Okeanis Eco Tankers Q2 2023 Earnings Call Transcript

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August 11, 2023

There are 5 speakers on the call.

Operator

Welcome to OIT's Second Quarter 2023 Financial Results Presentation.

Speaker 1

We will begin

Operator

shortly. Aristides Alafousios, CEO Iraklis Ziburonis, CFO and Konstantinos, Ekonomopoulos, Chief Development Officer of Okeanos Eco Tankers will take you through the presentation. They will be pleased to address any question raised at the end of the call. I would like to advise you that this session is being recorded. Iraklis will begin the presentation now.

Operator

Please go ahead, sir.

Speaker 2

Welcome to the presentation of Okemne's Cycle Tankers' results reflected in these forward looking statements. Starting on slide 4 and the executive summary. I'm very Pleased to present you the highlights of the 3rd consecutive record breaking quarter in terms of TCE revenue, EBITDA and net income. Q2 was a historically excellent quarter, especially accounting for seasonality. Our fleet achieved fleet wide time charter equivalent of $72,000 per vessel per day and that includes our time chartered vessels.

Speaker 2

Spot rate across both Suezmaxes and VLCCs stood at about $83,000 per vessel per day. We report net TC revenue of over $90,000,000 a further increase from Q1, Adjusted EBITDA of over $77,000,000 and adjusted net profit of $1.65 per share. Finally, our Board has declared a 5th consecutive capital distribution of $1.50 per share. That is over 90% of our quarterly EPS and implies an unrealized yield of 24% against our current trading price. We continue to deliver on our promise to distribute all available value to our shareholders.

Speaker 2

Over the last 15 months, we have distributed approximately $5 per share or a total of $160,000,000 As in every quarter, we very carefully evaluated all Information related to the market outlook, global economic data and our balance sheet, including preparing for the upcoming repayment Over $34,000,000 sponsors debt by Q1 and Q2 of next year as well as our current fixtures of Q3. We're now moving to Slide 5. On Slide 5, we summarize our corporate and capital structure as well as our employment profile. Our track record, solid financial position and strong relationship with our financier continues to pay off. We recently announced the refinancing of at very accretive terms and maturity in 2028.

Speaker 2

Furthermore, we have declared our first purchase option Under our sale and lease by financing of our Suezmax vessel Milos, the transaction will close in February. Our other Suezmax, the Polyagros is next With its purchase option kicking in, in June, we expect to replace the debt at both Anelos and the Colliagos at considerably improved terms. On the employment front, following the delivery from our charters of the Mesos Despotico, all our VLCCs are now trading in the spot market. Our 2 Suezmax long term time chartered vessels, Nissos Cygnos and Nissos Cygnos are expected to be delivered to us sometime within the Q4 of this year. More on that and the full commercial and market updates will now restate this on the following slides.

Speaker 1

Thank you, Rakli. Again, it was another record quarter for OET. We entered Q2 coming off a very firm freight market with VLCCs earning over $100,000 per day. The market was poised to adjust downwards, but was further magnified by the announcement of the OPEC plus voluntary cuts. We found it very positive that VLCC freight Took about 1 month to adjust before we saw another large spike in rate.

Speaker 1

This shows that even with the removal of barrels Therefore, cargoes from the market by the OPEC plus voluntary cut, the fleet is well balanced and the ton mile effective sourcing crude from farther distances gives support. As we approach the summer, we took the decision to lock in longer and higher paying fronthaul fixtures from our West position. Simultaneously, we try to reposition our Eastern position to the West when we found good opportunities. The Suezmax segment had a much stronger rally in the middle of Q2 in the VLCC and allowed us to lock in some very strong returns. Also many of our fixtures from Q1 carried into Q2, which gave support to our final numbers.

Speaker 1

Milos was redelivered from our time charter and we'll now trade in our spot fleet. During the quarter, we achieved a fleet YCC of $72,000 per day including our time charters. Our VLCCs generated $74,800 per day in the spot market, a 30% outperformance relative to our tanker peers that have reported Q2 earnings. Our Suezmax has generated $99,900 per spot day, a 60% outperformance relative to our tanker peers who have reported Q2 earnings. These numbers reflect our actual book TCE revenue within the quarter as per accounting standards.

Speaker 1

Moving on to Slide 8 for guidance on Q3. Once again, the Saudi's lollipop surprise oil cut surprised the market and cut production again going into Q3. The Saudi cuts in their high OSPs have created a situation where Dubai crude actually sells at a premium to Brent crude today. The arb is now open for Shar Crudes to move from the Atlantic basin to the East. The headline news is negative, but the Sequentially shifting of oil dynamics continues to give strong support to the VLCC market.

Speaker 1

One other development on the VLCCs was that the amount of vessels fixing From the West, like Brazil, West Africa, the U. S. Gulf back into Europe reduced as Asian demand for these barrels outpriced them. This caused more VLCCs to fix longer voyages to the East and leave fewer ships open in the West. Not having as many Natural Western VLCC position to offer into Western cargoes, balusters from the East would have to price Western cargoes in line with the similar CCE as AG cargoes.

Speaker 1

This gave further support to Western long haul voyage freight rates. Taking this into account, we felt it was time to capitalize on summer strength And 6 longer voyages to the East. We locked in 4 solid fixtures. In addition, we repositioned another 2 ships in the East Now we're open to keep our Westin presence. Nizos Despontico was redelivered from her time charter And now 100% of our VLCC placed in trading spot.

Speaker 1

In addition, Nisosiknos and Nisosiknos This is the Q1 since the war began where the Suezmaxes underperformed the VLCC fleet. This development was caused by the Western barrels that would have been sold Europe on Afrin Suez being replaced by long haul voyages on VLCCs, but also the Russian voluntary cut, which Greatly reduced the amount of price cap voyages and less vessels competing for less business and also the continued outage of Kurdish barrels being Gordon from Turkey. With oil approaching $90 per barrel, the return of Saudi, Russian and Kurdish barrels in Q4 can be the stimulus for a massive rally in freight. China is expected to receive 52,000,000 barrels in oil cargoes in September, a 40% increase versus this month. With the weaker Suezmax market, we focused more on triangulating to optimize earnings.

Speaker 1

This quarter, we also had the drydock emulsion for Lagrange in Turkey. Positioning for drydock and certain limitations on what cargoes we can fix for the 1st voyage post drydock will negatively affect their spot performance. We decided to upgrade the Spain specification on these two vessels and we expect to see a consumption reduction of between 7.5% 10%. So far in Q3, we have fixed 73 percent of our fleet wide spot days at $63,200 per day, 76% of our VLCC spot days at $65,800 per day, a 46% outperformance relative to our anchor periods we've reported And 65% of our Suezmax pot is at $55,600 per day, a 16% outperformance relative to our tangible peers we reported We continue to outperform our peers both on both vessel segments and we will do our best to keep this up in the future. Currently, our average outperformance since Q4 2019 is 40% on Suezmaxes and 20% on VLCCs when compared against our recent peers.

Speaker 1

Moving on to Slide 10. We again highlight the future ton miles demand story With the continued total increase in world oil demand, while the majority of this will come from the Asia Pacific region. But as we see in Slide 11, Cargo volumes will be added predominantly in the West. Given the current demand outlook and the inability for vessels to be delivered Until 2027, vessel utilization we expect will approach record percentages in 2024 and especially in 2025. On Slide 12, we take a brief look at the effect of the voluntary OPEC plus cuts and the additional Saudi and Russia cuts.

Speaker 1

OPEC stated earlier this week that the market may be undersupplied by almost 2,000,000 barrels per day. The rate of stock depletion will require more supply to this market. Moving on to Slide 13, another short term bullish indicator is the strength in refinery margins They are continuously strengthening and at historically very high levels. This is another sign of the need of supply of both crude To be refined and lack of products in the market. Now taking a look at the supply side on Slide 14, We wanted to highlight how different the fleet situation is in 2008.

Speaker 1

We almost have 0 yearbook with a rapidly aging fleet, which only increases as we go into the end of the decade. The amount of fleet renewal that will be needed for 15 years or younger fleet service the normal trade at Ozette is astounding. Having, I'm now handing over to Dakiya for the financials.

Speaker 2

Thank you, Aristides. Moving on to Slide 16. To summarize our income statement for the quarter, our increased TCE revenues translate to record EBITDA of over $77,000,000 and net profit of approximately $3,000,000 or $1.64 per share, dollars 1.65 on an adjusted basis. Moving to Slide 16, as of June 30, we had cash on our balance sheet of approximately $86,000,000 The quarter end marked unusually higher trade receivables than our previous quarters, which have since been collected. Our debt at quarter end stood at $714,000,000 The refinancing of the Kimulos for Lagandos and Nisosqueros was an aggregate done at approximately the same levels As its previous respective financings, pro form a to minor scheduled principal repayments are under the date of drawdown.

Speaker 2

I'm sorry, on Slide 17 actually. Our book leverage came in at 59%, while market adjusted NPV Based on broker value, it stands at approximately 46%, and that's not adjusting for our receivables at quarter end. Moving on to Slide 18. We wanted to spend some time illustrating how we have been delivering on our promises. Since a year ago, with a fully delivered fleet And taking advantage of the market result, we have essentially paid out most of the company's free cash flow to our shareholders.

Speaker 2

We have the most modern, Echo focused and fuel efficient fleet across our peers and we consistently achieve superior commercial performance. We have a best in class yield of around 24% and are soon to be fully spot fleet will allow our shareholders to capture We expect to be an extraordinary crude oil tankers market beyond Q4 of this year given the market fundamentals. This concludes our presentation and we would be happy to take your questions. Handing back to you the operator.

Operator

Thank you very much. The first question comes from the line of Peter Ogen calling from ABG. Please go ahead.

Speaker 3

Hello, guys, And congrats on another very good quarter. In terms of looking ahead, I guess many of us Product service side, what will happen if we see growth in volumes falling out either from sort of, well, More actions or further regulations coming in place or perhaps even a peace agreement which could allow them to export again without the price cap. Could you sort of carry your thoughts on the potential outcomes from Whatever development we'll see in the Russian volumes?

Speaker 1

Hi, Peter. It was a bit blurred, but I think I understood your question. I think in the medium term, if there is some sort of peace agreement, we won't see Europe and I guess always to a lesser extent the United States purchasing Russian crude in large quantities in the short term. So we do expect that Russian crude will continue to go east to the buyers that we see today like Turkey and More or so India and China. So even with the Peace Agreement that we do expect the ton mile effect to remain In place, definitely in the short to medium term.

Speaker 1

Now I didn't get the first part of your question because it was blurry. But I think that just assuming what you were right at, if the price In brands, it's quite strong and it's above the price cap and the Russian charters are unable to give attestations For this, then I think that we'll see a further increase in secondhand values, especially and maybe more so on slightly younger ships. I think this is the case because as the buyers in India and China are mainstream buyers of this Russian crude, They do have quite stringent requirements on the vessels. So it's not an Iranian type trade where they go in Yes. And the waters off Malaysian, they can use 20 year old ships.

Speaker 1

So I think we will see the trend if this happens that For them to grow the gray fleet, they'll have to be on younger vessels. And if the price is within the price cap, I think that Going into Q4, the Russians will increase volumes. The price is a lot higher than what it was earlier this year, so they will see more revenue from that. There is incentive to increase volumes. And we should always remember that most of the Russian cargoes and all of the Russian cargoes in the West We do have huge delays in the winter.

Speaker 1

1, in the Black Sea because of the Turkish trade delays, which today may be 0 days of additional waiting. But in the winter with the shorter day and the fog and the bad weather, it can easily go up to 15, 20 days going up and coming down. So that prolongs each voyage by 30 to 40 days And creates a lot longer, I guess, like usage days per voyage. And the same in the Baltic with potential ice Causing longer voyages and vessels slowing at slower speeds. So we think currently the outlook on the Russian volumes It's positive in most possible outcomes.

Speaker 3

Okay. Thank you. That was helpful. And the last one from me. If we do see Very good rate in the next quarters.

Speaker 3

You will accumulate significant cash. What What do you think would be sort of the payout ratio in such a scenario? And would you be tempted to do something within the newbuilding markets?

Speaker 2

Yes. Hi, Peter. Let me take this. In terms of our payout ratio, You're pretty familiar. We don't have a spelled out policy in place, But we hope our track record speaks for itself.

Speaker 2

Look, this quarter and we're going to continue doing that in the next Quarters, we always take account take into account the performance in the particular quarter, anticipated market dynamics over The short and medium term. And as always, considering our capital structure. I can remind you that We do have a non amortizing repayment of our sponsors' debt, which is due by In 2 tranches, by Q1 and Q2 of next year. So this is something we always take into account as well as with regards to our capital structure, The higher debt repayment profile compared to our depreciation. So it's a decision that we take on a quarter by quarter, but the principle remains That the strategy is to continue to deliver value to shareholders as much as possible.

Speaker 2

In terms of Looking at potential opportunities, obviously, we always are in the market and we always have our eyes and ears open To assess what's going on. Having said that, in terms of the newbuilding market, and we have discussed this in the past, Given where asset values are, given where the prices are, extended deliveries well into 2027 by now Make us quite hesitant from getting to a position where we see that make any sense. Obviously, in the future things may change, but the current thinking is as such.

Speaker 1

And just To add one thing, I mean one thing for sure, OET won't be buying capes like some of the other Greek peers have been.

Speaker 3

Okay. Thank you, guys. That will go from me.

Operator

There are no further questions. The next question is from

Speaker 4

you for taking my questions. I wanted to start by asking about the NISO signals and the SIKINOS, which are expected to be redelivered throughout Q4. Once they are delivered, you will have the whole fleet trading on spot. And I was wondering, is there any appetite to look for charter cover? Or do you prefer to write it out given your positive market outlook?

Speaker 1

Hey, thanks for your question, Clement. So the signals and the signals, they have a bit of a wide redelivery. We can get it any Time back from today till towards the middle end of Q4. We expect that given the market, it will probably be towards the end of Q4 Middle end of Q4. And in terms of our TC policy, These past few quarters, they have the market has come off a little bit and the expectation was that it will come off.

Speaker 1

So the TC rates, I wouldn't say they've weakened, but they don't currently reflect how we view the market for the next 2, 3 years. So at the moment, we don't see value in the time charter market and we think that the spot earnings that we can generate with our current outlook Are much stronger, but that can change. And we're not focused on 1 or the other. And you Saw that in 2020 2021, we had a very different blend of TC versus spot. But I think for the next You know, 2 quarters, we won't be significantly increasing ITC exposure at the moment.

Speaker 1

We're very happy with our performance on the spot Versus the current TC rates.

Speaker 4

Thanks for the color. I mean, no one can argue against that performance. And my second question is more on the

Speaker 1

modeling, but should

Speaker 4

you expect an impact with ballast legs on the back end of the quarter?

Speaker 2

Yes. Sorry, you broke up a bit. I think you were asking about the effect on the Biggest quarter with regards to certain ballast voyages towards the end of the quarter. It's true that there was a slight effect That affected the numbers in the previous quarter. We Didn't have such a strong impact in Q2.

Speaker 2

Obviously, this is not something that We can predict on a going forward basis and it's always we always have to comply with our accounting standards. With regards to Q3, there are certain voyages that we expect to be delivered To us sometime in early September. So there is a chance that we might see some effect in Q3, but it's hard to predict at the moment. Does that answer your question? Sorry, I couldn't hear the full question in the beginning.

Speaker 4

It does. I meant for Q3. So, thanks for the color. That's all for me. Thank you for taking my questions and congratulations for another excellent quarter.

Speaker 2

Thanks, Alan.

Operator

There are no further questions.

Speaker 3

So I

Operator

will hand it back to your host to conclude today's conference.

Speaker 2

Great. Thanks, everyone. Hope you have a good remaining summer, and we'll be in touch in the next quarter. Thank you very much. Bye bye.

Operator

Thank you for joining today's call. You may now disconnect.

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Earnings Conference Call
Okeanis Eco Tankers Q2 2023
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