Cmb.Tech NV - Earnings Call - Q3 2020
November 5, 2020
Transcript
Speaker 0
Hello, and welcome to the Euroneft Q3 twenty twenty Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like turn the conference over to your host today, Brian Gallagher.
Speaker 1
Please go ahead.
Speaker 2
Thank
Speaker 3
you. Good morning and afternoon to everyone, and thanks for joining Euronav's Q3 twenty twenty earnings call. Before I start, I would like to say a few words. The information discussed on this call is based on information as of today, Thursday, November 2020, and may contain forward looking statements that involve risks and uncertainties. Forward looking statements reflect current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events, performance, underlying assumptions, and other statements, which are not statements of historical facts.
All forward looking statements attributable to the company or to persons acting on its behalf are expressly qualified in their entirety by reference to the risks, uncertainties, and other factors discussed in the company's filings with the SEC, which are available free of charge on the SEC's website at www.sec.gov and on our own company's website at uranav.com. You should not place undue reliance on forward looking statements. Each forward looking statement speaks only as of the date of the particular statement, and the company undertakes no obligation to publicly update or revise any forward looking statements. Actual results may differ materially from these forward looking statements. Please take a moment to read our safe harbor statement on Page two of the slide presentation.
With that, I will now pass on to Chief Executive, Kugaveh Stoop, to start with the agenda slide on Slide three. Kugaveh, over to you.
Speaker 4
Thank you, Brian. Welcome to our call today wherever you are. In terms of the agenda, I will firstly run through the Q2 highlights before passing on to Liv, our CFO, who will provide a full financial review of the net income statement and the balance sheet. Then Brian, our Head of Investor Relations, Market Research and Communication, will look at the current market themes in the tanker market before I return to discuss the FSO contract and Euronav outlook before we take questions. So let's turn to Slide four and the highlights page.
The tanker market performance was mixed during Q3 to say the least. The first half of Q3, as we updated in early August, was robust with early freight rates driven by what had been at that point in time, two positive factors: the strong recovery trajectory of oil demand and a positive disruption with tank capacity held out of the market via congestions or storage requirements. Both of these factors have unworn over the past three months with freight rates under fairly constant pressure since late August. We stated in early August that there was far less visibility than usual and this has proven to be the case and remains so as we entered Q4. The usual seasonal pattern of improving demand for oil into the key winter period has not gained traction as vessel supply remains elevated, cargoes are limited with low visibility on cargo programs and sentiment amongst owners remaining weak when setting freight rates given this background.
Nevertheless, during this period, we returned to our shareholders 80% of our net income earned during Q2, totaling $200,000,000 split 50% in cash dividends and 50% via share buybacks. This brings me to Slide five and the capital allocation at Euronav, which remains an important and key focus for the Board and management. At Schirner, we always try to be balanced and consistent in our allocation. We do have some mandatory debt repayment as well as some revolving credit facility reductions, which are non cash. But given where our current leverage is, we do not need to repay more debt for the time being.
We remain committed to our return target that is 80% of net income to shareholders. For the third quarter, that is the equivalent of CHF 37,000,000 that we will split again, 50% of the available as cash dividend of $0.09 per share and 50% as a buyback that we intend to complete before the end of Q4. When repurchasing shares, we will always try to create long term shareholder value rather than giving support to a share price, which has been anyway very volatile during the quarter. There is one small change to be noted in our fleet renewal program. Given where the market is, we have pushed forward to 2021, one of the four VLCC new building acquired via resale of contract.
This means that we will take delivery of all four VLCCs in the first quarter of twenty twenty one. I now turn it over to Li Verlag, our CFO, for more detail on the financials.
Speaker 5
Thank you, Hu Ho. EBITDA for the third quarter of twenty twenty amounts to $145,000,000 or $0.71 per share. Net income equates to $46,200,000 or $0.22 per share. Strong cost control remains the focus. Focus is set not only on shipping expenses but also on G and A, negatively affected by a softer dollar.
Furthermore, the financing expenses are lower, thanks to the reduced debt level and lower reference interest rate. This brings me to the next slide being the Euronav balance sheet position as per 09/30/2020. The company remains in a solid position with a very strong financial balance sheet. The book leverage ratio is 35.8% and our liquidity position in excess of $1,200,000,000 of which $161,000,000 is in cash and the remainder is parked under revolving credit facilities in order not to burn our pockets. Strong focus has been put to reduce working capital requirements by collecting outstanding receivables generated from the high Q2 market environment.
This cash focus combined with the operational results supported Euronav to further reduce net financial debt by 62,000,000 in Q3. But financing is indeed constantly evolving and that has impacted Euronav already with a move to put a major portion of our lending from $730,000,000 into a sustainability loan, which we cover in the next slide. Whilst the busy slide, this shows how we took two existing facilities that would have matured in the next eighteen months and have refinanced them into one larger sustainability facility. This is the first major financing of our fleet we have with specific emission requirements. The load includes clear targets to reduce our green gas emissions over its entire duration.
These targets start immediately with compliance over the first twelve months being rewarded with a reduced interest coupon of five basis points. This will be independently measured and verified. The targets set are over and above what the POSEIDEN principles are looking for. We believe this is in the shape of things to come and we are delighted to be one of the early adopters of these models. I will now hand over to Brian Halliger, our head of investor relations, to run through some current market themes.
Speaker 3
Thank you, Lever. There are three quick things we wanted to cover before handing back to Hugo in some concluding remarks. On slide nine, we pick out those years since 1990 when VLCC rates have been below p and l breakeven rates over the calendar year and observe the level of recycling during that year. On average, 5% of the VLCC fleet has departed when rates have been in such a trough for several quarters, although recent experience has been slightly lower than that level. But the message is clear.
Lower rates historically has led to more recycling. We move now on to slide 10. You can see that this is a purposely very busy slide, but with some important illustrative examples attached to it. What we want to do here is highlight and provoke debate about the challenge that older tonnage faces. The purposes of this slide, we define three tanker category categories.
One, a 15 year old or older VLCC. Secondly, a VLCC which is in so called market, which is in a mid range and mid age. And finally, an eco vessel ship. It's a well known fact that older tonnage consumes more, and we have found that investors often dismiss this. However, as Leeva expertly covered during her earlier remarks on admissions and the new financing regime that we're finding ourselves in, Additional some emissions coming from additional consumption is now gaining attention with shipping banks and other investors and will will add further pressure to this older tonnage.
As I said, the illustrative example of the three VLCC tankers in front of you shows key variables that we are focusing on, which are reduced utilization that an older vessel will have. Put very simply, any vessel over 15 years of age will find it very difficult to be taken, on time charter by oil majors or traders, which combined with higher costs, but not just from, increased consumption from older engines, but also incorporating all costs including dry dockings, which, of course, get more costly the older a vessel gets. So we can see that this will add further pressure and lead to a lower TCE. This lower return is magnified when in market conditions that have lower freight rates as we currently have, we will see this pressure seeing rates below OpEx costs. And that's the reason we want to focus on this, is that this is not a sustainable period of trading for any tanker operator when you're having TCEs below your OpEx costs.
I'll now move over onto slide 11, and this is why this counts because you can see on slide 11, there are around 80 VLCCs or 10% of the global fleet, which is already aged over 17 years or older, which will have to go through a special survey and almost certainly have to add a ballast water treatment system as part of that survey over the next twelve months or so, which coupled with the fact that on a wider basis, 25% of the world fleet of both VLCCs and Suezmaxes already aged over 15 years of age, you can see that there are some significant challenges ahead for the owners of that older tonnage. And should freight rates remain under pressure for a sustained period, that could begin begin driving some profound change in terms of the vessel supply picture. With that, I'll now pass over to the final couple of slides and some summary remarks from Hugo. Hugo, over to you.
Speaker 4
Thank you, Brian. Yesterday, we were delighted to announce we have agreed a ten year contract extension for the two FSOs we operate in the Qatar oilfield called Al Shain, and we own those units jointly with our partner International Seaways. This indicates the high quality service and operation we have had so far with zero downtime since the start of the contract ten years ago. This extension will mean that the two units will continue to operate on the same field until 02/1932. This provides Euronav with additional long term visible cash flows.
Indeed, these new contracts will generate for Euronav only more than $322,000,000 and the contract will start when those units are debt free. Just as a reminder, these FSOs are not simply storage vessels. They are sophisticated units that convert platform fluids into marketable high quality crude oil. This also demonstrates the capacity of Euronav to create value outside the traditional crude transportation segment. Moving on to Slide 14 and to conclude, there is no change to our traffic lights.
Demand recovery remains muted, especially with the increased recent COVID restrictions and oil supply is tight because of the agreed OPEC plus cuts. But the lack of sustained ordering is a bright note as is The U. S. Crude export picture, where over the past ten years or ten weeks, sorry, exports have averaged just below 3,000,000 barrels per day, in line with levels seen this time last year. The contract extension won this week on our FSO joint venture further strengthened our financial position with visible cash flows until 02/1932.
Our balance sheet is something we can control unlike many other elements with our macro market. Our strong financial position is constructed to withstand a sustained period of challenging freight rates. And to a certain extent, we understand at Euronav that these challenging periods are helpful to clean up the market with excess capacity. At the same time, we hope that this period will provide us with opportunities to continue to develop our platform. With that, I will pass it back to the operator to receive your questions.
Thank you for your attention.
Speaker 0
Thank you. We will now begin the question and answer session. And the first question comes from Chris Sung with Weber Research and Advisory.
Speaker 1
Good afternoon Hugo and Leaf. How are you?
Speaker 2
Hi. Very well. And you?
Speaker 1
Good. Good. Thanks. I wanted to just kind of ask about the two Suezmaxes that you chartered in for two years. In the press release, you guys said that it was to enhance strategic relationships.
Can you perhaps expand on that a little bit? And, also, are are you able to share the rates of the time charter and if there's any profit sharing?
Speaker 2
Yeah. Very good question. We took the the ships from Trafigura. And I see that, as you know, the traders are very important players in our market. So we are we are happy to continue to deal with them and and, obviously, it goes in both directions.
We have charted our VLCC to them in the past, and we will continue to explore further opportunities so it doesn't go in one direction. They're obviously sitting on quite large volumes of crude oil. And in the challenging markets, it's very important to have access to the cargoes because, in fact, you can you can waste a lot of money by sitting idle and not finding cargoes in those situation. And I think that at Euronav and certainly at the pool level, we are trying to minimize those things. As far as the the the rate is concerned, I think it was reported in the market, so so I can tell you.
It's 25,000, and in fact, it's two years plus one year option.
Speaker 1
Okay. Yep. Great.
Speaker 2
And there's no and there's no profits there is no sorry. And there's no profit sharing element on top of that.
Speaker 1
Okay. Alright. Thank you, Hugo. And I just wanna switch over to the Oceana. I think you guys mentioned last quarter that you guys are purchasing about 20% above consumption to average down the cost of the fuel.
Are are you guys still employing wait a minute. It was, like that was, like, phase three of your plan to kind of purchase volume discounts. Is that is that still going on, and and what are the plans for for the Oceana?
Speaker 2
Yeah. Absolutely. I mean, you know the story. So we we we bought it in '19 when the price was much higher. We benefit until roughly the February of having the cheap stock to to feed our vessels.
Then the oil price collapsed and took all the petroleum products price down with it. And at that time, we completely stopped using it until we saw the first light of recovery. And then we decide to do a sort of a blending, which is purchasing LSF four from the market, but also taking it from our vessel at a rate which help us minimizing the negative mark to market. In other words, we are buying LSFO in the market in volume. So it's not 1,500 or 2,000 tonnes at a time as we would do otherwise.
We're buying 35,000 or 40,000 tonnes in one go. We benefit from a relatively big discount, and that discount is applied to minimize the mark to market. And you can see the evolution that at the at the at the worst point, we were at minus 55,000,000. We didn't take an impairment because we said that we can manage the situation. And so through this program as well as an improvement of the NSFU pricing, we are now down to CHF 15,000,000.
And as a matter of fact, if I look at it today, it's only CHF 9,000,000. So we are very hopeful that between now and the end of the year, whatever we have on board the vessel will be at market price. And obviously, then the volume can dramatically go down if we are at market price. And if not, then we will continue to operate under the current program that I just explained.
Speaker 3
All
Speaker 6
right. Yes. Perfect. All right.
Speaker 1
Thank you. Thank you, for your time. Have a good day.
Speaker 0
Thank you. Thank you. And the next question comes from Randy Giveans with Jefferies LLC.
Speaker 7
Hey. Good morning. This is Chad on for Randy. How are you guys doing? How are guys doing?
Speaker 2
So hi, Chad. It's very well.
Speaker 7
So you guys reported much better than expected quarter to date rates, well above benchmark rates. Can you talk about what outdrove that performance, and what rates are you currently booking on a VLCC and a Suezmax kind of this week?
Speaker 2
To answer the first part of the question, I I really believe that it's a matter of, number of days where you're busy, I. E, the utilization. And as you know, we don't report utilization separately, so it's it's really blended into the the TCE rate that we are publishing today. Now I I cannot explain that by any other difference from the market. As far as the VLCC market is concerned, it is quite spread depending on what you're doing.
If you move from the Caribs and you go to China, it's gonna be above above twenties. If you're doing AG China or AG Europe, it's more gonna be, like, between 12 and $15,000 a day. So, obviously, we're trying to do more of the luxury voyage, but you cannot always do or you cannot only do those type of voyages. So on average, the market must be between 15 and 20, for the time being. As far as Suezmax are concerned, I'm afraid it's lower than that.
So it's more between 8 and 12. So on average, 10. And, yeah, it's it's very similar to what we said we had booked so far. We are a little bit hopeful about the winter, so certainly not a normal winter season. But, obviously, there will be more activity that will also depend on the COVID restrictions.
You've seen that most of European countries went back to lockdown. This was almost not the case in Asia. So from what we received from Asia is is relatively positive news because there's no decrease in consumption, and we need to see what how it's gonna play out in The States. But if we were to have a normal winter where volumes will increase, then we believe that we would see a marginal increase into the rates. We're not upbeat, and we don't believe that it's gonna be extraordinary.
But simply by seasonal effect, it should improve from where it is today.
Speaker 7
Perfect. Thank you. So moving on, congrats on the FSO contract extension. Kind of based on our math, the new EBITDA contribution for your 50% is more than about 20,000,000 per year for the ten years. Now since that's clearly a noncore assets, do you have any thoughts on selling your portion of the JV or kind of the opposite and buying the other 50 from INSW?
Speaker 2
I think that this contract gives us, options, and it's certainly something that we will think about. It is noncore, but, nevertheless, I think that our client is very happy with, the service that we provide. So I think if we were looking at selling part of it or selling the entire units together with the International Seaways, I think that we would have to remain the operator, which is not a bad place to be. It's there's a lot of options on on the table, but there is definitely no plan to do anything at this point in time. And let's not forget that it's ten years in continuation to the current contract, which is not finished because it's only gonna be finished in '22.
So, we have a little bit of time to think about it and make sure that we sell at a point in the market where we can get, the best value for our buck. And if, we don't get that value, then we're better off keeping it.
Speaker 3
Perfect. Well, thank you. I'll turn it over.
Speaker 2
Thank you.
Speaker 0
Thank you. And the next question comes from Chris Wetherbee with Citigroup.
Speaker 8
Hey. Thanks for taking the question. I wanted to touch on the ESG loan. I think it's kind of interesting in terms of the direction financing in the industry is moving. So maybe can you talk a little bit more in detail about sort of the target that you guys can commit to going forward from an emission standards perspective?
And then maybe a broader question about sort of how you see financing for the tanker industry moving over time. This is kind of a niche situation as it stands right now. How much more mainstream does this become? Sort of what does it do to sort of fleet growth for the industry over time? Do you think that has an impact?
Speaker 2
Yes. It's very much a strategic question because you know, we were one of the supporters. In other words, we helped drafting the clues for the proceeding principle, and that's, well, the the base or the starting point of the conversation. The proceeding principles have taken what they believe, will be what's what the IMO will impose as a trajectory between now and 2013. Unfortunately, the IMO will only lay that egg, probably in '22 or '23, so they had to to take a guesstimate and and they have designed a trajectory starting 2008 and calculating 40% reduction in CO two on a on a ship by ship basis or on a fleet basis.
So that's that's the trajectory that all the banks were signatories, and you know that this there's a big number of banks, and that number is growing. It's European banks. It's it's US banks. It's also Asian banks, and and we certainly hope to get more Asian banks on board. So the that that answer already a little bit part of the the second part of of your question, which is how will it affect the industry.
I think that the more banks sign this those principles or are part of that club, the more it will be applicable for everyone in shipping. And let's not forget that EID is to be transparent, to calculate so that you know what sort of a mission you do. And then for the banks to select the clients who are the best in class because they, in turn, have committed to publish the emissions of their entire portfolio, not on a on a name by name basis, but so they wanna look good about the kind of assets that they finance. So it's it's it's relatively interesting. It's definitely a starting point.
I'm sure that the principles will evolve over time, But at the moment, it's more a question of reporting and then looking good for the investors of the banks themselves. And and there's no way around it. I mean, if there is one bank who is involved in a financing, you know, most financing and shipping are done as club deals or syndicates, then there will be a close forcing you to publish that. As far as we are concerned, because we have a relatively young fleet and because we have invested in a number of initiatives, and that includes digital tools to help decrease the consumption and therefore the emissions. It is about a big program of using the most efficient silicon paint when we go to dry dock and these kind of initiatives, we feel that we should be a little bit more ambitious.
And so the trajectory that we have agreed with the banks is more ambitious than the one on the Precision Principles. And according to our calculation, we're going to get there. I wouldn't say it's easy, but we're definitely going to get there. The last point that I want to mention, you heard Lee saying that if you don't move the target, it's only five basis points. So it's honestly not much.
It's it's it's very little, but you need to start somewhere. And if you wait for all those principles or all those regulations to be perfect, then you don't do anything and and you drag your feet, which is definitely not the case at Euronav. So we prefer to start with this kind of initiative or with this kind of, I would say, minor incentive, and nevertheless demonstrate that we are ambitious. And then, hopefully, moving forward, it will be more generous for what I would dare call the good guys or at least in terms of the environment, the good guys, and it would be more of a penalty for the bad guys. A combination of maybe loans that will be priced higher as well as not finding banks to finance your assets because they are outside those trajectories that I just discussed.
Speaker 8
Sure. Okay. That's helpful. And I guess that sort of ties into the outlook for fleet growth for, I think, yourself as well as industry. I guess there's an argument to be made if the financing is not as readily available for older tonnage over time.
It could either choke off that and potentially drive capacity out of the market that way. It also potentially incentivize people to look for newer tonnage or potentially new build tonnage because of the sort of eco standards of new vessels relative to secondhand vessels. So how do you think about sort of the there's probably a couple of different angles that this could go. Are there unintended consequences of sort of moving in this direction where you could theoretically stimulate more newbuild orders than you might necessarily want for the industry to maintain some form of balance going forward? Or is that reading too much into it and you should just assume that he has ultimately begin to sort of starve out capital for older, less efficient tonnage?
Speaker 2
It's definitely a a complex very complex situation because if you buy a conventional ship today, you know for sure that, if you don't retrofit or if you don't change anything to the vessel twenty years down the road, it's probably gonna be the wrong asset, and and maybe it's gonna be the wrong assets ten years down the road. So what people have been looking into is dual fuel LNG, but, unfortunately, they cost a lot more. They cost probably 15% more than the conventional vessels. And there is a second question behind that because LNG is a fossil fuel. Yes.
It emits less CO two, but there is methane leakage both on both vessels but also in the supply chain. And the methane is far more detrimental for the environment than the c o two. And so if you combine that, there's a number of studies that are that are saying it's marginally better, it is worse, it's a lot better. So there's a lot of confusion. I think that as long as there's that sort of confusion out there, people are gonna be reluctant to to dip their tools into one direction, which is okay.
We can continue buying conventional vessels hoping that we will be able to retrofit them at a later stage or we need to move to a sort of a long transition because if it's short, then it's not worth it into dual fuel LNG vessels. And and you can clearly see that this is a debate that probably every single tanker ship owner is having at the moment, maybe not a segment as well because the order book is very thin. And I think that that that will continue to be the case despite the fact that the cost of them has dropped dramatically. I mean, we are back to almost back to the levels that we showed in the previous cycle. So, normally, it should attract a a number of people.
There are people sniffing around, but when you look at the firm order or the real order you can believe in, it's still very thin, and, obviously, that's, that's very good. I think that we may see a few more orders, and we'll see if they are double dual fuel, sorry, or or if they are still conventional vessels once you see vessels being scrapped. I think people are gonna be very reluctant to to order ships in this current market if we don't see any signs of scrapping because the market is oversupplied today. And despite the age profile of world fleet, you need to have the proof in the pudding before eating it.
Speaker 8
Okay. That's very helpful. I appreciate your insights on it.
Speaker 3
Thank you.
Speaker 4
Thank you.
Speaker 0
Thank you. And the next question comes from Jon Chappell with Evercore.
Speaker 9
Thank you. Good afternoon, Hugo and Brian.
Speaker 10
John. Hugo, I
Speaker 9
want to ask about the FSOs a different way, not selling them, but debt free by July 22. First of all, how much debt is left on there? And what's the pace of the cash outflows as you repay that and get the debt free? And then second of all, with a ten year contract with a good counterparty, what are your plans and availability to draw down existing or additional financing on the FSO to maybe help you, you know, with the core business expansion.
Speaker 2
So as I I will answer the second part of your question. In the meantime, I'm sure that Leaf can dig for the numbers of where we are in terms of debt today Yep. And what is the repayment. So the second part is is well, I I will answer in exactly the same way. I mean, we literally signed this contract the day before yesterday, over the weekend, in fact, because they are open on Sunday.
And even though we've been working on this renewal for a long time, we were expecting it to to come a little bit later because after all, we are still two years ahead of the maturity of the contract. So we will explore all and every kind of options, and we have put them on table. I mean, there's we can sell our shares to INSW if there's so much. We can buy them if we find the price attractive. We can both sell to another party.
We can refinance and keep the assets and and and part of the cash flows. So there's a number of options. What is important for you to know is that indeed the ship will be debt free at the end of the current contract, so in July 2022 for both units. So it will be free cash flow, and there will be possibilities to refinance it. Let's see where we are at that point in time or maybe there's an opportunity that arise before then.
But I think that when we are at a sort of a crossroads like we are in our sector where, you know, we need to think about what is the right shape of the future. We need to write about to to think about what is the right fuel of the future. Maybe we want to be part of a consortium that is looking into the production of those fuels or these kind of things. The the fact that we have visible cash flows, and you will admit with me, it's not very frequent that we have this amount of cash flow and this this visibility is certainly an asset that we'll be able to use in the future.
Speaker 5
Indeed, let me add, John, the level of debt we have on the two FSOs currently on Euronev is for each FSO, we have about now end of Q3, 50,000,000 outstanding. And as I mentioned by Huo, we will be debt free Q3 twenty twenty two. So we will further reduce each year a level of $25,000,000 more or less in order of magnitude.
Speaker 9
Great. Thank you. And that's for for sure.
Speaker 2
Think. Okay.
Speaker 9
That's And then, Hugo, I think we talk about this every quarter, but things have become a bit more maybe uncertain in the world, but attractive in the asset values. You know, these charter ins aren't aren't your typical method of adding leverage, especially given your liquidity. So how are you balancing this drop in asset values and, you know, the potential opportunity that Euronav has done in prior downturns versus, you know, maybe some of the uncertainty out there, you do it a little bit more of a charter in method?
Speaker 2
It's a very good question. It's a it's it's one that we are asking ourselves almost every day. And despite the the the depth of the market, the fact that there are, you know, more than 800 VLCCs and and and over close to 600 Suezmax, You don't find deals as easily as you wish. And on top of that, as you know, our share price is not doing very well, and we have never issued one share that was destroying shareholder value. And so at this point in time, we're more buyers with that share than use of that shares to do a deal.
As I just mentioned, building a new vessel is out of the question because we don't know yet what the technology will emerge. And so we had this opportunity of chartering two super modern vessels. They were built less than a year ago. They are super ecotype. They have scrubbers if you wanna use them.
And so we thought it was a very good deal. It was very important for us to have some sort of longevity, so that's two year plus one year option. And we think that they will they will create value for Euronav. And that's probably outside, I would say, the the the natural way of where you find Euronav, but but I think that we are living through exceptional times. We continue to be frustrated with the share, and that explains why we have decided to take them on time chartering rather than trying to buy something, given where we are today.
Speaker 9
Okay. Very helpful. Thank you, Hugo. Thank you, Leaf.
Speaker 2
Thank you.
Speaker 0
Thank you. And the next question comes from Amit Mehrotra of Deutsche Bank.
Speaker 6
Hi, guys. This is Kevin on for Amit. I had a question implications on the crude tanker market. It's increasingly look like Biden will win Republican Senate, but I guess we'll see. Obviously, there's like no real tax implications, but with respect to implications for US production exports, is there anything notable you would call
Speaker 4
out? I
Speaker 2
was afraid you would ask a political question. It's the one that I hate the most, to be honest with you. I think a very few people very few people are the crew, and I think we have to to be patient until you guys have a president. But, admittedly, it's almost like a president for it has an impact for the rest of the world. The way we see it is if Biden was was gonna win the election and if he would have a majority in in the senate and in the chamber, I think that we he will try to be a little bit more forceful on on the the path to decarbonization.
I think that the the blue wave that was predicted is not really the one that we're seeing. Even if she has a majority, it's gonna be a very, very thin majority. And given that fact, I think that we're not gonna have a a revolution. I think we're gonna have an evolution. I think that you will be very mindful of not hitting the economy.
That that would be his first priority. I mean, quite frankly, when you look around the world, this COVID crisis has impacted pretty much everyone, including The US. And so we we are not expecting something radical in terms of clean energy program. It's certainly not something as big as what he announced when he was a candidate. I think the reality is he's gonna hit if if he's the one to be to become the new president.
So we're not too worried about about it because if it's evolutionary rather than revolutionary, I think that we are always in a good place to to adapt to that. The second aspect, which seems to be a little bit clearer if he wins, is the Iranian situation and how soon will he want to reenter the deal because that may have an impact on on, obviously, Iranian oil production. And to a certain extent, I would say a lesser extent, the uranium fleet. But that's not a fleet that is in very good condition, so we are not too mindful about it.
Speaker 6
Got Got And then kind of switching focus. On the share buyback, what is the total prospective number of shares you can buy? I think you've bought back around five percent. I'm just trying to understand what more you can buy and if in fact you plan to continue doing so if the equity value remains persistently low.
Speaker 2
Yes. So one thing at a time, would say. So we have announced what we plan to do next, and then we will reevaluate and see if we if we need to do more. For the time being, the the question was only how do we split 80% of our earnings that we have committed to return to the investors, and we have decided to go fifty fifty like we did the last quarter. And we were very happy about what we did the last quarter, by the way.
The we can buy up to 10% of of our capital, but that is only until the next AGM, which is May. If we want to do more before that, we can call an AGM, so an extraordinary general meeting. And usually, if you do that, you get you get the necessary votes to to go on with such a program. So I I would not be too focused on the authorization that we have today because, if we are more ambitious than this authorization, then we ask for more. And as I said, to my recollection, we have never received a negative answer on that.
Speaker 6
Got you. Got you. Very helpful. Thanks for the questions.
Speaker 2
Thank you.
Speaker 0
Thank you. And the next question comes from Ben Nolan with Stifel.
Speaker 6
Hi. Wanted to dig back into the Suezmax deal, the Charter ends a little bit if you go. I'm I'm curious how you would categorize this in terms of is this something where, you know, you really think of it from a strategic relationship kind of a thing? Or were you intentionally sort of looking to go out and take advantage of the current weakness in the market? Say, you know, two year deal, we think over time, this is going to be better, and we'll just find somebody who, you know, maybe is a good strategic fit, but is, you know, we want to be long Suezmaxes effectively, and and and that was the primary motivation.
Speaker 2
Well, it's a combination, but I I would say that if we were not convinced that it was a good deal from an economic perspective, then we can forget about its strategy because our strategy is to make money, first and foremost. So that was the priority. I think that when you look at those vessels and and to a certain extent, if you take the slide, in the slide deck, if you take the slide 10, that we've used for a completely different purpose, which was we explain how people are looking at scrapping, no not scrapping. But you can see the difference between a nickel VLCC and, obviously, the same applies for a nickel Suezmax compared to the market or compared to an older vessel. And you can see that even though we are paying 25 and and the market is definitely not there, you need a market at probably 17 or 18 in order to have those ships already breakeven.
And that's simply by the fact that they are consuming far less than whatever is represented in the market. So they're very, very good vessels. The strategic part, I would say, is twofold. First, we have sold the number of Suezmax, and so we have decreased our exposure to the market. It's a market that we like.
And in fact, normally or in previous cycles, the Suezmax market is outperforming the VLCC on a relative basis, of course, in the downturn. So so you wanna keep exposure, a certain degree of exposure to that. And then the the second part of the sort of strategic point of view is that we want to develop as many relationships with people who have access to the cargoes as possible. And, obviously, it's a it's an easier dialogue to have when you have to speak to them on a regular basis because you're doing business with them. So it's not rocket science, but it but it definitely played a role into whether we're gonna charter those ships from that owner or some other ships from maybe owners who are not cargo owners.
Speaker 6
Okay. That's helpful. And then the other thing that was mentioned in the release was that you guys had pulled, I think, nine dry dockings forward. Can you maybe talk through what that what what maybe now your profile is for dry docks in 2021 with with those having been been taken out?
Speaker 2
Yeah. So so you you usually have a a six months window to perform your dry dock, and then you receive certificates for five years and two and a half years. And, obviously, if you if you do them a little bit early, you you are likely to receive extensions. So you're not really losing the fact that you're doing them a little bit early does not mean that you're losing the six months on the back end because, the the the real cutoff date is more the anniversary of of the ship. You're not losing a lot by doing that, but obviously, we are always very mindful of what type of market there is out there when we prefer dry dock because when you are in dry dock, you're not earning any money.
So it's a little bit the story of those guys installing or retrofitting scrubbers in a market that was absolutely fantastic. Well, here, it's exactly the opposite. Market is shit. Sorry for my French. And so we take we take advantage to to take as many shit as possible in the docks because, quite frankly, none of us, none of the operators is good at predicting the rate.
So you could have suddenly for an event that we have not foreseen a market that is ripping in two months down the road. So you wanna do that when you know that the market is not very good. You wanna do as many ships as possible. But I wouldn't say it's moving the needle from your perspective as an analyst saying, okay. That ship is five year old.
That ship is ten years old, and so I need to forecast that amount of of money in the those number of days. It's just moving by a few months. We had to take a few ships before year end. We had to take a few ships after the year end. We have decided to take them all as quickly as possible simply because now there is one certainty.
It's a good from a market perspective not to be out there in the market.
Speaker 6
Okay. So so the the impact should be maybe shifting from first quarter to fourth quarter rather than over the course of
Speaker 11
the the rest of the next year?
Speaker 6
How does
Speaker 11
that impact?
Speaker 2
That's correct. I mean, you yeah. Maybe there there were one or two ships due for dry dock in the second quarter. As I said, it's a six months window. So if you take the the the ship that will go in dry dock in December, for instance, maybe some of them were scheduled for May, but we have decided to take it in December.
Speaker 6
Right. Okay. Great. Appreciate it. Thank you.
Speaker 2
You're welcome.
Speaker 0
Thank you. And the next question comes from Omar Nokta with Clarksons.
Speaker 11
Hi, thank you. Hi, Hugo. I just wanted to talk about maybe just strategy from like a big picture perspective. Earlier in your comments, you mentioned the shipping industry overall is at a crossroads, and I know that was in relation to propulsion. You know, you've got the billion 2 of liquidity.
And as you've said in the past, and, you know, you're not in a rush and are happy to sit back, evaluate things, and and jump on any opportunities as they arise. When we think of these opportunities, you know, from my perspective, you know, the world is wide open, I'd say, and and you've got the flexibility to pick and choose what to do. Now as you think of Euronav, can can you maybe give some color on what maybe you would be interested in investing in? You know, you mentioned, you know, the FSL contract highlighting Euronav's ability to generate cash flow outside of crude transportation. And, you know, Euronav over its history has been acquisitive, all generally within large crude tankers.
So when we think about, say, the next step, when we think about the next acquisition, is that still in crude tankers?
Speaker 4
Yeah. I think that we're
Speaker 2
not gonna deviate from our core business. So if you're talking about a big deal, it would definitely be on the crude side and on the large tanker side. So at the moment, we continue to believe that this is gonna be a great market. It's gonna continue to be cyclical, but it's gonna be a great market for the foreseeable future. And as I mentioned, I believe it was last call, we're not afraid of PCOIN.
As a matter of fact, we may even be quite excited about PCOIN because I think that the market will further consolidate. We hope that we will be part of that consolidation. And as a leader in a market that is declining very gradually, very smoothly, mean, all the predictions in the world are telling you that, we we're gonna continue using oil even fifty years down the road. Obviously, not at the same rate as what we are doing today. I think that we are quite excited about being a a leading player in that declining market.
And when you look at other industries who have had a smooth decline, the champions of those industries are usually making it big time. So big acquisition is definitely the same core business as we have today, but there there there may be other opportunities that we see, and that is maybe what we would call planting seed. So we believe that technology is gonna play a big role. At the moment, we are investing quite a bit of money internally, and we are developing our own software. But it's an open platform where you can plug number of different software, whether it's a prediction about port congestion or better weather forecast, better way of running the engines.
We installed sensors on both the the vessels. So all of that is is very interesting, and I think will play a major role in the future. But you're not talking about acquiring a software company or something like that. You're talking about making the right investment so that you remain ahead of the curve. And always, those investments should pay off by reduction of the the fuel that you consume or something equivalent to that, and as an effect, will reduce your emissions, which is where, people are focusing, at the moment, it seems.
Speaker 11
Yeah. Yeah. Yeah. Thanks, Sigur, for that. That's that's helpful.
I just wanted to maybe just a follow-up, touching back on the the FSOs. You know, it's a bit it was a bit
Speaker 8
of a surprise, I guess, for us
Speaker 11
to see the this contract renewal, or extension. And was there maybe was there maybe a a mechanism or or a timing clause that caused these charters to get negotiated now? Or and that's why they you you've announced it, or is this simply, you know, in discussions with, you know, with Northern Oil, you know, now it was time to start really thinking about the next ten years, and and it came to an agreement? Was it so just simply asking, was it will we have sort of an extension date?
Speaker 2
Well, for for us, I would say that the the the later, it would have been potentially the better. But, obviously, we have a very professional clients that we are happy to serve. I would say that Total is a is a the the the real operator in the field. It's a joint venture with QP, the the the guys on the ground are Total, and they know very well that if they need to find an alternative solution to the two FSO, that they need to think about it two or three years before the end of the current contract. Otherwise, they would be held hostage to a situation that that is not gonna be pleasant.
But I think that's the main trigger. The main trigger was the client desire to tackle an issue so that this would still have opportunities to look at other alternative solutions. And we are very pleased that they found that our solution at the price that we negotiate was the best alternative. And it it's quite fascinating because those ships were deployed. The contract was signed 02/2008, then we had a conversion of two years.
They were deployed in 02/2010, and now we have a contract until 02/1932. So that's twenty two years of undisrupted services or hopefully undisrupted services, but there's certainly no no CapEx. In other words, no dry dock plans. And and and I think we can be very proud of that because it it it had required at the time of the conversion a little bit the vision of spending maybe more money that some other players would have spent, but that is paying off right now. You don't need to reinvest any money, and you can continue to operate this vessel very safely in the same field with all the equipment in in the working function.
Speaker 11
Thanks. Thanks. That's great. So and and just to confirm, were saying there's no basically, no off hire. There's no CapEx in between the this contract and the new one.
It just goes straight into the next
Speaker 2
Abs absolute it's indirect continuation. We don't need to take the ship to dry docks. There will be obviously regular surveys and underwater surveys and all the rest of it, but it's not gonna be interrupting the service. And the service has has been exceptional. I mean, if you look at at the offshore industry, generally speaking, nobody gets 100% uptime.
And so far, touchwood, knock on wood, that's what we have had, and we plan to continue having that.
Speaker 11
Great. Thanks, Hugo. I'll leave it at that.
Speaker 2
Thank you.
Speaker 0
Thank you. And the next question comes from Ivory Carvassen with Pareto Securities.
Speaker 12
Yes. Just wanted to you touched upon in your remarks that the vintage asset values have held up rather well. And we've been a little bit surprised to see that. Can you maybe explain a little bit why that is? And second, you have a number of particularly Suezmaxes in that fifteen to twenty year old bracket.
Would it be too late to start selling them now or continue selling them? Is that or is that something still high on your agenda?
Speaker 2
Yes. So thank you for the question, and and thank you for being on the call. The the the there are there are maybe one explanation, and and god knows that we don't know. Maybe two answers that we don't know. But we suspect that people are looking at those old assets thinking they are taking less risk than buying a ten year old vessel.
And the reason why they may be taking less risk is simply because the natural end of life of those vessels is gonna be in two, three, maybe four years down the road. And as you look at the regulatory framework and certainly the pressure that we are having on carbon emissions, those ships will end their life at a point where, commercially, they're gonna be very difficult to market. If you take a ten year old or maybe an eight year old, which is not an eco ship, so it is still burning quite a lot of fuel, and you're sort of stuck with it until it's end of life, natural end of life, you may find yourself, on the wrong side of, of your bets, at a later stage. And so that that is as far as we are concerned, it's one of the explanation that that that'll be fine, and and and we wish those investors good luck, but it might not be a bad bet. Obviously, you need to market those units to to the right people, to the people who can take vessels that are more than 15 years of age.
And you know that the market structure is not the majority of the people don't like those vessels. But if you're a niche player, then you may you may enjoy it. The second part of your question relates to to Suezmax, and I have a big smile on my face because I have the impression people always want more. They want more. They want more.
I mean, we sold four Suezmax since the beginning of the year. We sold one very recently. Mean, it would be one that we had a joint venture, but nevertheless, we sold one. And we will continue to explore the market for opportunities. If we think that it's the right price for an asset that we are happy to to be rid of, then we'll definitely execute on it.
If not, we'll be patient. So the the the focus is not so much to have a policy on those things. The focus is always to try to create value for the company and obviously for its shareholders.
Speaker 12
Yes. No. I agree, Hugo. Thank you. But just and then one follow-up, if I may.
On I mean, when you then look at opportunities that are coming across over the next, say, six to twelve months, with your share price where it is right now, do you think is that keeping you or refraining you from potentially investing? Do you
Speaker 11
think that is well, yeah, as simple as that?
Speaker 2
No. I'm I'm I'm not sure it's it's refraining us from investing because investment is twofold at year end up. There is investment which is free to renewal. And when you're selling a number of ships, then, obviously, you need to reinvest the capital. We did four at the beginning of the year, and I I feel we could do more, especially because values right now are attractive.
So that's one side where you don't involve the the equity or or you don't involve the equity too much. The the other side is if you are offering us a generate deal and people are not accepting our share at the NAV, so they are only accepting the price as as what they see on the screen, that's gonna be a lot a lot more difficult for us. You will remember that when we did generate, we were trading slightly above NAV. Those guys were trading at 40% or 50% discount to NAV. That's possible.
So we can trade at a discount to NAV, and if the company we acquired trade at a further discount to NAV, then you're still creating value for your shareholders. But if you ask us to pay with our shares at the same price for an asset at what I would call NAV, I don't think that's going to be very popular within Euronav.
Speaker 4
Okay. All right.
Speaker 12
Thank you, Hugo. And I'm always going to be on your call.
Speaker 2
Very good. Thank you. And hopefully, ask any questions.
Speaker 0
Thank you. And the next question comes from Geoffrey Scott with Scott Asset Management.
Speaker 6
Good afternoon. Given the COVID disruptions, has there been any flexibility from the classification societies on the timing of special surveys?
Speaker 2
That's an excellent question. Thank you so much for asking it. And the reason why it's an excellent question is because the answer is yes. And, it may explain why we have not yet seen a big volume of ships being taken to the recycling yards or to the scrap yards as some people call them. So, yes, definitely, there there was a big shutdown and the major delays in the most of the Chinese yards was so they are specialized in in providing dry dock service service.
And so, yes, there was definitely flexibility simply because otherwise, people would have had to stop their ships. The the that flexibility is not given is not given blindly, so the classification society will be very careful before they extend the certificate, and they will certainly want to inspect a number of things onboard the ships even remotely. But definitely and and we were in that camp. That's also maybe why we have concentrated so many ships in such a short period. So we did benefit from extension from classification societies, and, hopefully, that explains why we haven't seen yet a flurry of ships being taken to the recycling yard because they received the allowance to to continue trading.
Speaker 6
Thank you for that. You put out an excellent chart on the its potential catalyst for from 186 surveys next two years, and it's broken down by quarter. It it so it's on, I guess, page 25 of your September presentation. In q '2, you list 20 ships that were over twenty twenty years. And in q three, you list five additional ships that were over twenty years.
How many of those seven and how many of those five actually went in for special surveys since they didn't go for demolition?
Speaker 11
Let let me if I
Speaker 3
can jump in, Hugo, on this.
Speaker 2
Yeah. Go ahead.
Speaker 3
Oh, yeah. So this is Brian Gallagher, head of IR. Hi, Brian. And we haven't, I don't have the direct numbers there for you, that, I think, with the exception of two of those ships, they're in storage contracts. So they're under they're not part of the world trading fleet.
So, they have to go through their own particular survey to make sure they still, can engage in in that sort of activity. So, I know it sometimes looks a bit strange, you know, vessels of this sort of age, but they're not they're not ships that we encounter in terms of, that trading. Because, obviously, when you're a trading ship, you have to have regular vetting and regular inspections, which means these obviously ships that they're doing storage contracts are not involved in. So I'm not I'm not aware of the exact detail of of how many of those have gone through their own specific survey. But our view would be, and certainly from the trading platforms like the two ten international, is we're expecting maybe a swap out to start occurring soon of some of this storage tonnage being replaced with some of the slightly younger vintages leaving the world trading fleet.
From our perspective, the effect is the same. You're getting the world trading fleet, actually reducing in, in size. But I can maybe take this offline and and come back to you later date with some more specifics when we get details on that specific question. I'd appreciate it. Thank you.
Thank you, Jeff.
Speaker 0
Thank you. And the next question comes from Kieran Mulder with ING.
Speaker 2
Hey. Good afternoon. Kieran Mulder
Speaker 10
from ING. Hi, Brian. Hi. Here you go. Sorry.
Three questions. Can you tell me something about the situation with regard to the offshore storage? Do you have still their contracts in the, let me say, in the in the coming months? Or is that all all gone? Second question is about your you speak about the medium term improvement.
What do you expect? Is that maybe second half twenty twenty one, when you see some improvement, if, let me say, assuming that the OPEC plus, let me say, moves forward to September 2021. And then yes, and I will pose my question final question later on.
Speaker 2
So that's good. You know the rules. It's only two questions, but we'll make an exception. So the first one is story. So as far as Euronav is concerned, we still have two VLCCs that need to finish performing a six months contract.
And I think that's that's a little bit the case for the rest of the industry where we are very, very far off the peak. Brian can help me, but I think there is maybe another 20 VLCCs, which which need to finish the the storage contract temporary storage contract. And of those, a number of older ladies that we would definitely not expect to see coming back to the market. But Brian can give you more specific numbers in a minute. As far as the our prediction about when the market will come back, well, you know us very well, and you know that we are no fools.
So we we will say we don't know. It depends very much on what the second second wave of COVID impact will have and and how long it will last. And it will also and maybe more importantly depend on how many ships are being struck during this downturn in the market. So if you give me those two elements, then I will give you a perfect answer.
Speaker 3
In terms of Hugo's answers, I mean, yeah, we think there's about maybe 30 VLCCs that have gotta gotta come out of storage, and that's been very stubborn over the last two or three months. But we think the number on Aframax and Suezmax has fallen a long way from the peak we saw in May and June where we saw seventy and eighty of those vessels being taken up for storage down to about 15 or 20 now, we think, which is gonna come back. So, still a bit more to go. It's more of an overhang, which is, than anything else in the floating storage element.
Speaker 10
Okay. And my final question is about Iranian ships. So let me say, the political question here is if Joe Biden wins, then you might expect some extra flows of oil from country, and it will not take a little fine in my view. But so what's the situation with regard to the Iranian ships? Are they still, let me say, used for storage?
Are they, let me say, illegal, say, to Egypt and other areas to put some oil there? Is that and and how many vessels are, in your view, idle and cannot be used anyway?
Speaker 2
It well, I think that the start of the the answer should be when would we expect, if Joe Biden is elected, when would we expect him to reenter the deal with the arenas? And I think that we have to be realistic here. If we were him, and god knows that we're not gonna give him any advice, it would not prob it would probably not be the top of agenda. It's not gonna be a top priority. Secondly, we know that by leaving the deal, the Iranians have continued to do their research on nuclear programs.
And so they will need themselves to agree to reenter deal and to disclose everything that they have done in the meantime. So I don't think that you're looking at a a situation where Joe Biden gets confirmed tomorrow or maybe today and next Monday or or maybe on the January 1 when he's sworn in. He's saying, well, my my top priority is to deal is to to find a deal with the agreements because that's not possible, which is which is in a way very good, maybe not for the agreements, but as far as our market is concerned because it's likely to take several months, if not a year or two. And at that time, the situation that we are going through today, certainly with the COVID restriction having impact on oil demand, is gonna be completely different. Well, as far as their fleet is concerned, I've been I've been yeah?
Sorry, Brian?
Speaker 3
No. No. No. Carry on. Carry on.
Speaker 2
Yeah. So as far as the the the fleet is concerned, I have the impression is maybe the the Groundhog's Day, this movie where every morning you wake up and it's the same day that starts again. We were in exactly the same situation when the Obama administration lifted the sanctions or or deal with the six nations, and everybody was worried about that. And in fact, it's a fleet that has aged. That's the first point.
It's the feed that has shrunk, so it's no longer a 40 VLCC. I I think they are down to 32 or something like that. It is a a feed that part of it will continue to be used as storage, and the other ones will necessitate a very heavy dry dock because when you keep a ship standstill, believe me, you're you're deteriorating your assets, at a very, very fast speed. So all in all, we're not too worried about those ships coming back and and and putting pressure because it's additional supply. It's not gonna happen overnight.
And quite frankly, we don't believe that there will be a deal very, very soon after if, mister Biden, vice president Biden becomes president the new president.
Speaker 3
I think one other final point, which which I think is often overlooked is that this isn't a one way trade either. If the Iranian the the isn't just Iranian ships. If there's a wider transaction that's agreed, we'll we'll we'll come back into the marketplace and start stealing cargoes. If there's a wider deal to be done, then there'll be Iranian barrels on the marketplace as well. And historically, it's been Iranian ships have have have taken those Iranian barrels.
So whilst there may be some squeezing out, I think, this is often an overplayed, situation that, is focused on. That's also important to remember, I think.
Speaker 2
Absolutely. Thank you, Ryan. Very good point.
Speaker 1
Thank you.
Speaker 0
Thank you. And the next question is a follow-up from Chad and on for Randy Gibbons at Jefferies LLC.
Speaker 6
Howdy, gentlemen. It's Randy Givens back on. How are you doing?
Speaker 4
Still fine, Excellent.
Speaker 6
Yeah. Just one quick follow-up. Any updated status on the TI Europe? I think the last time we talked, that was still on a relatively short term storage contract, but I think that was expiring here in October. So any updates around that?
Speaker 2
Yeah. Very good point. Maybe we should have mentioned it in the press release, but those are considered small deals that we do here and there. We we have also charted out two Suezmax. But that that ship got extended for another six months in the same rate, so we are very pleased about it.
And, yes, we we we do also small stuff here and there on the on the sort of time charter market. We we may not not be as vocal as the others, but we keep an eye on that. And when we find good deals, we execute on them.
Speaker 6
Perfect. Well, I will not ask anything else. Thanks so much. You have a great day.
Speaker 2
Thank you, Randy. Thanks, Randy.
Speaker 0
Thank you. And that concludes the question and answer session as well as today's call. Thank you so much for attending today's presentation. You may now
Speaker 8
disconnect
Speaker 12
your lines.