Okeanis Eco Tankers - Q3 2023

Transcript

Operator (participant)

Hello, and welcome to the OET's third quarter 2023 financial results presentation. We will begin shortly. Aristidis Alafouzos, CEO, Iraklis Sbarounis, CFO, and Konstantinos Oikonomopoulos, Chief Development Officer of Okeanis Eco Tankers, will take you through the presentation. They will be pleased to address any question raised at the end of the call. In order to ask a question, please press star one on your telephone keypad. I would like to advise you that this session is being recorded. Iraklis, we now begin the presentation.

Iraklis Sbarounis (CFO)

Thank you. Hi, everyone. Welcome to the presentation of Okeanis Eco Tankers results for the third quarter of 2023. We will discuss matters that are forward-looking in nature, and actual results may differ from the expectations reflected in such forward-looking statements. Starting on slide 4 and the executive summary. I'm pleased to present you the highlights of the third quarter of 2023. Q3 is a historically softer quarter due to seasonality. Our fleet achieved fleet-wide time charter equivalent of almost $49,000 per vessel per day, and that includes our time charter vessels. Spot rates for VLCCs stood at about $58,000, while for Suezmaxes, at about $39,000. We report net TCE revenue of approximately $60 million, adjusted EBITDA of about $45 million, and adjusted net profit of $0.63 per share.

Our board has declared a sixth consecutive capital distribution of $0.60 per share, which is 100% of our reported quarterly EPS. We continue to deliver on our promise to distribute all available value to our shareholders, and in relation to the last three quarters, we have distributed $3.70 per share, or a total of approximately $120 million. This quarter also marked a very important milestone for our journey, as we have publicly filed a registration statement with the SEC to list our shares at the New York Stock Exchange. On slide 5, we dive into the details of our income statement for the quarter that I summarized on the previous slide, as well as the nine-month period. For the first three quarters, we achieved TCE revenue of close to $240 million.

That's a 115% increase year-over-year. EBITDA of close to $200 million, that's over 150% increase year-over-year, and reported profit of approximately $124 million. That's over 240% year-over-year. Moving on to slide six. As of the end of September, we had cash on our balance sheet of approximately $82 million. Our debt stood at $704 million. Book leverage came in at 60%, while market-adjusted LTV, based on broker values, stands at a more than comfortable 46%. On slide seven, we're bridging our cash flow for the nine-month period, essentially delivering all of it to our shareholders. The next slide, slide eight, fully demonstrates our commitment and strategy towards maximizing shareholder value.

On the left-hand side, we have recalculated our total shareholder returns since inception, which sits at an astonishing 473%. This assumes distributions are conservatively invested into the stock, yielding a $48 per share return to a 2018 investor. That's when we executed our IPO. And this does not actually include the distribution we expect to pay out later this month. On the right-hand side, we show our history of distributions against our reported EPS. Since Q2 of 2022, with a fully delivered fleet, we have been able to gear up to an average payout of 90% of our earnings. In relation to the last three quarters, this amounts to 96%. Moving on to slide 9. We summarize our corporate and capital structure, as well as our employment profile.

Last quarter, we had just announced the refinancing of two Suezmaxes and one VLCC at sub-2% margin levels. I am pleased to confirm the most recent refinancing we did in September over two Suezmaxes, the Nissos Sikinos and the Nissos Sifnos, at accretive terms at 185 basis points over SOFR and extended maturity to 2029. As we have talked about in the past, a key milestone in our capital structure is the opportunity to refinance our legacy and expensive leases on the Milos and the Poliegos. We are already in discussions with financiers and are confident that we can achieve tremendously accretive terms versus the current financing terms, in line with the momentum we have from our last two recent transactions.

We expect to be in a position to announce at least a plan for the Milos in advance of our next quarterly call. We, of course, continuously utilize our strong banking relationships to explore opportunities that enhance our capital structure and create value with both existing and new financiers. On the employment front, the Nissos Sikinos and the Nissos Sifnos are still employed under their long-term time charters, and we expect them to be redelivered to us towards the end of the quarter. On slide 10, I wanted to spend some time on the New York Stock Exchange direct listing process. As discussed, we made the public filing over 20-F last week. Our ticker in New York is expected to be ECO, while in Oslo, we'll continue with OET.

We will be keeping the market updated with all developments over the next weeks, as we're tying up mostly mechanical steps before we can request effectiveness by the SEC. We currently expect the listing itself to take place sometime during December. We're excited to have this important milestone behind us, and look forward to expanding our reach with U.S. investors, and over time, enhance liquidity for our stock. We aim to continue on our track record of shareholder trust, as we have done since our IPO in Oslo in 2018. On that note, I pass over the presentation to Aristidis for the commercial and market update.

Aristidis Alafouzos (CEO)

Thank you, Irakli. So on Q3, Q3 was a weak quarter in the context of the last eighteen months, and it was the first quarter where there were quite weak Suezmax rates as well, where they dropped significantly into the summer. Our strategy of keeping vessels in the West was useful, as we did commit four of our vessels on fronthaul voyages east to lock in much higher returns than the round voyage equivalent. As part of our strategy, we would then reposition the ships back to the West to keep our preferred balance of tonnage. The Suezmax earnings were also negatively, negatively affected as we had to position the vessels for dry dock. To do this, we had to choose suboptimal voyages near the dry dock location. In addition, when a vessel exits the dry dock, it is not preferred for her next voyage.

So again, post dry dock, we were forced to choose suboptimal voyages in order to get the vessel cleared of its ex-dry dock status. If we did not have the two dry docks in Q3, obviously, the earnings would be materially higher. During the quarter, we achieved a fleet-wide TC of $48,900 per operating day, including our time charters. Our VLCCs generated $57,900 per day in the spot market. This is a 36% outperformance relative to our tanker peers that have reported Q3 earnings. Our Suezmax has generated $38,700 per day, which is on par relative to our tanker peers that have reported Q3 earnings.

These numbers reflect our actual book TC revenue within the quarter as per our accounting standard, which are also include several days related to the Suezmaxes' dry dockings, which we cannot record any revenue. Moving on to slide 8, for guidance on Q4. Q4 started quite weak, but has firmed nicely now. Fixtures being concluded today will reflect more on our Q1 earnings and the end of our Q4 earnings. So to give you an idea on where the VLCC market earnings are, a round trip in the West today is anywhere between $80,000 and $100,000. Backhauls from the east to the west, whether through West Africa or the AG to Europe, are around $40,000. And long-haul voyages east are above $100,000. We have fixed 4 vessels this week in these ranges.

We see strong, long-haul movements of crude, with the Atlantic Basin again being the driver of VLCC firmness. After a long summer, the U.S. Gulf and West Africa woke up and became active on Suezmaxes as well, with huge increase in rates. Our Q4 guidance is negatively impacted by some of these backhaul voyages we mentioned, and this, we expect, will be offset by positioning our vessels for strong, earnings in Q1 with front haul fixtures. So far in Q4, we have fixed 75% of our fleet-wide spot days at $44,400 per day, 90% of our VLCC spot days at $40,900 per day, which is a 13% outperformance, and 49% of our Suezmax days at $44,400 per day, which is a 72% outperformance. Looking at slide 14.

Earlier this quarter, the United States announced the lifting of sanctions on Venezuelan oil exports. This is an important change to the market that will create additional ton miles. The dark fleet that was servicing Venezuelan exports to the east will now have to compete for Iranian barrels, pushing pressure on freight rates in that trade as well. While the Venezuelan exports will now move on normal tonnage, I do believe that India and China will try to absorb as much of the Venezuelan volumes as they can, as the refineries are designed to process this kind of crude. Each VLCC loaded for China or India is an additional VLCC voyage that has been created.

India will be substituting crude from the AG to import Venezuelan, and then and the displaced AG crude will now, by definition, have to move a farther distance, either to the Far East or the West, which is also positive in ton miles. Moving on to slide 15. The importance of reliable and affordable oil in our society is evident in the short term by the political actions by both the United States and Europe, European governments in Venezuela, as well as Russia, with regard to the price cap. While also in the medium term, by the oil majors, as we see, the market consolidate. Both Chevron and Exxon have both spent over $50 billion each to acquire oil producers to support their production levels over the coming years. This trend is expected to continue by other oil majors, with the market further consolidating.

On slide 16, we see the intersection where oil majors are committing and focusing their expenditure on oil production, while global shipyards are declining and the forward order book cover is at its historic high. This is an excellent setup for our company and the crude oil tanker industry for the coming years. On slide 17, looking at the order book and pricing a bit more closely, we find the VLCC and Suezmax potential extremely exciting. Given the supply side of the equation, it is very difficult to see scenarios where we will not see sustained higher earnings for the coming years. We strongly believe that values have a lot of upside potential, especially on modern second-hand. We are nearing the point of sustained high earnings, and these will have to be factored in when pricing second-hand vessel versus new building.

Overall, Q3 and Q4 guidance were weak quarters for us, but the company achieved another milestone in its progression with the public filing and the expected dual listing in 2023 in the New York Stock Exchange. We look forward to presenting in three months with our Q4 earnings and Q1 guidance. With this, we conclude the presentation, and happy to answer any questions.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. Please ensure your lines are unmuted locally as you'll be prompted when to ask your question. Our first question comes from the line of Bendik Nygaard Bansø from Clarksons Securities. Please go ahead.

Bendik Nygaard Hansen (Equity Research Analyst)

Thank you. I just wanted to touch upon the demand side. We've seen some news recently about Chinese crude import quotas or rather, the lack of those. Are you seeing that as an issue for crude tankers going into the fourth and first quarter?

Aristidis Alafouzos (CEO)

I mean, I didn't hear you very clearly, but my understanding was that you asked if we see issues with Chinese demand and if there's been a reduction of cargoes heading for China. At the moment, we haven't-

Bendik Nygaard Hansen (Equity Research Analyst)

Not anymore.

Aristidis Alafouzos (CEO)

I mean, October, November were very busy months for Chinese exports, for Chinese imports from cargoes loaded both in the Atlantic Basin, you know, Brazil, U.S. Gulf, West Africa. So we don't see anything materially different, but these things do fluctuate month to month, so with December may be a bit lower, I'm not sure, but we don't see any material changes in Chinese imports at the moment.

Bendik Nygaard Hansen (Equity Research Analyst)

And you don't expect that to change going forward as well? Because we have been reading a bit about these lack of new crude oil import quotas compared to previously. So you're not seeing any effect in the physical markets on that side?

Aristidis Alafouzos (CEO)

Well, I mean, the, the crude import quotas that they issue, in the past, they have issued, an additional crude, crude import quota for the end of the year. But at this point, if you're loading a cargo, you know, you're working laycans that are... By the time you lift the cargo, whether you're in the AG or even more so in the West, you balance the load port, lift the cargo, and discharge in China, you're already in queue in the next year. So the crude import quotas today are important for the following year rather than the additional quarter that would apply for the year of 2023.

Bendik Nygaard Hansen (Equity Research Analyst)

Okay, thank you.

Operator (participant)

As a final reminder, if you would like to ask a question, please press star one on your telephone keypad. There are no further questions, so I'll hand you back to your host to conclude today's presentation.

Aristidis Alafouzos (CEO)

Thank you. Thanks, everyone, for joining. We look forward to speaking in three months. Thank you. Bye-bye.