Okeanis Eco Tankers Q1 2025 Earnings Call Transcript

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May 15, 2025

There are 3 speakers on the call.

Operator

Welcome to OET's First Quarter twenty twenty five Financial Results Presentation. We will begin shortly. Aristides Alofuzos, CEO and Irapis Barunis, CFO of Acanis Ecotankers will take you through the presentation.

Operator

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. Ira, please, we'll begin the presentation now.

Speaker 1

Thank you. Welcome to the presentation of Voccan A Cyclotanker's results for the first quarter of twenty twenty five. We'll discuss matters of the forward looking nature and actual results may differ from the expectations reflected in such forward looking statements. Please read through the relevant disclaimer on Slide two. Starting on Slide four and the executive summary.

Speaker 1

I'm pleased to present the highlights of the first quarter of twenty twenty five. We achieved fleet wide time charter equivalent of about $38,005 per vessel per day. Our VLCCs were at $38,000 and our Suezmaxes at 39,000, $200. We report adjusted EBITDA of, 32,500,000, adjusted net profit of 11,400,000.0, and adjusted EPS of $0.36 Continuing to deliver on our commitment to distribute value to our shareholders, our Board declared the twelfth consecutive distribution in the form of a dividend of $0.32 per share. Total distributions over the last four quarters stood at $2.22 per share or 91% of our earnings for the period.

Speaker 1

Slide five, we show the detail of our income statement for the quarter. TCE revenues stood at 48,600,000.0, EBITDA was, 23,500,000.0, and reported net income was 12,600,000.0 or 39¢ per share. Moving on to slide six and our balance sheet. We ended the quarter with 43,000,000 of cash. Our balance sheet debt continues to amortize by approximately 12,000,000 every quarter, now standing at 634,000,000 as of year as of quarter end.

Speaker 1

Our book leverage stands at 59, percent, while our market adjusted net LTV is around 40%. On slide seven, we recap our main driver behind our operational and commercial success and one of our key competitive advantages, our fleet. Our 14 vessels have an average age of five point six years. That is the youngest crude oil tanker fleet amongst listed peers and the only pure eco and fully scrubber fitted fleet. This gives us an advantage, allowing us to set a benchmark above the spot market established by conventional mixed fleet.

Speaker 1

All our vessels are built with first class cars in Korea and Japan, making us resilient to risks around implementation of the USDR port. We're also pleased to have behind us an extensive VLCC dry dock program from last year. And in 2025, we only have two Suezmax dry docks expected to take place likely within Q3. Slide eight, moving on towards capital structure. After our refinancing cycle in 2023 and '24, we're already reaping the benefits of improved pricing.

Speaker 1

Our interest expense for the quarter has decreased meaningfully. This does not take into account the most recent financings announced, which will take effect in, q two and q three of this year. We have successfully set our robust balance sheet. We added, flexibility and extended maturity. That flexibility came in hand in April when we declared the purchase options to buy back our three Chinese lead vessels, the initials are nothing, initials Nicuya, and initials care.

Speaker 1

We're paying no penalties for the exercise of these options as we have dropped this when we amended the leases a year and a half ago. The Nicuriana Care are expected to be delivered back to us in early and late June respectively, while we are not in early August. We have already announced our plans to finance the Nicuriana by a new 130,000,000 bank loan with agreed bank, tied to the 40 basis points over Shulker, maturing in seven years with competitive amortization profile. We're actively working on firming up the financing for the cap. 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 two.

Speaker 1

The terms achieved make us very optimistic in anticipation also of the

Speaker 2

two

Speaker 1

refinancings of the Nicos Rinha and the Nicos Dos Potiko next year, a great opportunity for further improving our breakeven cost. The financing market remains very competitive. The capital structure of the company is very stable. The time to market outlook is positive. All this combined with this with a strong relationship with financiers, both existing and go way back as well as new ones, bring us great opportunities.

Speaker 1

I will now pass on the presentation to Aristides for the commercial market cap.

Speaker 2

Thank you, Natalie. Q one that progressively strengthened and market fundamentals were better than in q four. 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 Kazakhstan is 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. So this created a a stretch Suezmax fleet and helped the Suezmax rate the firm.

Speaker 2

In q one, we achieved the fleet YTC of $38,500 per operating day with the utilization at a %. We are in 38,000 on the VLCCs and 39,200 per operating day on the Suezmax respectively. Sorry. Moving on to q two guidance. The market has continued to trend higher.

Speaker 2

OPEC plus surprised the market and began unwinding their cuts at a faster than expected pace. And 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, have given support to the already healthy market. On the back of this, we have have consistently improved, in their market fundamentals, and we've seen rates trend higher over the course of the quarter. We discussed previously in many of our quarterly presentations our our preference to triangulate and optimize our VLC trade, and we continue to focus on this generally.

Speaker 2

But this quarter, we also picked some AGE round voyage cargoes when we felt that the earnings or the time charter equivalent was attractive and the market didn't 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 high low low point of the year, and we consider that quite a positive signal. Suezmax has also came off quite a bit in the past week, but they've also bottomed and we see the spot market stabilizing and slowly firming, and we've seen steady increases on the paper market as well. Our q two guidance stands at 70% of the 72% of the LTC spot days at $46,700 per day and 64% of Suezmax spot days at $50,600 per day.

Speaker 2

Moving on to slide 12. We continue to outperform the market with our superior fleet and strong chartering department. And you can see from the chart that the delta really grows when the market firms, and we can take we can make use of our nimble fleet to position aggressively and take advantage of our short term tactics. This is an advantage that, you know, much larger companies with 50 ship fleets don't have that we do. Moving on to slide 13.

Speaker 2

You know, I apologize to keep showing you different iterations of this slide, but we wanna express our opinion again and again on this. And that the fleet development isn't only about age, but it's 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 future, potential Iran deal, that the flows will normalize on normal shifts. And this shadow fleet being over aged, under maintained, and to a decent degree of sanction, we'll have very difficult process to reintegrate. And we expect internally that they will just be extremely low utilization on this segment and growing in large segments of the fleet.

Speaker 2

And then just looking at the age profile a bit closer, you know, 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 delivered if you place the order today. And the tightening supply side is one part of the equation, and we can split the side to look at the oil fundamentals a bit as well. Over the past years, we've seen period of tightening balances and reducing inventories. And now we we we may see some slight inventory builds or, you know, a a flat market. This potential near term surplus is driven by rising production both from OPEC as they unwind the cost faster than we expected, as I mentioned earlier, and also from growth in non OPEC producers.

Speaker 2

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, India, And 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 the requirement to refill the FCR 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 supported for tankers. You know, OPEC is actively adding barrels back, which the market didn't expect and wouldn't have assumed if you had discussed with oil analysts at the beginning of this year.

Speaker 2

We've already seen 800,000 barrels per day return between May and June and with more expected through 2026 until they reach their 2,200,000 barrel projected unwind capacity. At the same time, we have offshore and unconventional products from projects from non OPEC producers, particularly in The US, Brazil, Guyana, and Norway are wrapping up and projected to bring over 2,000,000 barrels per day of incremental production. Importantly, the latter are long haul barrels moving from the Atlantic Basin to Asia, adding significant 10 mile demand and supporting VLCC utilization. Looking at utilization a bit more closely, we can see that it's already quite high. We'll see fleet utilization according to sources as we recently hit around 90%.

Speaker 2

And with higher Middle Eastern volumes over the summer, we could see that number rise even more. Last time we saw utilization level around this percentage was 2,015, and we'll see rates were trading close to $70,000 today. At the same time, and as discussed previously, we have we have structural constraints. The shadow fleet that is growing older and less compliant, while the mainstream fleet isn't growing meaningfully to offset this. So we're in a situation where rising supply and trade demand are being met by a fleet that is already a near full employment.

Speaker 2

This is the the type of setup where we think that the rates can move sharply and sustainably high. One focus we wanted for this quarter is Iran, which remains the key wildcard. And we think that the recent developments have been particularly interesting, and perhaps one of the scenarios which may be an outcome hasn't been as widely considered. You know, we we discussed over the previous quarters 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. And this would increase freight because there would be demand for normal the normal fleet rather than the shadow fleet.

Speaker 2

But we haven't really discussed why a potentially rainy deal may be even more bullish because, to be honest, we didn't think that a rainy deal would be possible, and the progress has been actually surprisingly quick so far. But, obviously, it's not a finished deal yet. And, you know, I think an Iran deal would bring back the most important export of Iran, which is oil and gas, into a US denominated trade, and this would immediately engage normal fleet. So the shadow fleet would will no longer be used for this trade because it wouldn't be compliant due to sanctions, due to insurance, to flagging, due to classification, and they would have to substitute the normal fleet for this. You know, Iran is currently exporting slightly over one and a half million barrels, and we assume that in the potential deal and due to the increased efficiency of the trade and also the higher demand for Iranian crude, we we could see this production increase.

Speaker 2

And that's, you know, one VLCC per day. This is an additional catalyst that will be very positive for the freight market. But 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 under and maintained, and they they they must be near the end of their economic life.

Speaker 2

So we really think that the the replacement of the NITC fleet will give a lot of support to modern asset values, especially for VLCCs like this and Suezmax that we have in our fleet. And for sure, they're gonna want a portion of these ships to have immediate delivery and not be new building. So, you know, owners and companies that have ships available for for sale will obviously see the most interest from this type of purchasing. But, you know, if we look at if this doesn't materialize and we see a opposite scenario, it's also supportive where we see stronger secondary sanctions. For the first time, The US has focused on sanctioning Chinese refiners and Chinese tank farms.

Speaker 2

And if this continues, it could limit the Iranian ability to export to China due to logistical problems. And, that would boost the opportunity in employment. So these two new this one new scenario is interesting, and, you know, I think either a maximum pressure scenario or a deal scenario are the most likely and kind of forgetting about the uranium problem and the status quo remaining to me seems the least likely. That's all for me, and thank you for listening to our q one presentation, and we're happy to answer any questions.

Operator

Thank you. If you have any questions today, please submit them through the webcast.

Speaker 1

So we already have a few questions coming in. Let me try and and and and organize this. The first one comes from Liam Burke at B Riley. Two, three different questions. Maybe the first one is for B Riley, David.

Speaker 1

You expect the same terms on the refinancing of the third VLCC out of saving leasebacks? Yeah. We are we're actively working on securing the the the financing for the KL. I expect it would be in similar, if not better terms, than the ones we have announced. We are not in Jamaica.

Speaker 1

Yeah. Then a couple of other questions. Are Suezmax rates benefiting from the increase in non OPEC plus crew production?

Speaker 2

Hi, Liam. 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 their the guideline. But this increased production of Kazakhstan crude, which usually sells into Europe, was able to be arbitraged into Asia, and this happened, I think, mostly in February and March and a little bit of April. So you saw a lot of Suezmaxes taking this CBC crude that usually sells into Europe and taking it much further to Asia.

Speaker 2

And because the Suez Canal is still closed for this trade, you saw Suezmax having to sail, you know, from the Black Sea through the Mediterranean around Africa and to Asia. So it really stretched ton miles as opposed to the similar voyage that was going to Italy or France, and it it displayed a lot of shifts. And I think that that was one of the main drivers for why this the Suezmax were had a big jump late in q one and early in q two. I think this the OPEC plus increasing production quite quickly and dropping theirs the OSP distorted a bit these arbitrages. So currently, this arbitrage from, you know, the Kazakhstan cruise to go east is closed.

Speaker 2

But I think that once the local pricing of different cruise balances is out, we'll see that our creep back open again and see more ships going that way. So that'll be supportive on time mile.

Speaker 1

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 in balance of 2025?

Speaker 2

Overall, we're optimistic on the balance of 2025. I think that we've seen the markets are slowly, you know, beginning to simmer and we're going towards a boil. So I think that we don't need much more momentum to really push us into a stronger bull market, and I consider that quite unlikely outcome. So, you know, you can see from our fleet that we remain a % 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.

Speaker 1

We have one more question from Bendik for the nightingness at Tarshan's. So besides the management of Jopalita risk, there is quite a meaningful reduction in margin on the new financing. Are there other facilities where you can refinance at this term without penalties? Are these the kind, of terms we should expect for the Ocean Yield refinancings as well? I I'll take that one.

Speaker 1

Well, to to to answer simply, other than than the two the Ring and the Despoka Cove, we have no penalties to refinance any of our other vessels earlier. So, you know, these two vessels, the the purchase options kick in about a year from now. And the the the the the what what we see today with the current financings is that it encourages a lot that this you know, we what what we can achieve is very, very meaningful with regards to the Ocean Yield refinancings as well. So if we were to do those transactions today, I would expect that we should be in a position to achieve similar rates. Yes.

Speaker 1

We have another question from Frederic Deboed at Fernley's. What would you like to see happen in the term market for you to consider TC coverage?

Speaker 2

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

Speaker 2

I think that that's generally a good driver for longer term t c you know, one to three year t c business, where the first voyage can really be profitable and for the from the chart perspective, decrease the risk for the balance of the t c period. But I think we're quite a bit closer to what we find interesting, but there's still a gap at the moment.

Speaker 1

I think we have time for one more. Peter Hogan from ABG. There are reports of stronger prices for older tankers. Around selling at 20, at 2,007 built at 48 to 50,000,000. In the case of an Iran deal, a, what should we expect for this market?

Speaker 1

And b, how would that impact, newer tonnage?

Speaker 2

Hi, Peter. Thank you for the question. There has been a you know, I think where towards the end of last year, it seemed that at least especially for the older side 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 a strong bid for older tonnage and that this price has they've 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.

Speaker 2

But in the case of an Iranian deal, I think that the the real upside is to newer vessels because, you know, once you're in a compliance business, you need to be able to adhere to all the different rules and regulations. And the value of, you know, having efficient eco tonnage, potentially with scrubber, will be much bigger. And these are not speculative investments done by, you know, traders that, you know, like, the Iranian affiliated traders for one or two or three voyages until the ship breaks down and they they abandon it somewhere or use it for storage. This is a strategic national reinvestment for the Iranian national Iranian tanker fleet. So I think that the big upside would be on on younger tonnage.

Speaker 2

And there there is already quite a bit of interest on younger VLCC tonnage. And adding a strong and and, you know, immediate buyer like this could really maybe push prices up to levels that you had always been guiding they would reach.

Speaker 1

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

Operator

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

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Okeanis Eco Tankers Q1 2025
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