Okeanis Eco Tankers Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 20, 2025

There are 7 speakers on the call.

Operator

Hello and welcome to OET's Fourth Quarter twenty twenty four Financial Results Presentation. We will begin shortly. Aristides Alastizos, CEO and Iraklis Speronis, CFO of Okeanos Eco Tankers will take you through the presentation. They will be pleased to address any questions raised at the end of the call. I would like to advise you that this session is being recorded.

Operator

Iraklis will begin the presentation now.

Speaker 1

Welcome to the presentation of OKENI's SEFA Tankers results for the fourth quarter of twenty twenty four. We will discuss matters that are forward looking nature and actual results may differ from the expectations reflected in such forward looking statements. Please read through the relevant disclaimer on Slide two. So starting on Slide four in the Executive Summary. I'm pleased to present the highlights of the fourth quarter of twenty twenty four.

Speaker 1

While Q4 fell short of the market's expectations a few months back, it closes a year of very healthy commercial and financial results. We achieved fleet wide time charter equivalent of about $39,000 per vessel per day. Our DxFCs were at $38,500 and our Suezmax is at $39,500 We report adjusted EBITDA of $37,000,000 adjusted net profit of $13,000,000 and adjusted earnings per share of $0.41 Continuing to deliver on our commitment to distribute value to our shareholders, our Board declared an eleventh consecutive distribution in the form of a dividend of $0.35 per share. Total distributions over the last four quarters stood at $3 per share or 89% of our earnings for the year. In November, we successfully completed the five year dry dock for the Nasus Danusa, concluding our six vessel 2024 VLCC's dry dock project.

Speaker 1

We look into 2028 with only our two twenty twenty build Suezmaxes, which will undergo the five year drydock sometime in the second or third quarter. So on Slide five, we show the detail of our income statement for the quarter and full year. For the year in 2024, our TCE revenues stood at $262,000,000 with daily fleet YTC of 53,000 per day, fifty six thousand dollars on the VLCCs and $49,000 in the Suezmax. EBITDA was approximately $2.00 $4,000,000 and net income was just shy of $109,000,000 or $3.38 per share. Moving on to Slide six and our balance sheet.

Speaker 1

We ended the quarter with $54,000,000 of cash. Our balance sheet debt continues to amortize by approximately $12,000,000 every quarter, now standing at $646,000,000 as of year end. On Slide seven, we recap our main driver behind our operational and commercial success and one of our key competitive advantages, our fleet. Our 14 vessels, all built at first class years in Korea and Japan have an average age of five point four years. That is the youngest crude oil tanker fleet amongst these peers.

Speaker 1

We're also the only pure, eco and fully scrubber fitted fleet. These elements allow us to set a benchmark about the spot market established by conventional or mixed fees. Slide eight, moving on to our capital structure. After a busy twelve months, we're now in a position to reap the benefits of the improved pricing achieved by refinancing most of our vessels. Having improved our margins by 130 basis points across 12 vessels, our interest expense starts to show material improvement in Q4 and going forward.

Speaker 1

We have successfully set our robust balance sheet with added flexibility and extended maturity. Our book leverage stands at 59% while our market adjusted net LTV is approximately 40%. Our financings are a mix of traditional mortgage backed banking loans as well as sale and leasebacks and our financiers are balanced with both traditional European shipping banks as well as Asian banks and leasing houses. We are particularly happy to have relationships to know these markets. This gives us flexibility in the future and allows us to develop and strengthen relationships.

Speaker 1

We look forward to next year when we will have the opportunity to refinance the outliers within our capital structure, the Nicos Vina and Vistros De Espotico, a massive opportunity for further improvement of our breakeven costs. In the meantime, while we're not actively in pursuit of further deals, we're always on the lookout for accretive opportunities. If one arises in this competitive financing market and it makes sense, we will not hesitate to take advantage. I will now pass the presentation for the commercial market outlook.

Speaker 2

Thank you, Irene. Let me start by saying that Q4 was less interesting than we expected, but at least Q1 of twenty twenty five began on a different note. In early Q1, the Biden administration significantly expanded the sanctions framework, which impacted more vessels, Russian banks and charters. Almost immediately, the market rebounded quickly and significantly, a topic we will discuss in more detail later on. However, Q4 ended relatively weekly with crude markets lacking their usual seasonality.

Speaker 2

During Q4 and specifically in November, as Iraculio mentioned earlier, we successfully completed the five year drydock for Nisos Danusa, marking the conclusion of our six vessel VLCC drydock project. Given the crude market weakness, we took the opportunity to clean up one more VLCC and repositioned her in the West. Again, this captured a higher earnings spot voyage for a backhaul that we like doing to bring our ships to the West. We also continued to strategically position our vessels in the West with selective Suezmax voyages to the East to maximizing earnings potential. As a result, our Suezmax outperformed our VLGCs in the fourth quarter.

Speaker 2

Despite the continued seasonal weakness from Q3, we achieved a fleet wide TC rate of 39,000 per operating day for the fourth quarter and 52,900 per operating day for the full year of 2024. Wild utilization stood at 98% in Q4 and 97% for the full year, demonstrating efficient vessel deployment. If we compare our earnings with peers that have already reported Q4 results, our outperformance for the year stood at 19% for the VLCCs and 29% for the Suezmaxes. Now going into Q1, and as mentioned earlier, the expanded sanctions framework has significantly improved the market. The Chinese, Indians and Turkish buyers became wary of using sanctioned ships and more specifically of buying Russian and Iranian crude oil in general.

Speaker 2

As a result, they started sourcing alternative crudes, leading with India and China actively importing from West Africa, The Middle East and The U. S. Gulf and Brazil. This shift has notably improved market rates and sentiment. In addition to the above, continued growth in a Brazilian crude production is boosting demand for long haul voyages.

Speaker 2

As far as our fleet is concerned, fleet triangulation remains a priority, ensuring we maximize latent legs and optimize vessel deployment. We have also repositioned one of our Suezmaxes to the clean product trade, allowing us to capture premium earnings while repositioning her to the West after her front haul voyage to the ESB fixed in Q4. Given these developments so far in Q1 of twenty twenty five, we have fixed 81% of VLCC spot days at 39,100 per day and 77% of Suezmax spot days at 33,400 per day. With the ongoing OPEC plus production policies and the new U. S.

Speaker 2

Sanctions on Russia and Iran, we see further upside potential for tonne mile demand in the near term. Today, we are earning around 50,000 per day on the VLCCs and 45,000 to $50,000 on the Suezmax. Many of the stronger pictures we concluded after mid January when the market firms will reflect in the last part of our Q1 earnings as well as in our Q2. Similarly to the full year 2024 results and dates on peers that have reported earnings, our Q1 performance on fixed days stands at 7% outperformance for the VLCCs and 39% for the Suezmax. As we now move to Slide 12, OAT remains the only publicly listed pure play echo scrubber fitted tanker platform, enabling us to consistently outperform the market.

Speaker 2

Our VLCC and Suezmax fleets have delivered higher TCEs than our peer group for multiple years, reinforcing our competitive advantage. In 2024, OET's VLCC significantly outperformed peers, demonstrating the earnings power of our modern fleet and the strong performance of our commercial fleet. It is important to note that for Q4 twenty twenty four, we have used guidance figures for peers that have not reported yet. We believe the gap will widen even further once actual rates are published. All in all, our chartering team, fuel efficient vessels, scrubber advantage and strategic trading patterns continue to differentiate OE in the volatile market.

Speaker 2

Now let's discuss the market outlook and the latest market dynamics. On Slide 13, we see the crude tanker market is experiencing a structural supply imbalance, driven by an aging fleet and low newbuilding orders. By 2028, over 700 VLCCs and SUVs maxes will be more than twenty years old, while only around 200 vessels are scheduled for delivery in the same period, indicating a further tightening of supply. Notably, this calculation does not even account for vessels over the age of 15 years old, which will be less efficient and by 2028 will represent 40% to 50% of both segments. Additionally, the expanded sanction list now includes almost 10% of both VLCC and Suezmax fleets, While 20% of the total VLCC and Suezmax fleet operate in the dark gray fleet and with limited yard availability and rising shipbuilding costs, fleet expansion remains significantly constrained.

Speaker 2

Also, if sanction enforcement continues, the sanction fleet can double as we calculate 10% of the fleet is engaged in OFAC sanctionable activity, especially involved in Iranian and Venezuelan business, which is also almost exclusively reliant on the LCC. Against this backdrop, OET's modern fleet and ECO positions us well to capitalize on the supply constraints that come. Now moving on to Slide 14. Crude demand is expected to outpace supply in 2025, driving increased ton miles and higher fleet utilization. Key agencies forecast the continued recovery in oil demand, particularly from Asia.

Speaker 2

China had positive data with strong traveling around the Lunar New Year and the new record corporate borrowing in January. Refinery alignment, realignment and new sourcing routes are leading to longer voyages and greater tanker utilization. Geopolitical factors, sanctions and shifting trade routes are further strengthening demand for modern compliance fleets like OET. We expect these factors to support higher fleet utilization and firmer rates in the coming quarters. From Slides 15 to 18, we aim to illustrate the significance of sanctions exposed trade and its potential impact on the conventional fleet in light of the latest wave of sanctions.

Speaker 2

The shadow fleet has expanded due to sanctions on Russia, Iran and Venezuela. Approximately 20% of the global tanker fleet is now engaged in sanctioned trade with 10% already being on the OPEC list, effectively reducing the supply vessels available in the conventional market. As compliance measures tighten, compliance fleets will be more positioned to capture premium rates driven by higher utilization. We believe the market divide between compliance and non compliance fleets will continue to widen, favoring modern, efficient and transparent operators. As mentioned earlier, India, China and Turkey are increasingly moving away from sanctioned exposed trade, seeking compliant crude from alternative routes.

Speaker 2

This shift both ton mile demand and the utilization of the conventional fleet. Slide 16 focuses on Iran and given the new administration in The U. S, a potential decrease in Iranian exports levels seen during the previous Trump administration could push conventional VLCC fleet utilization above 90%, which has historically led to very strong tanker market rates. To conclude the presentation, a reduction in Russian and Iranian exports could generate a significant increase in demand for modern planned VLCC. If all Russian and Iranian barrels are lost and replaced by long haul VLCC voyages, we estimate a need for an additional 20 to 60 VLCCs.

Speaker 2

The current fleet size, order book and utilization of close to 88% do not support such an increase, reinforcing the bullish outlook for compliant modern fleet. OET is optimally positioned to capitalize on these shifts and generate strong cash flow for shareholders. During the Q4 softness, OET delivered a strong full year performance and remains well positioned for 2025. Market fundamentals remain supportive with tight supply, increasing ton miles and geopolitical shifts working in our favor. We will continue to optimize our fleet, maximize utilization and capitalize on strategic advantages.

Speaker 2

With that, we thank you for your time and happy to take any questions.

Operator

Thank Our first question comes from Liam Burke at B. Riley. Please go ahead.

Speaker 3

Yes. Thank you very much. In your prepared remarks, you laid out a number of strong reasons why there'll be tight capacity for the VLCC class going forward. What would you say are some of the positive pressures on Suezmax capacity going forward?

Speaker 2

Hi, Liam. Thank you for your question. A large part of the Suezmax trade of the Suezmax hold on, a large part of the Russian trading fleet right now moving the Russian barrels uses Suezmax vessels. So over time, if we see further sanctioning of that fleet, it will further tighten the supply of Suezmax vessels. And, the age profile on that fleet is very old as well.

Speaker 2

In addition to that, and I think more importantly, we've seen that with the reduction of interest from Indians and the Chinese from buying whether Russian and for the Chinese, Iranian and Venezuelan barrels, it opens the arc for longer haul voyages on asset classes that are less efficient than the VLCC. So you have to look at Suezmaxes. For example, a trend we've seen recently is that, there's a big port in, in the Black Sea controlled predominantly by Western oil majors, including Chevron, called CPC. Historically, this port has lifted Aframax and Suez Max and cargos because nothing larger than a Suez Max can fit laden through the Turkish Strait. Because of the tightness due to the lack of purchasing of Iranian and Russian barrels, we've seen that there's been CPC cargos that are moving again towards Asia.

Speaker 2

While since the Red Sea closed, this trade had completely stopped. In January, for example, prior to the in February prior to the sanctions on the Russian fleet, there were no cargoes that were sold in the East. While after the sanctions were put on in February, we already have 11 cargoes potentially going East just from this one port. So I think we'll see more barrels from whether West Africa, Libya, Algeria, the Black Sea moving east on the Suezmaxes. And we're quite constructive on the Suezmax segment.

Speaker 3

Great. Thank you. You talked about a slow start to the first quarter twenty twenty five and you announced the fixtures for both the Suez and BLCCs for partial quarter for most of the first quarter. Then you follow by saying that there's strength into the end of the first quarter and into second quarter, which generally you think a second quarter would you see moderation in rates. What do you see into the second quarter is driving the rate momentum here?

Speaker 2

All right. Well, I think one thing to understand is that especially on the VLCCs and if you're fixing longer voyages from The US Gulf, you're going to be working very far ahead. So you're going to be working maybe even a month or a bit longer ahead. So in December, like in mid December, we were negotiating a cargo that would load in mid through end January and that void would last through Q1. So a weak fixture in Q4 might have little impact on actual Q4 and have a big impact on Q1 and maybe even I mean, if it's around voyage from The U.

Speaker 2

S. Gulf Beach, which we don't do, but it could even, bleed into Q2. So I think what we were saying is that the fixtures that we fixed after January 15, which was when Biden sanctioned the additional ships and the and the charters and squeeze the system, have improved a lot. But because those fixtures you're fixing maybe a month in advance from U. S.

Speaker 2

Gulf on a VLC or slightly less on the Suezmax, you'll only start feeling them towards the end of Q1 when the vessel actually loads and discharge, especially with the IFRS accounting principles. And they will roll into Q2 as well. So I think that our earnings for Q1 were also impacted by the IFRS, TCE principles, which we have a bigger we're impacted at times more because of the slightly smaller fleets than some of our peers who have 50 or 60 ships. And three or four ships having a very bad by the principles how you allocate the income makes a much bigger effect to us.

Speaker 3

Great. Thank you very much.

Speaker 2

Thank you.

Operator

Our next question is from Benedikt Mitingis from Clarksons Securities. Please go ahead.

Speaker 4

Yes. Thank you. So to my understanding, you now have one Swiss Max that is cleaned up and that's the only one cleaning in your fleet as of now. Is that correct?

Speaker 2

Yes, that's correct.

Speaker 4

And just wanted to ask a bit about the dynamics there. Because you have been cleaning up several of your VLCCs previously. How easy is it going to be to switch those back into the clean trade? Is it easier now that you have cleaned them relatively recently? Or is it going to take the same couple of weeks to get that done?

Speaker 2

No. Once you go dirty, the cleaning process is more or less similar. Maybe it's slightly but marginally easier, but I will we would allocate the same cost and time when we're budgeting for a voyage.

Speaker 4

And for the Suezmax now, do you expect to keep that trading clean? Or is it as the other ones sort of opportunistically positioned in the clean market for a single voyage?

Speaker 2

No. We basically sailed at this port in Asia. We had this clean opportunity. We compared it with a crude opportunity to come west and reposition the ship in the West. The clean voyage made a little bit more money and, we knew the cargo was firm because it was a counterparty we worked with before.

Speaker 2

So we took the opportunity to book it. I think once we come west, I think with almost certainty, I can say we'll go back into the crude market.

Speaker 4

Okay. Thank you.

Speaker 2

Thank you.

Operator

The next question is from Petr Haugen at ABG. Please go ahead.

Speaker 5

Good afternoon, guys. First question on the market. In terms of what can happen here, there are obviously lots of alternatives. But in terms of only the Red Sea transit, if we were to assume that, well, the only thing changing from now to the future is normal transits through the Red Sea again. How do you think that will impact your markets that we also see on the Suezmax markets?

Speaker 2

Hi, Peter. Thanks for your question. And thanks for only asking one part of all these different elements like Russia and Iran because you can go on and speak for hours. But about the Red Sea, I think initially most of these changes and disruptions that occurred to the oil markets are positive for tankers. I definitely think it would allow it would be positive for Suezmaxes because it'll bring back part of the trade which had been priced out just because of the cost to go around The Cape.

Speaker 2

And this is principally either the Basra West on Suezmaxes, which was a huge trade before. And that today has just been cannibalized by the VLCCs because they load two Basra's Den to go around the Cape. And also to see, Mediterranean and Black Sea barrels going east again, which had completely stopped. So I would say that overall for the Suezmaxes, it may be positive in the for the Red Sea to reopen.

Speaker 5

Okay. And for the VLCCs, do you think?

Speaker 1

Does it I

Speaker 2

don't think it will have a major impact for the VLCCs.

Operator

There's been a lot of, you know,

Speaker 2

some of the the people who have equity barrels and they discharge in the Red Sea and loading from the AG. They're using their own ships for this. So you might see a bit more business for the normal fleet to do this business. But I think for the VLCCs, they won't have the same impact as it will for the Suezmaxes.

Speaker 5

Okay. Thank you. If I could follow-up with a few questions on what's the use in valuation really. So currently, we see brokers are quoting for the five year ECO VLCC 112 similar for Suezmaxes at $74 So these numbers are obviously lower than they were last summer, but I would say it looks as if they're holding up quite well, although we haven't seen that or at least I haven't seen that many relevant transactions here. So in terms of $112,000,000 for a five year old VLCC and $74,000,000 for a five year old Suezmax, How do you think those numbers compare to if you were to see a transaction today in the market?

Speaker 2

Look, I think as you correctly mentioned, there haven't been many transactions recently. So it's hard to benchmark where mark where prices are today. At times since last summer or the period you mentioned, the market felt weaker a little bit. But as these potential developments happen around Iranian reduction in Iranian exports and Chinese imports of Iranian crude, I don't think that the VLCCs will fluctuate down very much at all. I think that there is such a limited pool of sellers of five year old VLCCs that their values are quite firm.

Speaker 2

I think as well on the Suezmaxes, it's just the Suezmax have a much bigger order book and delivering sooner. So there may be some downside in potential market weakness on Suezmax values. But on the VLCs, I'm pretty confident.

Speaker 5

Understood. Okay. Thank you. And a final one from me. In terms of, well, outlook here, I guess it's fair well, my interpretation is that you're still pretty optimistic.

Speaker 5

But if given the opportunity to take coverage now, what would you deem to be interesting in terms of, say, one month three years for VLCCs and Suezmaxes?

Speaker 2

I mean, I think we have the classic Greek approach which is 5 thousand higher than the Charter's ideas. But you know, I mean generally speaking the market for TCs, it gets a lot more liquid when the market is firming a lot. And so if there's an opportunity to time charter out some vessels, you have to take advantage of that when there's a big movement in spot rates and also in paver rates. Unfortunately, most of the charters today, they do tend to hedge a part or most of their TC exposure using SFAs. So a liquid time charter market often needs to coincide with a liquid FFA market.

Speaker 2

And I think there's a lot of you know, if you're if you're aware of when these opportunities present themselves, you can find some attractive deals to do. So it's something we've looked at in the past. We didn't really find it that attractive but we will keep looking at it in the next fight as well.

Speaker 5

Okay. Thank you.

Speaker 1

Thank you

Speaker 5

for that color. That's all for me.

Operator

The next question is from Clement Mullins, Value Investors Edge. Please go ahead.

Speaker 6

Good afternoon. Thank you for this thorough presentation. Most has already been covered, but I wanted to delve a bit into a dark fleet and the sanctions currently in place on Russian trade. Could you give us some color on whether there are big differences on utilization of targeted vessels by European or United States sanctions? Do stand alone European sanctions also have a large impact on efficiency?

Speaker 2

Hey, Timan. Thanks for your question. I think by far the biggest impact on utilization is by U. S. Sanctions.

Speaker 2

I don't think that the impact of EU sanctions or UK sanctions is very large to Chinese buyers, although it may be more pertinent to Indian and to Turkish buyers. But for sure, utilization falls drastically once you enter the grace lead. And then even more so if you're sanctioned by the EU or The UK. And I think drastically so if you're in sanctioned by The US. You know, I mean, some of the research outlets like Kepler or even some of the shipping brokers, they do some really nice research on this, which I'm sure you you can find some articles where they describe.

Speaker 2

And they go through each ship by ship and compute some nice data.

Speaker 6

Makes sense. Thanks for the color. I'll turn it over. Thank you for taking my questions.

Operator

We have no further questions on the call, so I'll hand the floor back to Iraklis for any closing remarks.

Speaker 1

Thank you. Thanks everyone for listening in. We look forward to catching up again in mid May for Q1. Thank you.

Operator

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

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