Okeanis Eco Tankers - Earnings Call - Q1 2025

Transcript

Operator (participant)

Welcome to OET's first quarter 2025 financial results presentation. We will begin shortly. Aristidis Alafouzos, CEO, and Iraklis Sbarounis, CFO of Okeanis Eco Tankers, will take you through the presentation. They will be pleased to address any questions raised at the end of the call via the webcast. I would like to advise you that this session is being recorded. Iraklis will begin the presentation now.

Iraklis Sbarounis (CFO)

Thank you. Welcome to the presentation of Okeanis Eco Tankers' results for the first quarter of 2025. We'll discuss matters that are forward-looking in nature, and actual results may differ from the expectations reflected in such forward-looking statements. Please read through the relevant disclaimer on slide 2. Starting on slide 4 and the executive summary, I'm pleased to present the highlights of the first quarter of 2025. We achieved fleet-wide time charter equivalent of about $38,500 per vessel per day. Our VLCCs were at $38,000, and our Suezmaxes at $39,200. We report Adjusted EBITDA of $32.5 million, adjusted net profit of $11.4 million, and adjusted EPS of $0.36. Continuing to deliver on our commitment to distribute value to our shareholders, our board declared a 12th consecutive distribution in the form of a dividend of $0.32 per share.

Total distributions over the last 4 quarters stood at $2.22 per share, or 91% of our earnings for the period. In slide 5, we show the detail of our income statement for the quarter. TCE revenues stood at $48.6 million, EBITDA was $23.5 million, and reported net income was $12.6 million, or $0.39 per share. Moving on to slide 6 and our balance sheet, we ended the quarter with $43 million of cash. Our balance sheet debt continues to amortize by approximately $12 million every quarter, now standing at $634 million as of year-end, as of quarter-end. Our book leverage stands at 59%, while our market-adjusted net LTV is around 40%. On slide 7, we recap our main driver behind our operational and commercial success and 1 of our key competitive advantages, our fleet. Our 14 vessels have an average age of 5.6 years.

That is the youngest crude oil tanker fleet amongst listed peers and the only pure eco and fully scrubber-treated fleet. This gives us an advantage, allowing us to set a benchmark above the spot market established by conventional or mixed fleets. All our vessels are built at first-class yards in Korea and Japan, making us resilient to risks around implementation of the U.S.T.R. qualities. We're also pleased to have behind us an extensive VLCC dry dock program from last year. In 2025, we only have 2 Suezmax dry docks expected to take place likely within Q3. Slide 8, moving on toward capital structure. After our refinancing cycle in 2023 and 2024, we're already reaping the benefits of improved pricing.

Our interest expense for the quarter has decreased meaningfully, and this does not take into account the most recent financings announced, which will take effect in Q2 and Q3 of this year. We have successfully set a robust balance sheet. We added flexibility and extended maturity. That flexibility came in handy in April when we declared the purchase options to buy back our 3 Chinese leased vessels: the Nissos Anafi, Nissos Nikouria, and Nissos Kea. We're paying no penalties for the exercise of these options, as we had dropped this when we amended the leases a year and a half ago. The Nikouria and the Kea are expected to be delivered back to us in early and late June, respectively, while the Anafi in early August.

We have already announced our plans to finance the Nissos Nikouria and the Nissos Anafi by a new $130 million bank loan with a Greek bank, priced at 140 basis points over SOFR, maturing in seven years with a competitive amortization profile. We're actively working on firming up the financing for the Nissos Kea. I expect we'll be in a position to announce this later in the quarter, and we're targeting terms that are at least in line with the other 2. The terms achieved make us very optimistic in anticipation also of the 2 refinancings of the Nissos Rhenia and the Nissos Despotiko next year, a great opportunity for further improving our break-even costs. The financing market remains very competitive. The capital structure of the company is very stable. The tanker market outlook is positive.

All this, combined with a strong relationship with financiers, both existing that go way back as well as new ones, brings us great opportunities. I will now pass on the presentation to Aristidis for the commercial market.

Aristidis Alafouzos (CEO)

Thank you, Iraklis. Q1 had progressively strengthened, and market fundamentals were better than in Q4. There were both major drivers for this, such as increased sanctions pressure on the shadow fleet and the US trying to impact Chinese imports of Iranian oil, as well as more localized drivers like the Kazakhstanis increasing their production. This crude usually sells into Europe, and volumes were so high, in addition with European maintenance season, that forced some of this crude to be sold in the east. This created a stretched Suezmax fleet and helped the Suezmax rate to firm.

In Q1, we achieved a fleet-wide TCE of $38,500 per operating day with the utilization at 100%. We earned $38,000 on the VLCCs and $39,200 per operating day on the Suezmaxes, respectively. Sorry. Moving on to Q2 guidance, the market has continued to trend higher. OPEC Plus surprised the market and began unwinding their cuts at a faster than expected pace. The expectation is that this unwinding will continue at a similar pace, a lot faster than the planned from OPEC. This, along with continued focus on Iranian exports, has given support to the already healthy market. On the back of this, VLCCs have consistently improved in their market fundamentals, and we have seen rates trend higher over the course of the quarter. We discussed previously in many of our quarterly presentations our preference to triangulate and optimize our VLCC trade, and we continue to focus on this generally.

This quarter, we also fixed some AG round voyage cargos when we felt that the earnings or the time charter equivalent was attractive and the market did not have much room left for further improvement based on our triangulated averages. This week, the VLCCs are coming off their short-term low in the spot market. What's encouraging about this is that it was a short-term weakness and more so that it was the highest low point of the year, and we consider that quite a positive signal. Suezmaxes also came off quite a bit in the past week, but they have also bottomed, and we see the spot market stabilizing and slowly firming, and we have seen steady increases on the paper market as well. Our Q2 guidance stands at 72% of VLCC spot days at $46,700 per day, and 64% of Suezmax spot days at $50,600 per day.

Moving on to slide 12, we continue to outperform the market with our superior fleet and strong chartering department. You can see from the charts that the delta really grows when the market firms, and we can make use of our nimble fleet to position aggressively and take advantage of our short-term tactics. This is an advantage that much larger companies with 50-ship fleets do not have that we do. Moving on to slide 13, I apologize for keep showing you different iterations of this slide, but we want to express our opinion again and again on this, and that the fleet development is not only about age, but it is also about what percentage of the shadow fleet is of the total fleet and the difficulty that this segment will have in reintegrating itself in any potential peace deal between Ukraine and Russia or an Iran deal.

Because we do expect that in a potential peace or a potential Iran deal, that the flows will normalize on normal ships, and this shadow fleet being overaged, undermaintained, and to a decent degree sanctioned will have a very difficult process to reintegrate. We expect internally that there will just be extremely low utilization on this segment and growing in large segments of the fleet. Just looking at the age profile a bit closer, again, we've said this in the previous call, that it's hard to even have a bearish medium-term view when 50% of the fleet of VLCCs is over the age of 20 years old in 2028, which also coincides when you can have a new building deliver if you place the order today.

The tightening supply side is one part of the equation, and we can flip the side to look at the oil fundamentals a bit as well. Over the past years, we've seen a period of tightening balances and reducing inventories, and now we may see some slight inventory builds or a flat market. This potential near-term surplus is driven by rising production both from OPEC as they unwind the cuts faster than we expected, as I mentioned earlier, and also from growth in non-OPEC producers. Geopolitical uncertainties continue to affect the short- to medium-term outlook, particularly around trade flows and sanction dynamics, and the longer-term setup looks really constructive. Demand is expected to grow, led by emerging markets, especially India.

We also see the possibility for strategic stockpiling, which is helped by a low oil price and its favorable forward curve, a weaker dollar, and the requirement to refill the SPR in the United States as well. This surplus in the market, which is potentially coming, will need to be cleared, and this will be done on long-haul voyages, which means that ton-mile demand continues to rise. Moving on to slide 15, the current supply side story is increasingly supportive for tankers. OPEC is actively adding barrels back, which the market did not expect and would not have assumed if you had discussed with oil analysts at the beginning of this year. We have already seen 800,000 barrels per day return between May and June, and with more expected through 2026 until they reach their 2.2 million barrel projected unwind capacity.

At the same time, we have offshore and unconventional projects from non-OPEC producers, particularly in the US, Brazil, Guyana, and Norway, ramping up and projected to bring over 2 million barrels per day of incremental production. Importantly, the latter, our long-haul barrels moving from the Atlantic Basin to Asia, adding significant ton-mile demand and supporting VLCC utilization. Looking at utilization a bit more closely, we can see that it is already quite high. VLCC fleet utilization, according to sources, has recently hit around 90%. With higher Middle Eastern volumes over the summer, we could see that number rise even more. Last time we saw utilization levels around this percentage was 2015, and VLCC rates were trading close to $70,000 per day. At the same time, and as discussed previously, we have structural constraints.

The shadow fleet that is growing older and less compliant, while the mainstream fleet is not growing meaningfully to offset this. We are in a situation where rising supply and trade demand are being met by a fleet that is already at near full employment. This is the type of setup where we think that the rates can move sharply and sustainably high. One focus we want to for this quarter is Iran, which remains the key wild card. We think that the recent developments have been particularly interesting, and perhaps 1 of the scenarios which may be an outcome has not been as widely considered. We discussed over the previous quarter the positive drivers of a maximum pressure campaign, and that would require replacement of non-Iranian barrels to the market and primarily to the Chinese market.

This would increase rates because there would be demand for the normal fleet rather than the shadow fleet. We have not really discussed why a potential Iranian deal may be even more bullish. To be honest, we did not think that an Iranian deal would be possible, and the progress has been actually surprisingly quick so far. Obviously, it is not a finished deal yet. I think an Iran deal would bring back the most important export of Iran, which is oil and gas, into US-denominated trade. This would immediately engage the normal fleet. The shadow fleet will no longer be used for this trade because it would not be compliant due to sanctions, due to insurance, due to flagging, due to classification. They would have to substitute the normal fleet for this.

Iran is currently exporting slightly over 1.5 million barrels, and we assume that in a potential deal, and due to the increased efficiency of the trade and also the higher demand for Iranian crude, we could see this production increase. That is one VLCC per day. This is an additional catalyst that will be very positive for the trade market. We also think that the Iranian national fleet will also have to renew their vessels. I mean, the average age on their vessels is very high. The ships are undermaintained, and they must be near the end of their economic life. We really think that the replacement of the NITC fleet will give a lot of support to modern asset values, especially for VLCCs like this and Suezmaxes that we have in our fleet.

For sure, they're going to want a portion of these ships to have immediate delivery and not be new buildings. Owners and companies that have ships available for sale will obviously see the most interest from this type of purchasing. If we look at if this does not materialize and we see an opposite scenario, it is also supportive where we see stronger secondary sanctions. For the first time, the U.S. has focused on sanctioning Chinese refiners and Chinese tank farms. If this continues, it could limit the Iranian ability to export to China due to logistical problems. Again, that would boost VLCC employment. This 1 new scenario is interesting, and I think either a maximum pressure scenario or a deal scenario are the most likely, and kind of forgetting about the Iranian problem and the status quo remaining, to me, seems the least likely.

That's all for me, and thank you for listening to our Q1 presentation, and we're happy to answer any questions. Thank you. If you have any questions today,

Operator (participant)

please submit them through the webcast.

Iraklis Sbarounis (CFO)

We already have a few questions coming in. Let me try and organize this. The first one comes from Liam Burke at B. Riley. 2 or 3 different questions. Maybe the first one is for Birte. Do you expect the same terms on the refinancing of the third VLCC out of Saudi and Lisbac?

Aristidis Alafouzos (CEO)

Yeah. We are actively working on securing the financing for the Kea. I expect it would be in similar, if not better, terms than the ones we have announced from Birte to Nikurya.

Iraklis Sbarounis (CFO)

Then a couple of other questions. Are Suezmax rates benefiting from the increase in non-OPEC Plus crude production?

Aristidis Alafouzos (CEO)

Hi, Leon. Thanks for the question. I think that the main driver of the Suezmax rates, which we touched upon, was that the Kazakhstanis have been previously cheating on their OPEC Plus production, but currently, I guess, producing it within the guideline. This increased production of Kazakhstani crude, which usually sells into Europe, was able to be arbitraged into Asia. This happened, I think, mostly in February and March and a little bit of April. You saw a lot of Suezmaxes taking this Kazakhstani crude that usually sells into Europe and taking it much further to Asia. Because the Suez Canal is still closed for this trade, you saw Suezmaxes having to sail from the Black Sea through the Mediterranean around Africa and to Asia.

It really stretched ton miles as opposed to the similar voyage that was going to Italy or France, and it displaced a lot of ships. I think that that was one of the main drivers for why the Suezmax had a big jump late in Q1 and early in Q2. I think the OPEC Plus increasing production quite quickly and dropping the OSPs distorted a bit these arbitrages. Currently, this arbitrage from the Kazakhstani crude to go east is closed. I think that once the local pricing of different crude balances is out, we'll see that arbitrage back open again and see more ships going that way. That will be supportive on ton miles.

Iraklis Sbarounis (CFO)

One more follow-up from Liam. Although rates were lower year over year, they still remain elevated. Understanding geopolitics remains a risk. How do you see the rate environment, the balance of 2025?

Aristidis Alafouzos (CEO)

Overall, we're optimistic on the balance of 2025. I think that we've seen the markets are slowly beginning to simmer, and we're going towards a boil. I think that we don't need much more momentum to really push us into a stronger bull market. I consider that quite a likely outcome. You can see from our fleet that we remain 100% spot-focused, and we think that there's potential for us to capture more upside, and we're waiting to do it, hopefully, in the second half of this year.

Iraklis Sbarounis (CFO)

We have one more question from Bendix Foldeneggingness at Tucsons.

Besides the management of geopolitical risk, there is quite a meaningful reduction in margin on the new financing. Are there other facilities where you can refinance at these terms without penalties? Are these the kind of terms we should expect for the Ocean Hill refinancings as well?

Aristidis Alafouzos (CEO)

I'll take that one. To answer simply, other than the 2, Thalia and the Despotiko, we have no penalties to refinance any of our other vessels earlier. These 2 vessels, the purchase options kick in about a year from now. What we see today with the current financings is that it encourages a lot that what we can achieve is very, very meaningful with regards to the Ocean Hill refinancings as well.

If we were to do those transactions today, I would expect that we should be in a position to achieve similar rates, yes.

Iraklis Sbarounis (CFO)

We have another question from Frederick Deibwad at Furnis. What would you like to see happen in the term market for you to consider TC coverage?

Aristidis Alafouzos (CEO)

Hi, Frederick. Thank you for your question. I think that TC coverage at the moment is generally at relatively good levels, and there is demand for both shorter and longer-term TC exposure from the charters. For us, we still think that asset values and expectations of spot earnings are quite a bit higher and that the TC rates need to move up to cover that gap. I do think we'll get there. I think there will be opportunities for owners to put on some TC coverage at attractive rates once charters are able to really make a really strong profit on that first voyage. I think that that's generally a good driver for longer-term TC, one to 3 year TC business, where the first voyage can really be profitable and, from the charter's perspective, decrease the risk for the balance of the TC period.

I think we're quite a bit closer to what we find interesting, but there's still a gap at the moment.

Iraklis Sbarounis (CFO)

I think we have time for one more. Petter Haugen from ABG. There are reports of stronger prices for older tankers around sailing at 2007 built at $48 million-$50 million. In the case of an Iran deal, A, what should we expect for this market? B, how would that impact newer tonnage?

Aristidis Alafouzos (CEO)

Hi, Peter. Thank you for the question. There has been a, I think, where towards the end of last year, it seemed that, at least especially for the older-sized vessels, values had kind of plateaued for the VLCC size and segment. As this year has moved on and with the sanctions placed by the Trump administration on the various Iranian-affiliated shipping companies and ships, we've seen that there's been a strong bid for older tonnage and that this price has really moved up. We continue to think that that has more upside as the Iranian fleet is limited by OPEC sanctions and their ability to trade effectively. In the case of an Iranian deal, I think that the real upside is to newer vessels because once you're in a compliant business, you need to be able to adhere to all the different rules and regulations.

The value of having efficient eco-tonnage, potentially with scrubber, will be much bigger. These are not speculative investments done by traders, like the Iranian-affiliated traders, for 1 or 2 or 3 voyages until a ship breaks down and they abandon it somewhere or use it for storage. This is a strategic national reinvestment for the National Iranian Tanker Company fleet. I think that the big upside would be on younger tonnage. There is already quite a bit of interest on younger VLCC tonnage. Adding a strong and immediate buyer like this could really maybe push prices up to levels that you had always been guiding they would reach.

Iraklis Sbarounis (CFO)

Okay. I think that covers it for today. We look forward to touching base again in August. Thank you.

Operator (participant)

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.