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Printed by BIMCO’s idea	SHIPMAN 2009 Standard ship management agreement	PART 1

(Continued)


	22.	Notices (state full style contact details for serving notice and communication to the Owners ) ( Cl. 24 )		23.	Notices (state full style contact details for serving notice and communication to the Managers ) ( Cl. 24 )
As per Confirmation			Scorpio Ship Management Sam 9 Boulevard Charles III, 98000 Monaco - MC tel: +377 97985700 email: fbellusci@scorpio.mc


Signature(s) (Owners)			Signature(s) (Managers)

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ANNEX “A” (DETAILS OF VESSEL OR VESSELS)

TO THE BIMCO STANDARD SHIP MANAGEMENT AGREEMENT

CODE NAME: SHIPMAN 2009

Date of Agreement

Name of Vessel(s):

Particulars of Vessal(s):

Continued

This document is a computer generated SHIPMAN 2009 form printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In the event of any modification made to the pre-printed text of this document Which is not clearly visible, the text of the original BIMCO approved document shall apply. BIMCO assumes no responsibility for any loss, damage or expense as a result of discrepancies between the original BIMCO approved document and this computer generated document.

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ANNEX “B” (DETAILS OF CREW)

TO THE BIMCO STANDARD SHIP MANAGEMENT AGREEMENT

CODE NAME: SHIPMAN 2009

Date of Agreement

Details of Crew:


Numbers	Rank	Nationality

Continued

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ANNEX “C” (BUDGET)

TO THE BIMCO STANDARD SHIP MANAGEMENT AGREEMENT

CODE NAME: SHIPMAN 2009

Date of Agreement:

Managers’ initial budget with effect from the commencement date of this Agreement (see Box 2 ):

Continued

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ANNEX “D” (ASSOCIATED VESSELS)

TO THE BIMCO STANDARD SHIP MANAGEMENT AGREEMENT

CODE NAME: SHIPMAN 2009

NOTE: PARTIES SHOULD BE AWARE THAT BY COMPLETING THIS ANNEX “D” THEY WILL BE SUBJECT TO THE PROVISIONS OF SUB- CLAUSE 22(b)(i) OF THIS AGREEMENT.

Date of Agreement:

Details of Associated Vessels:

Continued

This document is a computer generated SHIPMAN 2009 form printed by authority of BIMCO. Any insertion or deletion to the form must be clearly visible. In the event of any modification made to the pre-printed text of this document which is not dearly visible, the text of the original BIMCO approved document shall apply. BIMCO assumes no responsibility for any loss, damage or expense as a result of discrepancies between the original BIMCO approved document and we computer generated document.

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ANNEX “E” (FEE SCHEDULE)

TO THE BIMCO STANDARD SHIP MANAGEMENT AGREEMENT

CODE NAME: SHIPMAN 2009

Continued

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SECTION 1 – Basis of the Agreement


1. Definitions
	In this Agreement save where the context otherwise requires, the following words and expressions shall have the meanings hereby assigned to them:

	“Company” (with reference to the ISM Code and the ISPS Code) means the organization Identified in Box 5 or any replacement organization appointed by the Owners from time to time (see Sub - clauses 9(b)(i) or 9(c)(ii) , whichever is applicable).

	“Crew” means the personnel of the numbers, rank and nationality specified in Annex “B” hereto.

	“Crew Insurances” means insurance of liabilities in respect of crew risks which shall include but not be limited to death, permanent disability, sickness, injury, repatriation, shipwreck unemployment indemnity and loss of personal effects (see Sub- clause 5(b) (Crew Insurances) and Clause 7 (Insurance Arrangements) and Clause 10 (Insurance Policies) and Boxes 10 and 11 ).

	“Crew Support Costs” means all expenses of a general nature which are not particularly referable to any individual vessel for the time being managed by the Managers and which are incurred by the Managers for the purpose of providing an efficient and economic management service and, without prejudice to the generality of the foregoing, shall include the cost of crew standby pay, training schemes for officers and ratings, cadet training schemes, sick pay, study pay, recruitment and interviews as pertain only to the Vessel and her requirements.

	“Flag State” means the State whose flag the Vessel is flying.

	“ISM Code” means the International Management Code for the Safe Operation of Ships and for Pollution Prevention and any amendment thereto or substitution therefor.

	“ISPS Code” means the International Code for the Security of Ships and Port Facilities and the relevant amendments to Chapter XI of SOLAS and any amendment thereto or substitution therefor.

	“Managers” means the party Identified in Box 4 .

	“Management Services” means the services specified in SECTION 2 - Services ( Clauses 4 through 7 ) as indicated affirmatively in Boxes 6 through 8 , 10 and 11 , and all other functions performed by the Managers under the terms of this Agreement.

	“Owners” means the party Identified in Box 3 .

	“Severance Costs” means the costs which are legally required to be paid to the Crew as a result of the early termination of any contracts for service on the Vessel.

	“SMS” means the Safety Management System (as defined by the ISM Code).

	“STCW 95” means the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, 1978, as amended in 1995 and any amendment thereto or substitution therefor.

	“Vessel” means the vessel or vessels details of which are set out in Annex “A” attached hereto.

2. Commencement and Appointment
	With effect from the date stated in Box 2 for the commencement of the Management Services and continuing unless and until terminated as provided herein, the Owners hereby appoint the Managers and the Managers hereby agree to act as the Managers of the Vessel in respect of the Management Services.

3. Authority of the Managers
	Subject to the terms and conditions herein provided, during the period of this Agreement the Managers shall carry out the Management Services in respect of the Vessel as agents for and on behalf of the Owners. The Managers shall have authority to take such actions as they may from time to time in their absolute discretion consider to be necessary to enable them to perform the Management Services in accordance with sound ship management practice, including but not limited to compliance with all relevant rules and regulations.

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SECTION 2 – Services


4. Technical Management
	( only applicable if agreed according to Box 6 ).
	The Managers shall provide technical management which includes, but is not limited to, the following services:

	(a) ensuring that the Vessel complies with the requirements of the law of the Flag State;

	(b) ensuring compliance with the ISM Code;

	(c) ensuring compliance with the ISPS Code;

	(d) providing competent personnel to supervise the maintenance and general efficiency of the Vessel;

	(e) arranging and supervising dry dockings, repairs, alterations and the maintenance of the Vessel to the standards agreed with the Owners provided that the Managers shall be entitled to incur the necessary expenditure to ensure that the Vessel will comply with all requirements and recommendations of the classification society, and with the law of the Flag State and of the places where the Vessel is required to Trade:

	(f) arranging the supply of necessary stores, spares and lubricating oil;

	(g) appointing surveyors and technical consultants as the Managers may consider from time to time to be necessary;

	(h) in accordance with the Owners’ instructions, supervising the sale and physical delivery of the Vessel under the sale agreement. However services under this Sub-clause 4(h) shall not include negotiation of the sale agreement or transfer of ownership of the Vessel;

	(i) arranging for the supply of provisions unless provided by the Owners; and

	(j) arranging for the sampling and testing of bunkers.

5. Crew Management and Crew Insurances
	(a) Crew Management
	( only applicable if agreed according to Box 7 ).
	The Managers shall provide suitably qualified Crew who shall comply with the requirements of STCW 95. The provision of such crew management services includes, but is not limited to, the following services:

	(i)	selecting, engaging and providing for the administration of the Crew, including, as applicable, payroll arrangements, pension arrangements, tax. social security contributions and other mandatory dues related to their employment payable in each Crew member’s country of domicile;

	(ii)	ensuring that the applicable requirements of the law of the Flag State in respect of rank, qualification and certification of the Crew and employment regulations, such as Crew’s tax and social insurance, are satisfied;

	(iii)	ensuring that all Crew have passed a medical examination with a qualified doctor certifying that they are fit for the duties for which they are engaged and are in possession of valid medical certificates issued in accordance with appropriate Flag State requirements or such higher standard of medical examination as may be agreed with the Owners. In the absence of applicable Flag State requirements the medical certificate shall be valid at the time when the respective Crew member arrives on board the Vessel and shall be maintained for the duration of the service on board the Vessel;

	(iv)	ensuring that the Crew shall have a common working language and a command of the English language of a sufficient standard to enable them to perform their duties safely;

	(v)	arranging transportation of the Crew, including repatriation;

	(vi)	training of the Crew;

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	(vii)	conducting union negotiations; and

	~~(viii)~~	if the Managers are the Company, ensuring that the Crew, on joining the Vessel, are given proper familiarisation with their duties in relation to the Vessel’s SMS and that instructions which are essential to the SMS are identified, documented and given to the Crew prior to sailing.

	~~(ix)~~	~~if the Managers are not the Company:~~

		~~(1)~~ ~~ensuring that the Crew, before joining the Vessel, are given proper familiarisation with their duties in relation to the ISM Code; and~~

		~~(2)~~ ~~instructing the Crew to obey all reasonable orders of the Company in connection with the operation of the SMS.~~

	~~(x)~~	~~Where Managers are not providing technical management services in accordance with Clause 4 (Technical Management):~~

		~~(1)~~ ensuring that no person connected to the provision and the performance of the crew management services shall proceed to sea on board the Vessel without the prior consent of the Owners (such consent not to be unreasonably withheld); and

		~~(2)~~ ~~ensuring that in the event that the Owners’ drug and alcohol policy requires measures to be taken prior to the Crew joining the Vessel, implementing such measures;~~

	~~(b)~~ ~~Crew Insurances~~
	~~( only applicable if Sub-clause 5(a) applies and if agreed according to Box 10 )~~
	~~The Managers shall throughout the period of this Agreement provide the following services:~~

	~~(i)~~	arranging Crew Insurances in accordance with the best practice of prudent managers of vessels of a similar type to the Vessel, with sound and reputable insurance companies, underwriters or associations. Insurances for any other persons proceeding to sea onboard the Vessel may be separately agreed by the Owners and the Managers (see Box 10 );

	~~(ii)~~	~~ensuring that the Owners are aware of the terms, conditions, exceptions and limits of liability of the insurances in Sub- clause 5(b)(i) ;~~

	~~(iii)~~	~~ensuring that all premiums or calls in respect of the insurances in Sub- clause 5(b)(i) are paid by their due date;~~

	~~(iv)~~	if obtainable at no additional cost, ensuring that insurances in Sub- clause 5(b)(i) name the Owners as a joint assured with full cover and, unless otherwise agreed, on terms such that Owners shall be under no liability in respect of premiums or calls arising in connection with such insurances.

	~~(v)~~	providing written evidence, to the reasonable satisfaction of the Owners, of the Managers’ compliance with their obligations under Sub- clauses 5(b)(ii) , and 5(b)(iii) within a reasonable time of the commencement of this Agreement, and of each renewal date and, if specifically requested, of each payment date of the insurances in Sub- clause 5(b)(i) .

~~6. Commercial Management~~
	*(only applicable if agreed according to* *Box 8* ).
	~~The Managers shall provide the following services for the Vessel in accordance with the Owners’ instructions, which shall include but not be limited to:~~

	~~(a)~~ seeking and negotiating employment for the Vessel and the conclusion (including the execution thereof) of charter parties or other contracts relating to the employment of the Vessel. If such a contract exceeds the period stated in Box 9 , consent thereto in writing shall first be obtained from the Owners;

	~~(b)~~ ~~arranging for the provision of bunker fuels of the quality specified by the Owners as required for the Vessel’s trade;~~

	~~(c)~~ voyage estimating and accounting and calculation of hire, freights, demurrage and/or despatch monies due from or due to the charterers of the Vessel; assisting in the collection of any sums due to the Owners related to the commercial operation of the Vessel in accordance with Clause 11 (Income Collected and

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	~~Expenses Paid on Behalf of Owners);~~

	If any of the services under Sub- clauses 6(a) , 6(b) and 6(c) are to be excluded from the Management Fee, remuneration for these services must be stated in Annex E (Fee Schedule). See Sub- clause 12(e) .

	~~(d)~~	~~issuing voyage instructions;~~

	~~(e)~~	~~appointing agents;~~

	~~(f)~~	~~appointing stevedores; and~~

	~~(g)~~	~~arranging surveys associated with the commercial operation of the Vessel.~~


7.	Insurance Arrangements
		*(only applicable if agreed according to* *Box 11* ).
		The Managers shall arrange insurances in accordance with Clause 10 (Insurance Policies), on such terms as the Owners shall have instructed or agreed, in particular regarding conditions, insured values, deductibles, franchises and limits of liability.

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SECTION 3 – Obligations


8. Managers’ Obligations
	(a) The Managers undertake to use their best endeavours to provide the Management Services as agents for and on behalf of the Owners in accordance with sound ship management practice and to protect and promote the interests of the Owners in all matters relating to the provision of services hereunder.

	Provided however, that in the performance of their management responsibilities under this Agreement, the Managers shall be entitled to have regard to their overall responsibility in relation to all vessels as may from time to time be entrusted to their management and in particular, but without prejudice to the generality of the foregoing, the Managers shall be entitled to allocate available supplies, manpower and services in such manner as in the prevailing circumstances the Managers in their absolute discretion consider to be fair and reasonable.

	(b) Where the Managers are providing technical management services in accordance with Clause 4 (Technical Management), they shall procure that the requirements of the Flag State are satisfied and they shall agree to be appointed as the Company, assuming the responsibility for the operation of the Vessel and taking over the duties and responsibilities imposed by the ISM Code and the ISPS Code, if applicable.

9. Owners’ Obligations
	(a) The Owners shall pay all sums due to the Managers punctually in accordance with the terms of this Agreement. In the event of payment after the due date of any outstanding sums the Manager shall be entitled to charge interest at the rate stated in Box 13.

	(b) Where the Managers are providing technical management services in accordance with Clause 4 (Technical Management), the Owners shall:

	(i)	report (or where the Owners are not the registered owners of the Vessel procure that the registered owners report) to the Flag State administration the details of the Managers as the Company as required to comply with the ISM and ISPS Codes;

	~~(ii)~~	~~procure that any officers and ratings supplied by them or on their behalf comply with the requirements of STCW 95; and~~

	~~(iii)~~	~~instruct such officers and ratings to obey all reasonable orders of the Managers (in their capacity as the Company) in connection with the operation of the Managers’ safety management system.~~

	~~(c)~~ ~~Where the Managers are not providing technical management services in accordance with Clause 4 (Technical Management), the Owners shall:~~

	~~(i)~~	procure that the requirements of the Flag State are satisfied and notify the Managers upon execution of this Agreement of the name and contact details of the organization that will be the Company by completing Box 5 ;

	~~(ii)~~	~~if the Company changes at any time during this Agreement, notify the Managers in a timely manner of the name and contact details of the new organization;~~

	~~(iii)~~	procure that the details of the Company, including any change thereof, are reported to the Flag State administration as required to comply with the ISM and ISPS Codes. The Owners shall advise the Managers in a timely manner when the Flag State administration has approved the Company; and

	~~(iv)~~	~~unless otherwise agreed, arrange for the supply of provisions at their own expense.~~

	(d) Where the Managers are providing crew management services in accordance with Sub- clause 5(a) the Owners shall:

	(i)	inform the Managers prior to ordering the Vessel to any excluded or additional premium area under any of the Owners’ Insurances by reason of war risks and/or piracy or like perils and pay whatever additional costs may properly be incurred by the Managers as a consequence of such orders including, if necessary, the costs of replacing any member of the Crew. Any delays resulting from negotiation with or replacement of any member of the Crew as a result of the Vessel being ordered to such an area

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		shall be for the Owners’ account. Should the Vessel be within an area which becomes an excluded or additional premium area the above provisions relating to cost and delay shall apply;

	(ii)	agree with the Managers prior to any change of flag of the Vessel and pay whatever additional costs may properly be incurred by the Managers as a consequence of such change. ~~If agreement cannot be reached then either party may terminate this Agreement in accordance with Sub- clause 22(e)~~ ; and

	(iii)	provide, at no cost to the Managers, in accordance with the requirements of the law of the Flag State, or higher standard, as mutually agreed, adequate Crew accommodation and living standards.

	~~(e)~~ Where the Managers are not the Company, the Owners shall ensure that Crew are properly familiarised with their duties in accordance with the Vessel’s SMS and that instructions which are essential to the SMS are identified, documented and given to the Crew prior to sailing.

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SECTION 4 – Insurance, Budgets, Income, Expenses and Fees


10. Insurance Policies
	The Owners shall procure, whether by instructing the Managers under Clause 7 (Insurance Arrangements) or otherwise, that throughout the period of this Agreement:

	(a) at the Owners’ expense, the Vessel is insured for not less than its sound market value or entered for its full gross tonnage, as the case may be for:

	(i) hull and machinery marine risks (including but not limited to crew negligence) and excess liabilities;

	(ii) protection and indemnity risks (including but not limited to pollution risks, diversion expenses and, ~~except to the extent insured separately by the Managers in accordance with Sub- clause 5(b)(i)~~ , Crew Insurances;

	NOTE: If the Managers are not providing crew management services under Sub- clause 5(a) (Crew Management) or have agreed not to provide Crew Insurances separately in accordance with Sub-clause 5(b)(i) , then such insurances must be included in the protection and indemnity risks cover for the Vessel (see Sub- clause 10(a)(ii) above).

	(iii) war risks (including but not limited to blocking and trapping, protection and indemnity, terrorism and crew risks); and

	(iv) such optional insurances as may be agreed (such as piracy, kidnap and ransom, loss of hire and FD & D) (see Box 12 )

	Sub- clauses 10(a)(i) through 10(a)(iv) all in accordance with the best practice of prudent owners of vessels of a similar type to the Vessel, with sound and reputable insurance companies, underwriters or associations (“the Owners’ Insurances”);

	(b) all premiums and calls on the Owners’ Insurances are paid by their due date;

	(c) the Owners’ Insurances name the Managers and, subject to underwriters’ agreement, any third party designated by the Managers as a joint assured (or co-assured, as the case may be), with full cover. It is understood that in some cases, such as protection and indemnity, the normal terms for such cover may impose on the Managers and any such third party a liability in respect of premiums or calls arising in connection with the Owners’ Insurances.

	If obtainable at no additional cost, however, the Owners shall procure such insurances on terms such that neither the Managers nor any such third party shall be under any liability in respect of premiums or calls arising in connection with the Owners’ Insurances. In any event, on termination of this Agreement in accordance with Clause 21 (Duration of the Agreement) and Clause 22 (Termination), the Owners shall procure that the Managers and any third party designated by the Managers as joint assured shall cease to be joint assured and, ~~if reasonably achievable,~~ that they shall be released from any and all liability for premiums and calls that may arise in relation to the period of this Agreement; and

	(d) written evidence is provided, to the reasonable satisfaction of the Managers, of the Owners’ compliance with their obligations under this Clause 10 within a reasonable time of the commencement of the Agreement, and of each renewal date and, if specifically requested, of each payment date of the Owners’ Insurances.

11. Income Collected and Expenses Paid on Behalf of Owners
	(a) Except as provided in Sub- clause 11(c) all monies collected by the Managers under the terms of this Agreement (other than monies payable by the Owners to the Managers) and any interest thereon shall be held to the credit of the Owners in a separate bank account.

	(b) All expenses incurred by the Managers under the terms of this Agreement on behalf of the Owners (including expenses as provided in Clause 12(c) ) may be debited against the Owners in the account referred to under Sub- clause 11(a) but shall in any event remain payable by the Owners to the Managers on demand.

	~~(c) All monies collected by the Managers under Clause 6 (Commercial Management) shall be paid into a~~

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	~~bank account in the name of the Owners or as may be otherwise advised by the Owners in writing.~~

12. Management Fee and Expenses
	(a) The Owners shall pay to the Managers an annual management fee as stated in Box 14 for their services as Managers under this Agreement, which shall be payable in equal monthly instalments in advance, the first instalment (pro rata if appropriate) being payable on the commencement of this Agreement (see Clause 2 (Commencement and Appointment) and Box 2 ) and subsequent instalments being payable at the beginning of every calendar month. The management fee shall be payable to the Managers’ nominated account stated in Box 15 .

	(b) The management fee shall be subject to an annual review and the proposed fee shall be presented in the annual budget in accordance with Sub- clause 13 (a).

	(c) The Managers shall, at no extra cost to the Owners, provide their own office accommodation, office staff, facilities and stationery. Without limiting the generality of this Clause 12 (Management Fee and Expenses) the Owners shall reimburse the Managers for postage and communication expenses, travelling expenses, and other out of pocket expenses properly incurred by the Managers in pursuance of the Management Services. Any days used by the Managers’ personnel travelling to or from or attending on the Vessel or otherwise used in connection with the Management Services in excess of those agreed in the budget shall be charged at the daily rate stated in Box 16 .

	(d) If the Owners decide to layup the Vessel and such layup lasts for more than the number of months stated in Box 17 , an appropriate reduction of the Management Fee for the period exceeding such period until one month before the Vessel is again put into service shall be mutually agreed between the parties. If the Managers are providing crew management services in accordance with Sub- clause 5(a) , consequential costs of reduction and reinstatement of the Crew shall be for the Owners’ account. ~~If agreement cannot be reached then either party may terminate this Agreement in accordance with Sub- clause 22(e) .~~

	(e) Save as otherwise provided in this Agreement, all discounts and commissions obtained by the Managers in the course of the performance of the Management Services shall be credited to the Owners.

13. Budgets and Management of Funds
	(a) The Managers’ Initial budget is set out in Annex “C” hereto. Subsequent budgets shall be for twelve month periods and shall be prepared by the Managers and presented to the Owners not less than one ~~three~~ month s before the end of the budget year.

	(b) The Owners shall state to the Managers in a timely manner, but in any event within one month of presentation, whether or not they agree to each proposed annual budget. If the Owners do not respond within one month of presentation, the proposed annual budget shall be deemed to be accepted. The parties shall negotiate in good faith and if they fail to agree on the annual budget, including the management fee, either party may terminate this Agreement in accordance with Sub- clause 22(e) .

	(c) Following the agreement of the budget, the Managers shall prepare and present to the Owners their estimate of the working capital requirement for the Vessel and ~~shall each month request the Owners in writing to pay the~~ funds required to run the Vessel ~~for the ensuing month~~ , including the payment of any unbudgeted, contingency and occasional or extraordinary item of expenditure, such as emergency repair costs, additional insurance premiums, bunkers or provisions. Such funds shall be received by the Managers within ten running days after the receipt by the Owners of the Managers’ written request and shall be held to the credit of the Owners in a separate bank account.

	(d) The Managers shall at all times maintain and keep true and correct accounts in respect of the Management Services in accordance with the relevant International Financial Reporting Standards or such other standard as the parties may agree, including records of all costs and expenditure incurred, and produce a comparison between budgeted and actual income and expenditure of the Vessel in such form and at such intervals as shall be mutually agreed.

	The Managers shall make such accounts available for inspection and auditing by the Owners and/or their representatives in the Managers’ offices or by electronic means, provided reasonable notice is given by the

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	Owners.

	(e) Notwithstanding anything contained herein, the Managers shall in no circumstances be required to use or commit their own funds to finance the provision of the Management Services.

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SECTION 5 – Legal, General and Duration of Agreement


14. Trading Restrictions
	If the Managers are providing crew management services in accordance with Sub - clause 5(a) (Crew Management), the Owners will use reasonable efforts to honour any requirement and trading restriction as per contract of employment of the crew provided same do not violate any laws applicable to owner, and the Managers will, prior to the commencement of this Agreement, agree on any trading restrictions to the Vessel that may result from the terms and conditions of the Crew’s employment .

15. Replacement
	If the Managers are providing crew management services in accordance with Sub - clause 5(a) (Crew Management), the Owners may require the replacement, at their own expense, at the next reasonable opportunity, of any member of the Crew found on reasonable grounds to be unsuitable for service. If the Managers have failed to fulfill their obligations in providing suitable qualified Crew within the meaning of Sub - clause 5(a) (Crew Management), then such replacement shall be at the Managers’ expense.

16. Managers’ Right to Sub-Contract
	The Managers shall not subcontract any of their obligations hereunder without the prior written consent of the Owners which shall not be unreasonably withheld. In the event of such a sub-contract the Managers shall remain fully liable for the due performance of their obligations under this Agreement. It is understood by and between the Parties, and Owners hereby expressly consent to it, that the Managers may subcontract certain of the services listed in clause 5 to its affiliates Scorpio Crewing Services Pte (“SCS”) and Scorpio Marine Management (India) Pvt Ltd (“SMM”). The Owner hereby expressly authorizes SCS end SMM to execute, as agents only for and on behalf of Owners, the employment agreement with each and every seafarer to be embarked on board the Vessel.

17. Responsibilities
	(a) Force Majeure - Neither party shall be liable for any loss, damage or delay due to any of the following force majeure events and/or conditions to the extent that the party invoking force majeure is prevented or hindered from performing any or all of their obligations under this Agreement, provided they have made all reasonable efforts to avoid, minimize or prevent the effect of such events and/or conditions:

	(i)	acts of God;

	(ii)	any Government requisition, control, intervention, requirement or interference;

	(iii)	any circumstances arising out of war. threatened act of war or warlike operations, acts of terrorism, sabotage or piracy, or the consequences thereof;

	(iv)	riots, civil commotion, blockades or embargoes;

	(v)	epidemics;

	(vi)	earthquakes, landslides, floods or other extraordinary weather conditions:

	(vii)	strikes, lockouts or other industrial action, unless limited to the employees (which shall not include the Crew) of the party seeking to invoke force majeure;

	(viii)	fire, accident, explosion except where caused by negligence of the party seeking to invoke force majeure; and

	(ix)	any other similar cause beyond the reasonable control of either party.

	(b) Liability to Owners
	(i)	Without prejudice to Sub - clause 17(a) , the Managers shall be under no liability whatsoever to the Owners for any loss, damage, delay or expense of whatsoever nature, whether direct or indirect, (including but not limited to loos of profit arising out of or in connection with detention of or delay to the Vessel) and howsoever arising in the course of performance of the Management Services UNLESS same is proved to have resulted solely from the negligence, gross negligence or wilful default of the Managers or their employees or agents, or sub-contractors employed by them in connection with the Vessel, in which case (save where loss, damage, delay or expense has resulted from the Managers’ personal act or omission

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		committed with the intent to cause same or recklessly and with knowledge that such loss, damage, delay or expense would probably result) the Managers’ liability for each incident or series of incidents giving rise to a claim or claims shall never exceed a total of ten (10) times the annual management fee payable hereunder.

	(ii)	Acts or omissions of the Crew - Notwithstanding anything that may appear to the contrary in this Agreement, the Managers shall not be liable for any acts or omissions of the Crew, even if such acts or omissions are negligent, grossly negligent or wilful, except only to the extent that they are shown to have resulted from a failure by the Managers to discharge their obligations under Clause 5(a) (Crew Management), in which case their liability shall be limited in accordance with the terms of this Clause 17 (Responsibilities).

	(c)	Indemnity - Except to the extent and solely for the amount therein set out that the Managers would be liable under Sub - clause 17(b) , the Owners hereby undertake to keep the Managers and their employees, agents and sub-contractors indemnified and to hold them harmless against all actions, proceedings, claims, demands or liabilities whatsoever or howsoever arising which may be brought against them or incurred or suffered by them arising out of or in connection with the performance of this Agreement, and against and in respect of all costs, loss, damages and expenses (including legal costs and expenses on a full indemnity basis) which the Managers may suffer or incur (either directly or indirectly) in the course of the performance of this Agreement.

	(d)	“Himalaya” - It is hereby expressly agreed that no employee or agent of the Managers (including every sub-contractor from time to time employed by the Managers) shall in any circumstances whatsoever be under any liability whatsoever to the Owners for any loss, damage or delay of whatsoever kind arising or resulting directly or indirectly from any act, neglect or default on his part while acting in the course of or in connection with his employment and, without prejudice to the generality of the foregoing provisions in this Clause 17 (Responsibilities), every exemption, limitation, condition and liberty herein contained and every right, exemption from liability, defence and immunity of whatsoever nature applicable to the Managers or to which the Managers are entitled hereunder shall also be available and shall extend to protect every such employee or agent of the Managers acting as aforesaid and for the purpose of all the foregoing provisions of this Clause 17 (Responsibilities) the Managers are or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of all persons who are or might be their servants or agents from time to time (including sub-contractors as aforesaid) and all such persons shall to this extent be or be deemed to be parties to this Agreement.

18. General Administration
	(a) The Managers shall keep the Owners and, if appropriate, the Company informed in a timely manner of any incident of which the Managers become aware which gives or may give rise to delay to the Vessel or claims or disputes involving third parties.

	(b) The Managers shall handle and settle all claims and disputes arising out of the Management Services hereunder, unless the Owners instruct the Managers otherwise. The Managers shall keep the Owners appropriately informed in a timely manner throughout the handling of such claims and disputes.

	(c) The Owners may request the Managers to bring or defend other actions, suits or proceedings related to the Management Services, on terms to be agreed.

	(d) The Managers shall have power to obtain appropriate legal or technical or other outside expert advice in relation to the handling and settlement of claims in relation to Sub - clauses 18(a) and 18(b) and disputes and any other matters affecting the interests of the Owners in respect of the Vessel, unless the Owners Instruct the Managers otherwise.

	(e) On giving reasonable notice, the Owners may request, and the Managers shall in a timely manner make available, all documentation, information and records in respect of the matters covered by this Agreement either related to mandatory rules or regulations or other obligations applying to the Owners in respect of the Vessel (including but not limited to STCW 95, the ISM Code and ISPS Code) to the extent permitted by relevant legislation.

	On giving reasonable notice, the Owners may request, and the Managers shall in a timely manner make available, all documentation, information and records reasonably required by the Managers to enable them

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	to perform the Management Services.

	(f) The Owners shall arrange for the provision of any necessary guarantee bond or other security.

	(g) Any costs incurred by the Managers in carrying out their obligations according to this Clause 18 (General Administration) shall be reimbursed by the Owners.

19. Inspection of Vessel
	The Owners may at any time after giving reasonable notice to the Managers inspect the Vessel for any reason they consider necessary.

20. Compliance with Laws and Regulations
	The parties will not do or permit to be done anything which might cause any breach or infringement of the laws and regulations of the Flag State, or of the places where the Vessel trades.

21. Duration of the Agreement
	(a) This Agreement shall come into effect at the date stated in Box 2 and shall continue until terminated by either party by giving notice to the other; in which event this Agreement shall terminate upon the expiration of a period of twenty four (24) months from the date in which such notice is received, unless terminated earlier in accordance with Clause 22 (Termination).
	This Agreement shall come into effect at the date stated in Box 2 and shall continue until terminated by either party by giving notice to the other; in which event this Agreement shall terminated upon the expiration of the later of the number of months stated in Box 18 or a period of two (2) months from the date on which such notice is received, unless terminated earlier in accordance with Clause 22 (Termination).

	(b) Where the Vessel is not at a mutually convenient port or place on the expiry of such period, this Agreement shall terminate on the subsequent arrival of the Vessel at the next mutually convenient port or place.

22. Termination
	(a)	Owners’ or Managers’ default
	If either party fails to meet their obligations under this Agreement, the other party may give notice to the party in default requiring them to remedy it. In the event that the party in default fails to remedy it within a reasonable time to the reasonable satisfaction of the other party, that party shall be entitled to terminate this Agreement with immediate effect by giving notice to the party in default.

	(b)	Notwithstanding Sub- clause 22(a) :

	(i)	The Managers shall be entitled to terminate the Agreement with immediate effect by giving notice to the Owners if any monies payable by the Owners and/or the owners of any associated vessel, details of which are listed in Annex “D”, shall not have been received in the Managers’ nominated account within ten days of receipt by the Owners of the Managers’ written request, or if the Vessel is repossessed by the Mortgagee(s).

	(ii)	If the Owners proceed with the employment of or continue to employ the Vessel in the carriage of contraband, blockade running, or in an unlawful trade, or on a voyage which in the reasonable opinion of the Managers is unduly hazardous or improper, the Managers may give notice of the default to the Owners, requiring them to remedy it as soon as practically possible. In the event that the Owners fail to remedy it within a reasonable time to the satisfaction of the Managers, the Managers shall be entitled to terminate the Agreement with immediate effect by notice.

	(iii)	If either party fails to meet their respective obligations under Sub- clause 5(b) (Crew Insurances) and Clause 10 (Insurance Policies), the other party may give notice to the party in default requiring them to remedy it within ten (10) days, failing which the other party may terminate this Agreement with immediate effect by giving notice to the party in default.

	(c)	Extraordinary Termination
	This Agreement shall be deemed to be terminated in the case of the sale of the Vessel or, if the Vessel becomes a total loss or is declared as a constructive or compromised or arranged total loss or is requisitioned or has been declared missing or, if bareboat chartered, unless otherwise agreed, when the bareboat charter comes to an end.

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	(d)	For the purpose of Sub - clause 22(c) hereof:

	(i)	the date upon which the Vessel is to be treated as having been sold or otherwise disposed of shall be the date on which the Vessel’s owners cease to be the registered owners of the Vessel;

	(ii)	the Vessel shall be deemed to be lost either when it has become an actual total loss or agreement has been reached with the Vessel’s underwriters in respect of its constructive total loss or if such agreement with the Vessel’s underwriters is not reached it is adjudged by a competent tribunal that a constructive loss of the Vessel has occurred; and

	(iii)	the date upon which the Vessel is to be treated as declared missing shall be ten (10) days after the Vessel was last reported or when the Vessel is recorded as missing by the Vessel’s underwriters, whichever occurs first. A missing vessel shall be deemed lost in accordance with the provisions of Sub- clause 22(d)(ii) .

	(e) in the event the parties fail to agree the annual budget in accordance with Sub- clause 13(b) , or to agree a change of flag in accordance with Sub- clause 9(d)(ii) , or to agree to a reduction in the Management Fee in accordance with Sub- clause 12(d) , either party may terminate this Agreement by giving the other party not less than one month’s notice the result of which will be the expiry of the Agreement at the end of the current budget period or on expiry of the notice period, whichever is the later.

	(f) This Agreement shall terminate forthwith in the event of an order being made or resolution passed for the winding up, dissolution, liquidation or bankruptcy of either party (otherwise than for the purpose of reconstruction or amalgamation) or if a receiver or administrator is appointed or if it suspends payment ceases to carry on business or makes any special arrangement or composition with its creditors. Either party shall have the right to terminate this Agreement forthwith if the other party: has ceased to trade; suspend payment(s); has an order made or resolution passed for its winding up, dissolution, liquidation or bankruptcy (otherwise than for the purpose of solvent reconstruction or amalgamation); has a receiver, administrative receiver, administrator or other similar official appointed over all or substantially all of its assets or undertakings; has a secured party take possession of all or substantially all its assets; has become insolvent or one into liquidation (unless such liquidation is for the purpose of a solvent reconstruction or amalgamation); makes a general assignement, arrangement or composition with or for the benefit of its creditors; is unable to pay its debts as they become due; causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in the foregoing text; or, takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts.

	(g) In the event of the termination of this Agreement for any reason other than default by the Managers the management fee payable to the Managers according to the provisions of Clause 12 (Management Fee and Expenses), shall continue to be payable for a further period of the number of months stated in Box 19 as from the effective date of termination. If Box 19 is left blank then ninety (90) days shall apply.

	(h) In addition, where the Managers provide Crew for the Vessel in accordance with Clause 5(a) (Crew Management):

	(i)	the Owners shall continue to pay Crew Support Costs during the said further period of the number of months stated in Box 19 ; and

	(ii)	the Owners shall pay an equitable proportion of any Severance Costs which may be incurred, not exceeding the amount stated in Box 20 . The Managers shall use their reasonable endeavours to minimise such Severance Costs.

	(i) On the termination, for whatever reason, of this Agreement, the Managers shall release to the Owners, if so requested, the originals where possible, or otherwise certified copies, of all accounts and all documents specifically relating to the Vessel and Its operation.

	(j) The termination of this Agreement shall be without prejudice to all rights accrued due between the parties prior to the date of termination.

23. BIMCO Dispute Resolution Clause
	(a) This Agreement shall be governed by and construed in accordance with English law and any dispute

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	arising out of or in connection with this Agreement shall be referred to arbitration in London in accordance with the Arbitration Act 1996 or any statutory modification or re-enactment thereof save to the extent necessary to give effect to the provisions of this Clause.

	The arbitration shall be conducted in accordance with the London Maritime Arbitrators Association (LMAA) Terms current at the time when the arbitration proceedings are commenced.

	The reference shall be to three arbitrators. A party wishing to refer a dispute to arbitration shall appoint its arbitrator and send notice of such appointment in writing to the other party requiring the other party to appoint its own arbitrator within 14 calendar days of that notice and stating that it will appoint its arbitrator as sole arbitrator unless the other party appoints its own arbitrator and gives notice that it has done so within the 14 days specified. If the other party does not appoint its own arbitrator and give notice that it has done so within the 14 days specified, the party referring a dispute to arbitration may, without the requirement of any further prior notice to the other party, appoint its arbitrator as sole arbitrator and shall advise the other party accordingly. The award of a sole arbitrator shall be binding on both parties as if he had been appointed by agreement.

	Nothing herein shall prevent the parties agreeing in writing to vary these provisions to provide for the appointment of a sole arbitrator.

	In cases where neither the claim nor any counterclaim exceeds the sum of USD50,000 (or such other sum as the parties may agree) the arbitration shall be conducted in accordance with the LMAA Small Claims Procedure current at the time when the arbitration proceedings are commenced.

	(b) This Agreement shall be governed by and construed in accordance with Title 9 of the United States Code and the Maritime Law of the United States and any dispute arising out of or in connection with this Agreement shall be referred to three persons at New York, one to be appointed by each of the parties hereto, and the third by the two so chosen; their decision or that of any two of them shall be final, and for the purposes of enforcing any award, judgment may be entered on an award by any court of competent jurisdiction. The proceedings shall be conducted in accordance with the rules of the Society of Maritime Arbitrators, Inc.

	In cases where neither the claim nor any counterclaim exceeds the sum of USD50,000 (or such other sum as the parties may agree) the arbitration shall be conducted in accordance with the Shortened Arbitration Procedure of the Society of Maritime Arbitrators, Inc. current at the time when the arbitration proceedings are commenced.

	(c) This Agreement shall be governed by and construed in accordance with the laws of the place mutually agreed by the parties and any dispute arising out of or in connection with this Agreement shall be referred to arbitration at a mutually agreed place, subject to the procedures applicable there.

	(d) Notwithstanding Sub- clause 23(a) , ~~23(b) or 23(c)~~ above, the parties may agree at any time to refer to mediation any difference and/or dispute arising out of or in connection with this Agreement.

	(i)	In the case of a dispute in respect of which arbitration has been commenced under Sub-clauses 23(a) , ~~23(b) or 23(c)~~ above, the following shall apply:

	(ii)	Either party may at any time and from time to time elect to refer the dispute or part of the dispute to mediation by service on the other party of a written notice (the “Mediation Notice”) calling on the other party to agree to mediation.

	(iii)	The other party shall thereupon within 14 calendar days of receipt of the Mediation Notice confirm that they agree to mediation, in which case the parties shall thereafter agree a mediator within a further 14 calendar days, falling which on the application of either party a mediator will be appointed promptly by the Arbitration Tribunal (“the Tribunal”) or such person as the Tribunal may designate for that purpose. The mediation shall be conducted in such place and in accordance with such procedure and on such terms as the parties may agree or, in the event of disagreement as may be set by the mediator.

	(iv)	If the other party does not agree to mediate, that fact may be brought to the attention of the Tribunal and may be taken into account by the Tribunal when allocating the costs of the arbitration as between the parties.

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	(v)	The mediation shall not affect the right of either party to seek such relief or take such steps as it considers necessary to protect its interest.

	(vi)	Either party may advise the Tribunal that they have agreed to mediation. The arbitration procedure shall continue during the conduct of the mediation but the Tribunal may take the mediation timetable into account when setting the timetable for steps in the arbitration.

	(vii)	Unless otherwise agreed or specified in the mediation terms, each party shall bear its own costs incurred in the mediation and the parties shall share equally the mediator’s costs and expenses.

	(viii)	The mediation process shall be without prejudice and confidential and no information or documents disclosed during It shall be revealed to the Tribunal except to the extent that they are disclosable under the law and procedure governing the arbitration.

	(Note: The parties should be aware that the mediation process may not necessarily interrupt time limits.)

	(e) If Box 21 in Part I is not appropriately filled in, Sub- clause 23(a) of this Clause shall apply.
	Note: Sub- clauses 23(a) , 23(b) and 23(c) are alternatives; indicate alternative agreed in Box 21 Sub-clause 23(d) shall apply in all cases.

24. Notices


	(a) All notices given by either party or their agents to the other party or their agents in accordance with the provisions of this Agreement shall be in writing and shall, unless specifically provided in this Agreement to the contrary, be sent to the address for that other party as set out in Boxes 22 and 23 or as appropriate or to such other address as the other party may designate in writing.

	A notice may be sent by registered or recorded mail, facsimile, electronically or delivered by hand in accordance with this Sub -clause 24(a) .

	(b) Any notice given under this Agreement shall take effect on receipt by the other party and shall be deemed to have been received:

	(I)	if posted, on the seventh (7th) day after posting;

	(II)	if sent by facsimile or electronically, on the day of transmission; and

	(III)	if delivered by hand, on the day of delivery.

	And in each case proof of posting, handing in or transmission shall be proof that notice has been given, unless proven to the contrary.

25. Entire Agreement See Additional Clause 48.


	This Agreement constitutes the entire agreement between the parties and no promise, undertaking, representation, warranty or statement by either party prior to the date stated in Box 2 shall affect this Agreement. Any modification of this Agreement shall not be of any effect unless in writing signed by or on behalf of the parties.

26. Third Party Rights
	Except to the extent provided in Sub -clause 17(c) (Indemnity) ~~and~~ 17(d) (Himalaya) and additional clause 43 . no third parties may enforce any term of this Agreement.

27. Partial Validity

	If any provision of this Agreement is or becomes or is held by any arbitrator or other competent body to be illegal, invalid or unenforceable in any respect under any law or jurisdiction, the provision shall be deemed to be amended to the extent necessary to avoid such illegality, invalidity or unenforceability. or, if such amendment is not possible, the provision shall be deemed to be deleted from this Agreement to the extent of such illegality, invalidity or unenforceability, and the remaining provisions shall continue in full force and effect and shall not in any way be affected or impaired thereby.

28. Interpretation

	In this Agreement:

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(a) Singular/Plural
The singular Includes the plural and vice versa as the context admits or requires.

(b) Headings
The index and headings to the clauses and appendices to this Agreement are for convenience only and shall not affect its construction or interpretation.

Additional Clauses
Additional clauses incorporated as per the attached Rider Clauses.

RIDER CLAUSES

FOR SHIPMAN 2009 STANDARD SHIP MANAGEMENT

AGREEMENT


29.	OPA

29.1	The Managers will:-

	(i)	arrange for the preparation, filing and updating of a contingency Vessel Response Plan in accordance with the requirements of OPA and instruct the Crew in all aspects of the operation of such plan;

	(ii)	identify and ensure the availability by contract or otherwise of a Qualified Individual, a Spill Management Team, an Oil Spill Removal Organisation, resources having salvage, fire fighting, lightering and, if applicable, dispersant capabilities, and public relations/media personnel to assist the Owners to deal with the media in the event of discharges of oil.

29.2	The Managers are expressly authorised as agents for the Owners to enter into such arrangements by contract or otherwise as are required to ensure the availability of the services outlined in Clause 29.1. The Managers are further expressly authorised as agents for the Owners to enter into such other arrangements as may from time to time be necessary to satisfy the requirements of OPA or other US Federal or State laws.

29.3	The Owners will pay the fees due to third parties providing the services described above. The third party fees will be included in the Vessel’s running costs.

29.4	On termination of this Agreement, the Vessel Response Plan and all documentation will be returned to the Managers at the expense of the Owners.

30.	IT Services

30.1	The Managers will, subject to the remaining provisions of this Clause 30, provide the Vessel with the Management System Software.

30.2	The main features of the Management System Software at the date of this Agreement are:


	(i)	comprehensive management software providing single point of entry to the Vessel incorporating crew management, defect and deficiency reporting and performance monitoring;

	(ii)	a ship to shore and shore to ship e-mail package providing cost efficient communications available to both Managers and their charterers; and


	(iii)	a computerised maintenance system including inventory control and automated purchase order handling.

30.3	The costs for the Management System Software are included in the Vessel’s operating costs, as follows:

	(i)	the annual maintenance fee;

	(ii)	maintenance and upgrades;

	(iii)	24 hour support;

	(iv)	provision of anti-virus software and regular upgrades;

	(v)	operational manuals and regular updates;

	(vi)	annual audit on board the Vessel providing a system health check;

	(vii)	user manuals and training of the Crew in the use of the Management System Software; and

	(viii)	e-mail on board the Vessel.

30.4	Such costs do not include the costs of appropriate hardware, licence fee and installation/set-up on board the Vessel, which will be included in the taking over cost.

30.5	Installation and set-up of the Information System Software will be undertaken on a date agreed between the Managers and the Owners having regard to the Vessel’s schedule and the availability of the Managers’ personnel.

30.6	The Management System Software is protected by applicable copyright and patent laws.

30.7	The Managers do not warrant that the use or operation of the Information System Software will be uninterrupted or error free.

31.	Management Fee

31.1	Without prejudice to the generality of clause 12 (Management Fee), it is agreed that the remuneration provided for by that clause shall be deemed to cover the Manager’s administrative and general expenses and any other expenses which are not directly and exclusively applicable to the operation or conduct of the business of the Vessel and shall include:

	Salaries of corporate officers, executives, department heads, administrative, clerical and office employees, port engineers, port captain, port stewards, paymaster and other employees of the shore side establishment, payroll taxes, group insurance and pension annuity payments applicable to personnel in the above named categories, office and administrative expenses, including insurance, rent, heat, light, power, office stationary, office services, depreciation and repair of office equipment, janitor services and expenses, accounting expenses, the Managers’ outside auditing fees, dues and membership in trade associations, office subscriptions, contributions and donations and franchise taxes, as well as legal fees in connection with the Managers’ corporate and management functions, excluding


	all and any legal fees or other expenses incurred by the Managers in connection with any claims arising out of any matter related with the Vessel.

31.2	In addition to the remuneration payable to the Managers under the provision of clause 12 and this clause, the Owners shall reimburse the Managers for, inter alia, the amount of such necessary travelling expenses (outside Monaco), seafarers interviewing costs, costs of telephone calls, communication, vessel’s postage, freight and forwarding, warehousing, agency services and fees which are not included in budget and will be treated as contingency costs. For estimation purpose only and without guarantee, contingencies could amount to a 5% of annual total budget.

32.	Dry docking

	Dry docking to be carried out with prior approval of costs by the Owners. The drydocking specification shall be prepared by the Managers and approved by the Owners.

33.	Benefit of Existing and Future Contracts

	Where possible, the Owners shall (for the duration of this Agreement) have the advantage of any existing or future contracts of the Managers for the purchase or renewal of materials, facilities, services or equipment, by way of the benefit of discounts (if any).

34.	Passing of Title

34.1	To the extent already paid for by the Managers using funds specifically provided by the Owners for such a purpose, title to any goods, materials or supplies purchased by the Managers for use in the performance of this Agreement shall belong to the Owners.

34.2	Upon termination of this Agreement all such goods, materials or supplies in the hands of the Managers shall be delivered to the Vessel or if requested by the Owners the Managers shall sell or dispose of such goods, materials or supplies at such price, terms and conditions as may be approved by the Owners and remit the proceeds thereof less any expenses incurred in selling or disposing of such goods to an account of the Owners, to be advised separately in writing to the Managers.

35.	Termination on Bareboat Charter of Vessel

	The Managers shall be entitled to terminate this Agreement by notice in writing in the event that the Vessel is bareboat chartered by the Owners. The date upon which the Vessel is to be treated as having been bareboat chartered, shall be the date on which the Owners deliver the Vessel to bareboat charterer, notwithstanding the fact that the Managers may learn of the bareboat charter at a later date.

36.	Slop and any other disposal ashore

	Disposal of slop, sludge, bilge, garbage produced for whatever reason (including but not limited to tank inspection, repairs, drydock preparation, tank cleaning) and any other disposal ashore compulsory as per local regulation is considered out of budget and the Owners shall provide the Managers with such additional funds as may be required.

37.	ISPS Code


37.1	The Manager shall comply with the requirements of the International Code for the Security of Ships and of Port Facilities and the relevant amendments to Chapter XI of SOLAS (ISPS Code) relating to the Vessel and “the Company” (as defined by the ISPS Code). If trading to or from the United States or passing through United States waters, in addition to ensure that the Vessel has been issued with a COFR, the Manager shall also comply with the requirements of the US Maritime Transportation Security Act 2002 (the “MTSA”) relating to the Vessel and the “Owner” (as defined by the MTSA).

37.2	Where sub-chartering, the Owner shall ensure that the contact details of all sub-charterers are provided to the Managers and the Master. Furthermore, the Owners shall ensure that all charter parties entered into during the period of this Agreement contain the following provision:

	“The Charterers shall provide the Owners with their full style contact details and, where sub-chartering is permitted under the terms of the charter party, shall ensure that the contact details of all sub-charterers are likewise provided to the Owners”.

37.3	Notwithstanding anything else contained in this Agreement all costs or expenses whatsoever arising out of or related to security regulations or measures required by the port facility or any relevant authority in accordance with the ISPS Code and/or the MTSA including, but not limited to, security guards, launch services, vessel escorts, security fees, waiting costs and associated expenses, taxes and inspections, shall be out of budget. All measures required by the Manager to comply with the Ship Security Plan shall be for the Manager’s account excluding costs associated with calls at non ISPS compliant port, facilities, installations, vessels or port, facilities, installations, vessels included in any relevant authority warning list (i.e. USCG Port Security Advisory) as applicable in which case Owners shall provide Managers with such additional funds as may be required.

38.	Additional Costs

	The Owners’ representative’s meals and slop chest, charterers’ meal and slop chest, representation costs, gratuity (either official or not official) provided with the aim to safeguard Vessel’s operation and given in the sole discretion of Master will be separately debited to the Owners at cost. Any extraordinary trading cost (including but not limited to AMPD, COFR, ENOA/D, ICB, EWR coverage, Ransom and Kidnap coverage, security guard, special arrangement for transiting pirate infested areas etc.), will be debited to Owners at cost, out of budget, under contingency accounting code.

39.	Provision of Information

	The Owners undertake to provide to the Managers directly or through the charterers all information and instruction necessary for the Master to efficiently perform his duties including but not limited to: charterers name and full style, cargo information including MSDS, cargo carriage instruction relevant to that particular cargo (loading, segregating, carrying, heating, discharging, purging, ventilating, tank cleaning, inerting, stripping, COW washing instruction), port and terminal information and requirements, navigation instruction, speed to be attained, notification requirement, agency full style, fuel MSDS, bunker delivery notes, information necessary for AMS reporting, chartering contracts the Owners will enter into, voyage instructions including service speeds to attain.

40.	HSQEEn blanket approval clause


	The Owner undertakes to provide full support for the implementation and approval of the Managers’ health, safety, quality, environmental and energy management policy including extra costs which could be from time to time communicated to Owners.

41.	Cabotage, storage and STS

	Cabotage, storage and frequent STS are not considered normal operations and a special evaluation of risk and extra costs will be provided on a case by case basis by the Managers. The Owners shall make available to the Managers such additional funds as may be required in order for such additional duties to be carried out.

42.	Payments

	All payments to the Managers shall be made in (i) full without any-withholdings and (ii) US Dollars, to the account of the Managers from time to time advised to the Owners by the Managers.

43.	Third Party Rights

43.1	Any person (other than parties to this Agreement) who is given any rights or benefits under Clauses 17(c) or 17(d) (a “Third Party”) shall be entitled to enforce those rights or benefits against the parties in accordance with the Contracts (Rights of Third Parties) Act 1999.

43.2	Save as provided in Clause 43.1 above the operation of the Contracts (Rights of Third Parties) Act 1999 is hereby excluded.

43.3	The parties may amend vary or terminate this Agreement in such a way as may affect any rights or benefits of any Third Party which are directly enforceable against the parties under the Contracts (Rights of Third Parties) Act 1999 without the consent of any such Third Party.

43.4	Any Third Party entitled pursuant to the Contracts (Rights of Third Parties) Act 1999 to enforce any rights or benefits conferred on it by this Agreement may not veto any amendment, variation or termination of this Agreement which is proposed by the parties and which may affect the rights or benefits of any such Third Party.

44.	Bunker Quality

44.1	The Owners or its agent shall provide that bunkers supplied comply with ISO 8217:2010 RMG 380, where available, or alternatively ISO 8217:2005(E) for heavy fuel and DMA for distillate, and comply with Marpol Annex VI reg 14 and 18 as amended. Where these standards are not available, the Owners or its agent shall submit to the Managers the specifications of the available fuels in order for the Managers to recommend an alternative course of action.

44.2	At the time of delivery of the Vessel the Owners or its agent shall place at the disposal of the Managers, the bunker delivery note(s) and any samples relating to the fuels existing on board. During the currency of the contract, the Owner or its agent shall ensure that bunker delivery notes are presented to the Vessel on the delivery of fuel(s) and that during bunkering representative samples of the fuel(s) supplied shall be taken at the Vessel’s bunkering manifold and sealed in the presence of competent representatives of the fuel supplier and the Vessel as foreseen by Marpol.


44.3	Without prejudice to anything else contained in this contract, the Owners or its agent shall provide that fuel supplied is of such specifications and grades to permit the Vessel, at all times, to comply with any requirements (i.e. the maximum sulphur content) of any emission control zone when the Vessel is ordered to trade within that zone.

44.4	The Owners or its agent also warrant that any bunker suppliers, bunker craft operators and bunker surveyors used by the Owners or its agent to supply such fuels shall comply with Regulations 14 and 18 of MARPOL Annex VI as applicable, including the Guidelines in respect of sampling and the provision of bunker delivery notes.

44.5	Owners or its agent to provide that the quantity of the bunker kept on board is sufficient for the intended voyage plus a 20% margin. If the next voyage is less than 10 days, the minimum extra margin of bunker fuel is at least for 2 days of navigation. For vessel with a single boiler system, minimum 30 tons of distillate to be always kept on board. Commingling of bunker is not recommended. Managers not to be held responsible for any consequence of commingling.

44.6	In the event of a dispute with bunkers suppliers regarding the bunker’s quality, the Managers will advise the Owners for their consideration/decision.

45.	War, war risk areas trading.

45.1	Managers will, upon the request of either the Owner or his agents, provide an assessment on the occasion the Vessel may be ordered to trade in any war, warlike area as defined by JWC, and any cost directly or indirectly incurred as a consequence of such an order will be out of budget and debited to the Owners as ‘contingency cost’.

45.2	For the purpose of this clause, the words war risk shall include any actual, threatened or reported war; act of war; civil war; hostilities; revolution; rebellion; civil commotion; warlike operations; laying of mines; acts of piracy; acts of terrorists; acts of hostility or malicious damage; blockades (whether imposed against all vessels or imposed selectively against vessels of certain flags or ownership, or against certain cargoes or crews or otherwise howsoever); by any person, body, terrorist or political group, or the Government of any state whatsoever, which, in the reasonable judgment of the Managers, may be dangerous or are likely to be or to become dangerous to the Vessel, her cargo, crew or other persons on board the Vessel.

46.	Ice trading.

	Managers will, upon the request of either the Owner or his agents, provide an assessment on the occasion the Vessel may be ordered to trade in any ice bound area as defined by IWL or by prevailing local condition, and any cost directly or indirectly incurred as a consequence of such order will be out of budget and debited to Owners as ‘contingency cost’.

47.	Sub-let.

	Any extra cost and expenses necessary for Owner to perform any sub letting charterer contract are excluded from budget. Take over cost are excluded from budget and vessel is supposed to be fully stocked at delivery

48.	Entire Agreement


48.1	This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter of this Agreement; and (in relation to such subject matter) supersedes all prior discussions, understandings and agreements between the parties and all prior representations and expressions of opinion by the parties.

48.2	Each of the parties acknowledges that it is not relying on any statements, warranties, representations or understandings (whether negligently or innocently made) given or made by or on behalf of the other in relation to the subject matter hereof and that it shall have no rights or remedies with respect to such subject matter otherwise than under this Agreement. The only remedy available shall be for breach of contract under the terms of this Agreement. Nothing in this Clause shall, however, operate to limit or exclude any liability or fraud.

49.	Managers compliance with governing laws

	The Managers, in the performance of their duties and responsibilities on behalf of the Owners hereunder, undertake that they shall take no action that will violate anti-bribery laws applicable to the Owners.

	The Owners shall not be liable to the Managers for any fines or similar penalties incurred by the Managers as a result of any breach by the Managers of anti-bribery laws applicable to the Owners.

	The Managers shall immediately notify the Owners of any violation of any governing law claimed to have been committed by the Managers.

	Any expenses submitted by the Managers for payment under this Agreement shall have been legally incurred in connection with the management services performed under this Agreement. No money or other items of value, whether or not reimbursable under this Agreement, will be paid, promised, offered or authorised by the Managers to any person employed by or acting on behalf of any government or government agency for the purpose of or having the effect of: (i) bribery, kickback or other corrupt practices; (ii) influencing any act or decision of such person or agency; (iii) inducing any such person or agency to do any act in violation of their lawful duty.

	The Owners shall have the right to audit the Managers’ books and records at any reasonable time to determine Managers’ compliance with the Managers’ commitments under this clause 49. Notwithstanding anything to the contrary in this Agreement regarding the parties termination rights, the Owners may unilaterally terminate this Agreement if the Managers admit violating or there has been a proven violation of any commitment by the Managers under this clause 49.

Exhibit 8.1

SUBSIDIARIES OF SCORPIO TANKERS INC

Company

Incorporated in

STI Heritage Shipping Company Limited

STI Conqueror Shipping Company Limited

STI Matador Shipping Company Limited

STI Gladiator Shipping Company Limited

STI Highlander Shipping Company Limited

STI Spirit Shipping Company Limited

STI Chartering & Trading Ltd

STI Diamond Shipping Company Limited

STI Coral Shipping Company Limited

Sting LLC

Noemi Shipping Company Limited

Senatore Shipping Company Limited

Venice Shipping Company Limited

STI Harmony Shipping Company Limited

STI Comandante Shipping Company Limited

STI Brixton Shipping Company Limited

STI Pimlico Shipping Company Limited

STI Hackney Shipping Company Limited

STI Amber Shipping Company Limited

STI Topaz Shipping Company Limited

STI Ruby Shipping Company Limited

STI Garnet Shipping Company Limited

STI Onyx Shipping Company Limited

STI Sapphire Shipping Company Limited

STI Emerald Shipping Company Limited

STI Beryl Shipping Company Limited

STI Jasper Shipping Company Limited

STI Duchessa Shipping Company Limited

STI Opera Shipping Company Limited

STI Venere Shipping Company Limited

STI Mythos Shipping Company Limited

STI Aqua Shipping Company Limited

STI Dama Shipping Company Limited

STI Regina Shipping Company Limited

STI Virtus Shipping Company Limited

STI Mayfair Shipping Company Limited

STI Millenium Shipping Company Limited

STI Olivia Shipping Company Limited

STI Powai Shipping Company Limited

STI Tribeca Shipping Company Limited

STI Soho Shipping Company Limited

STI Gramercy Shipping Company Limited

STI Battery Shipping Company Limited

STI Camden Shipping Company Limited

STI Chelsea Shipping Company Limited

STI Fulham Shipping Company Limited

STI Lexington Shipping Company Limited

STI Yorkville Shipping Company Limited

STI Madison Shipping Company Limited

STI Park Shipping Company Limited

STI Sloane Shipping Company Limited

STI Condotti Shipping Company Limited

STI Veneto Shipping Company Limited

STI Elysees Shipping Company Limited

STI Orchard Shipping Company Limited

STI Broadway Shipping Company Limited

STI Le Rocher Shipping Company Limited

STI Larvotto Shipping Company Limited

STI Fontvieille Shipping Company Limited

STI Ville Shipping Company Limited

The Republic of The Marshall Islands

State of Delaware, United States of America

The Republic of The Marshall Islands

Exhibit 11.1

Effective June 1, 2012

SCORPIO TANKERS INC.

CODE OF ETHICS

The Board of Directors of Scorpio Tankers Inc. (the “Company”) has adopted this Code of Ethics (the “Code”) for all of the Company’s employees, directors, officers and agents (“Employees”).

Conflicts of Interest

A conflict of interest occurs when an Employee’s private interests interfere, or even appears to interfere, with the interests of the Company as a whole. While it is not possible to describe every situation in which a conflict of interest may arise, Employees must never use or attempt to use their position with the Company to obtain improper personal benefits. Any Employee who is aware of a conflict of interest, or is concerned that a conflict might develop, should discuss the matter with the Audit Committee or the office of the General Counsel immediately.

II.

Corporate Opportunities

Employees owe a duty to advance the legitimate interests of the Company when the opportunities to do so arise. Employees may not take for themselves personally opportunities that are discovered through the use of corporate property, information or position.

III.

Confidentiality and Privacy

It is important that Employees protect the confidentiality of Company information. Employees may have access to proprietary and confidential information concerning the Company’s business, clients and suppliers. Confidential information includes such items as non-public information concerning the Company’s business, financial results and prospects and potential corporate transactions. Employees are required to keep such information confidential during employment as well as thereafter, and not to use, disclose, or communicate that confidential information other than in the course of employment. The consequences to the Company and the Employee concerned can be severe where there is unauthorized disclosure of any non-public, privileged or proprietary information.

To ensure the confidentiality of any personal information collected and to comply with applicable laws, any Employee in possession of non-public, personal information about the Company’s customers, potential customers, or Employees, must maintain the highest degree of confidentiality and must not disclose any personal information unless authorization is obtained.

Effective June 1, 2012

IV.

Honest and Fair Dealing

Employees must endeavor to deal honestly, ethically and fairly with the Company’s customers, suppliers, competitors and employees. No Employee should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair-dealing practice. Honest conduct is considered to be conduct that is free from fraud or deception. Ethical conduct is considered to be conduct conforming to accepted professional standards of conduct.

Protection and Proper Use of Company Assets

The Company’s assets are only to be used for legitimate business purposes and only by authorized Employees or their designees. This applies to tangible assets (such as office equipment, telephone, copy machines, etc.) and intangible assets (such as trade secrets and confidential information). Employees have a responsibility to protect the Company’s assets from theft and loss and to ensure their efficient use. Theft, carelessness and waste have a direct impact on the Company’s profitability. If you become aware of theft, waste or misuse of the Company’s assets you should report this to your manager.

VI.

Compliance with Laws, Rules and Regulations

It is the Company’s policy to comply with all applicable laws, rules and regulations. It is the personal responsibility of each Employee to adhere to the standards and restrictions imposed by those laws, rules and regulations, and in particular, those relating to accounting and auditing matters.

Any Employee who is unsure whether a situation violates any applicable law, rule, regulation or Company policy should contact the office of the General Counsel.

VII.

Anti-Corruption and Anti-Bribery

The UK Bribery Act 2010 (the “Bribery Act”) and the Foreign Corrupt Practices Act (the “FCPA”) (together the “Anti-Corruption Legislation”) prohibit the Company and its employees and agents (and generally any person performing services on behalf of the Company) from offering, promising or giving money or any other item of value to win or retain business or to influence any act or decision of a third party and, in the case of the Bribery Act, regardless of whether such third party is a public official. Violation of the Bribery Act and/ or the FCPA is a crime that can result in severe fines and criminal penalties for both the relevant individual, the Company its Management and Directors. The Company takes compliance with the Anti-Corruption Legislation very seriously. Accordingly in addition to other existing and future measures the Company has tasked an independent third party auditor to run annual and spot checks aimed at detecting and eventually preventing any impropriety. Employees with specific queries on either the Bribery Act and/ or the FCPA should contact the office of the General Counsel.

Effective June 1, 2012

VIII.

Securities Trading

Because we are a public company, we are subject to a number of laws concerning the purchase of our shares and other publicly traded securities. Company policy prohibits Employees and their family members from trading securities while in possession of material, non-public information relating to the Company or any other company, including a customer or supplier that has a significant relationship with the Company.

Information is “material” when there is a substantial likelihood that a reasonable investor would consider the information important in deciding whether to buy, hold or sell securities. In short, any information that could reasonably affect the price of securities is material. Information is considered to be “public” only when it has been released to the public through appropriate channels and enough time has elapsed to permit the investment market to absorb and evaluate the information. If you have any doubt as to whether you possess material nonpublic information, you should contact your manager or contact the office of the General Counsel.

IX.

Disclosure

Employees are responsible for ensuring that the disclosure in the Company’s periodic reports is full, fair, accurate, timely and understandable. In doing so, Employees shall take such action as is reasonably appropriate to (i) establish and comply with disclosure controls and procedures and accounting and financial controls that are designed to ensure that material information relating to the Company is made known to them; (ii) confirm that the Company’s periodic reports comply with applicable law, rules and regulations; and (iii) ensure that information contained in the Company’s periodic reports fairly presents in all material respects the financial condition and results of operations of the Company.

Employees will not knowingly (i) make, or permit or direct another to make, materially false or misleading entries in the Company’s, or any of its subsidiary’s, financial statements or records; (ii) fail to correct materially false and misleading financial statements or records; (iii) sign, or permit another to sign, a document containing materially false and misleading information; or (iv) falsely respond, or fail to respond, to specific inquiries of the Company’s independent auditor or outside legal counsel.

Procedures Regarding Waivers

Because of the importance of the matters involved in this Code, waivers will be granted only in limited circumstances and where such circumstances would support a waiver. Waivers of the Code may only be made by the Audit Committee and will be disclosed by the Company.

Effective June 1, 2012

XI.

Internal Reporting

Employees shall take all appropriate action to stop any known misconduct by fellow Employees or other Company personnel that violate this Code. Employees shall report any known or suspected misconduct to the Chairman of the Audit Committee or the office of the General Counsel. The Company will not retaliate or allow retaliation for reports made in good faith.

Exhibit 11.2

Effective June 1, 2012

WHISTLEBLOWER POLICY

Scorpio Tankers Inc. (the “ Corporation ”) is committed to high standards of ethical, moral and legal business conduct. The Corporation values input from its employees and expects all its directors, officers, employees and subsidiaries to adhere to a high standard of personal and professional integrity and to avoid any conduct that might reflect unfavourably upon the Corporation personnel or upon the Corporation itself. In line with the Corporation’s commitment to open communication, the Audit Committee of the Board of Directors of the Corporation (the “ Committee ”) has adopted this whistleblower policy (the “ Policy ”) to provide an avenue for employees, directors, officers, contractors, subcontractors and agents (“Employees”) to raise concerns without fear of retaliation for reports made in good faith.

Scope

This Policy shall encompass:

The receipt, retention, and treatment of complaints, whether or not in anonymous form, received by the “Corporation” regarding accounting, internal accounting controls, auditing matters (“ Accounting Matters ”);

The r e ce i pt, retention, and treatment of complaints, whether or not in anonymous form, received by the Corporation relating to vessel operational matters, especially environmental management (“ Environmental Matters ”); and

The receipt, retention, and treatment of complaints, whether or not in anonymous form, received by the Corporation relating to, inter alia, breaches of the Company Code of Ethics (“ Ethics Matters ”).

Accounting Matters shall include but not be limited to, the following:

Fraud or deliberate error or omission in the preparation, evaluation, review or audit of any of the Corporation’s financial statements;

Fraud or deliberate error or omission in the recording and maintaining of the Corporation’s financial records;

Deficiencies in or noncompliance with the Corporation’s internal accounting controls;

Misrepresentation or a false statement to or by a senior officer or accountant regarding a matter contained in the Corporation’s financial records, financial statements or audit reports; and

Deviation from full and fair reporting of the Corporation’s financial condition.

II.

Submission of complaints

The Corporation will continue to encourage Employees in the first instance to address their concerns with their immediate supervisor or point of contact with the organization. As it pertains to seafarers, this would include the normal ‘chain of command’ including shore representatives such as the Technical or Marine Superintendent, the Designated Person Ashore, or the dedicated Environmental Manager. Management will also maintain an ‘open door policy’ to address individuals’ complaints for resolution internally whenever possible.

For cases where the individual feels he or she cannot submit concerns through ‘usual channels’ the Corporation has selected EthicsPoint to provide a means for individuals to submit concerns regarding, Accounting Matters, Environmental Matters and Ethics Matters . EthicsPoint provides the Corporation with a website and a telephone hotline:

Website: www.scorpiotankers.ethicspoint.com

Telephone hotline: #1-866-879-0839

III.

treatment of complaints

The general counsel of the Corporation (the “ General Counsel ”) shall be designated by the Committee as the point of contact for concerns submitted via EthicsPoint. He shall report directly to the Committee relating to any submissions concerning Accounting Matters and Environmental Matters whereas for all Ethics Matters he shall report directly to the Nominating and Governance Committee (“Governance Committee”). Any further actions, investigation (whether internal or external) or resources such as outside counsel or other advisors shall be at the sole discretion of the Committee or the Governance Committee as the case may be. When requested by the party submitting the complaint, confidentiality will be maintained to the fullest extent possible consistent with the need to conduct an adequate review.

The Corporation will not discharge, demote, suspend, threaten, harass or in any manner discriminate against any Employee in the terms and conditions of employment based upon any lawful actions of the Employee with respect to good faith reporting of complaints regarding Accounting Matters or otherwise as specified in Section 806 of the Sarbanes-Oxley Act of 2012

IV.

reporting and record retention

At each meeting of the Committee or the Governance Committee as the case may be, the General Counsel shall review any complaints received since the previous meeting; reference to this review shall be included in the Minutes of the meeting. The General Counsel shall also be responsible for verifying and maintaining the EthicsPoint website and telephone hotline.

Specific Complaints may require the immediate attention of the Committee or the Governance Committee as the case may be. If the General Counsel receives a complaint that he deems both credible and material in its allegations and reasonable consequences for the Corporation he shall immediately contact the Chairman of the Committee or the Chairman of the Governance Committee as the case may be.

amendments

The Committee shall review the Policy annually and may amend it at any time, consistent with requirements of applicable laws, rules and regulations.

Exhibit 12.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

I, Emanuele Lauro, certify that:

1. I have reviewed this annual report on Form 20-F of Scorpio Tankers Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: March 28, 2013

/s/ Emanuele Lauro

Emanuele Lauro
Chief Executive Officer (Principal Executive Officer)

Exhibit 12.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

I, Brian Lee, certify that:

1. I have reviewed this annual report on Form 20-F of Scorpio Tankers Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: March 28, 2013

/s/ Brian Lee

Brian Lee
Chief Financial Officer (Principal Financial Officer)

Exhibit 13.1

PRINCIPAL EXECUTIVE OFFICER CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with this Annual Report of Scorpio Tankers Inc. (the “Company”) on Form 20-F for the year ended December 31, 2012 as filed with the Securities and Exchange Commission (the “SEC”) on or about the date hereof (the “Report”), I, Emanuele Lauro, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.


Date: March 28, 2013

/s/ Emanuele Lauro

Emanuele Lauro
Chief Executive Officer (Principal Executive Officer)

Exhibit 13.2

PRINCIPAL FINANCIAL OFFICER CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with this Annual Report of Scorpio Tankers Inc. (the “Company”) on Form 20-F for the year ended December 31, 2012 as filed with the Securities and Exchange Commission (the “SEC”) on or about the date hereof (the “Report”), I, Brian Lee, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

Date: March 28, 2013

/s/ Brian Lee

Brian Lee
Chief Financial Officer (Principal Financial Officer)

Exhibit 15.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration No. 333-186815 on Form F-3 of our reports dated March 28, 2013, relating to the consolidated financial statements and effectiveness of Scorpio Tankers Inc.’s internal control over financial reporting, appearing in this Annual Report on Form 20-F of Scorpio Tankers Inc. for the year ended December 31, 2012.

/s/ Deloitte LLP

London, United Kingdom

Date: March 28, 2013

Exhibit 15.2

Scorpio Tankers Inc.

9, Boulevard Charles III

Monaco 98000

March 28, 2013

Dear Sir/Madam:

Reference is made to the annual report on Form 20-F of Scorpio Tankers Inc. (the “Company”) for the year ended December 31, 2012 (the “Annual Report”) and the registration statement on Form F-3 (Registration No. Registration No. 333-186815) (the “Registration Statement”) and any related prospectus thereto. We hereby consent to the incorporation by reference in the Registration Statement and any related prospectus of all references to our name in the Annual Report and to the use of the statistical information supplied by us set forth in the Annual Report. We further advise the Company that our role has been limited to the provision of such statistical data supplied by us. With respect to such statistical data, we advise you that:

(1) we have accurately described the information and data of the oil tanker shipping industry, subject to the availability and reliability of the data supporting the statistical and graphical information presented; and

(2) our methodologies for collecting information and data may differ from those of other sources and does not reflect all or even necessarily a comprehensive set of the actual transactions occurring in the oil tanker shipping industry.

We hereby consent to the filing of this letter as an exhibit to the Annual Report, which is incorporated by reference into the Registration Statement and any related prospectus.

Yours faithfully,

NG SIGNATURE

Nigel Gardiner

Group Managing Director

Drewry Shipping Consultants Ltd.

LONDON | DELHI | SINGAPORE

Drewry Shipping Consultants, 15-17 Christopher Street, London EC2A 2BS, United Kingdom

t : +44 (0) 20 7538 0191 f : +44 (0) 20 7987 9396 e : enquiries@drewry.co.uk

Registered in England No. 3289135 Registered VAT No. 830 3017 77

www.drewry.co.uk