Okeanis Eco Tankers Corp. (OET) Earnings Call Transcript & Summary

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 questions raised at the end of the call. [Operator Instructions] I'd like to advise you that this session is being recorded. Iraklis will now begin the presentation.

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 shorter 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 days for VLCCs stood at about $58,000, while for Suezmax at about $39,000. We record 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 3 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 on 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 9-month period. For the first 3 quarters, we achieved TCE revenue of close to $240 million. That's a 115% increase year-on-year. EBITDA of close to $200 million, that's over 150% increase year-on-year and reported profit of approximately $124 million. That's over 240% year-on-year. Moving on to Slide 6. 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 NPV based on broker values stands at more than comfortable 46%. On Slide 7, we're bridging our cash flow for the 9-month period, essentially delivering all of it to our shareholders. The next slide, Slide 8, fully demonstrates our commitment and strategy towards maximizing shareholder value. On the left-hand side, we have recalculated our total shareholder return since inception, which sits at an astonishing 473%. This assured 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 3 quarters, this amounts to 96%. Moving on to Slide 9. it summarize our corporate and capital structure as well as our employment profile. Last quarter, we had just announced the refinancing of 2 Suezmaxes and 1 VLCC at sub 2% margin levels. I'm pleased to confirm the most recent refinancing we did in September over 2 Suezmaxes, the Nissos Sikinos and 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 margin or 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 2 recent transactions. We expect to be in a position to announce at least a plan for the Milos in advance over 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 balances. On the employment front, the Nissos Sikinos and Nissos Sifnos are still employed under the long-term time charters, and we expect them to be delivered 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 of our 20-F last week. Our ticket in New York is expected to be ECO, while in Oslo will 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, overtime, 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.

Thank you, Iraklis. So on Q3. Q3 was a weak quarter in the context of the last 18 months. And it was the first quarter where there were quite weak Suezmax rates as well. They dropped significantly into the summer. Our strategy of keeping vessels in the West was useful as we did commit 4 of our vessels on front haul voyages East to lock in much higher returns and 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 affected as we had to position the vessels for dry dock. To do this with the 2 suboptimal voyages near the dry dock location. In addition, when a vessel exited 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 2 dry docks in Q3, obviously, the earnings would be materially higher. During the quarter, we achieved a fleet-wide TCE of $48,900 per operating day, including our time chartered. And our VLCC generated 57,900 per day on spot market. This is a 36% outperformance relative to our tanker period that I reported Q3 earnings. Our Suezmaxes generated $38,700 per day, which is on par relative to our tanker periods that I have reported Q3 earnings. These numbers reflect our actual book TCE revenue within the quarter as per our accounting standards, which also includes 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 and will reflect more on our Q1 earnings and the end of our Q4 earnings. So to give you 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 the 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 permits. After 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 back haul 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 base at $44,400 per day. 90% of our VLCC spot base at $40,900 per day, which is a 13% outperformance and 49% of our Suezmax base 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 fleet will now have to complete for Iranian barrels, pushing pressure on freight rates and 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 Venezuela and then -- and the displaced AG crude will now by definition, have to move a further 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 gap, while also in the medium term by the oil majors that we see at the market consolidate. Both Chevron and Exxon have both spent over $50 billion each to acquire oil producers to support the production levels over the coming years. This trend is expected to continue by other oil majors with the market further consolidated. 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 covers is in 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 potentially 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 half. We are nearing the point of sustaining high earnings, and these will have to be factored in when pricing the secondhand 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 3 months with our Q4 earnings and Q1 guidance. With this, we conclude the presentation, and happy to answer any questions.

[Operator Instructions] Our first question comes from the line of [indiscernible] from Clarkson Securities.

I just wanted to touch up on 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?

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 have a -- October, November were very busy months for Chinese export -- for Chinese imports from cargoes loaded both in the Atlantic Basin, Brazil, U.S. Gulf West Africa. So we don't see anything materially different, but these things do fluctuate month-to-month. So December may be a bit lower, I'm not sure. But we don't see any material changes in Chinese import anymore.

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

Well, I mean, the crude import quotas that they issue, in the past they have issued an additional crude import quota for the end of the year. But at this point, if you're loading a cargo you're working [indiscernible] 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 low port, lift the cargo and discharge in China, you're already 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.

[Operator Instructions] There are no further questions, so I'll hand you back to your host to conclude today's presentation.

Thank you. Thanks, everyone, for joining. We look forward to speaking in 3 months. Thank you. Bye-bye.

Thank you for joining today's call. You may now disconnect your lines.