Euronav NV reported its final financial results for the full year to 31 December 2020.
Hugo De Stoop, CEO of Euronav said: “2020 will be recorded as one of the most tumultuous in tanker market history. Euronav’s positioning ensured shareholders were able to benefit from record freight rate performance over the first half of 2020, with USD 371 million returned via cash dividends and share repurchases. Whilst the second half rapidly gave way to a highly challenging tanker market, Euronav’s balance sheet strength and strategy of modern fleet allow the company to navigate such volatile periods. Current market conditions are amongst the most challenging in recent memory for crude tanker operators. COVID-19 consequences continue to impact operations and more importantly the demand for crude oil. This has led OPEC+ to extend production cuts.
As a result, the market remains unbalanced with too many ships chasing too few cargoes. Whilst some encouraging signs are emerging, like the price of scrap steel, a driver of ship recycling activity, traction with crude consumption returning to more normalized pre- COVID-19 levels is required to drive a return to the sector profitability. Despite these headwinds Euronav remains focused through cycle on long term value generation which may validate vessel acquisitions whilst retaining balance sheet strength”.
2020 was perhaps the most volatile and unpredictable year for crude oil and tanker markets in history. At the start of the year, geopolitical risk had driven both tanker freight rates and oil prices to higher levels during with a robust winter underpinning crude demand until the end of the first quarter.
Tensions amongst the OPEC+ countries, and in particular Russia, ended with a Saudi led move to simultaneously cut oil prices and rapidly increase production and exports onto the global markets turning the tanker and crude markets upside down in early March.
This escalation into direct action or a ‘price war’ proved to be the catalyst for a rapid 60% reduction in the oil price from USD 55 per barrel in January, to below USD 20 per barrel in April. Whilst challenging for the global oil markets, freight rates for the tanker market rose to over USD 100,000 per day, reflecting a shortage of vessel capacity to manage the increase in number of cargoes being shipped.
At the same time, the spread of COVID-19 and the accompanying restrictions were having an onerous impact on economic activity. In effect, a disconnect grew from late March until early May, with global crude production largely unchanged at approximately 100 mbpd, but underlying consumption falling to around 80 mbpd. Crude production was in surplus, further driving demand for tankers providing a flexible solution for storing this excess oil supply. Tanker freight rates continued to rise to very elevated levels into June, driven by a requirement for storage.
Then OPEC+ participants agreed large scale crude production and export cuts, effective from early May, of 9.7m barrels per day. Such measures substantially reduced the requirement for storage of crude and the economic incentive for storage.
The floating storage demand grew to occupy 10% of the VLCC fleet and 15% of the Suezmax fleet, and supported freight rates at elevated levels, despite an underlying reduction in demand for and consumption of oil.
The second half of 2020 was negatively impacted by the tankers returning from such storage activity, increasing the supply side whilst the demand for transportation was rather flat. The number of vessels being used as floating storage had largely unwound by the end of 2020 to return to normalized levels.
Tanker freight rates tumbled below break-even territory from September 2020 onwards as the anticipated economic recovery was postponed due to continued COVID lockdown restrictions. However, old vessel supply has begun to respond to higher steel prices, and to increased scheduled environmental regulations prompting an increase in vessel recycling albeit from very low levels.
Tanker markets should return to profitability when oil inventory normalizes and the economic recovery brings oil demand to pre-covid levels. This should happen at some point in the next 12 months. At that time, the return of restricted supply cargoes primarily from OPEC+ will be an additional benefit for tanker markets.
Difference between the preliminary results and final results
The final result of USD 473,238,000 reported today is USD 467,000 higher than the preliminary results reported on 30 January of USD 472,771,000. This difference is related to the final positive settlement of the TI Pool.
Procedures of the independent auditor
The statutory auditor, KPMG Bedrijfsrevisoren – Réviseurs d’Entreprises, represented by Herwig Carmans, has confirmed that the audit procedures, which have been substantially completed, have not revealed any material misstatement in the accounting information included in the Company’s annual announcement.
Euronav highlights in 2020 January
On 9 January 2020 Euronav published updated guidance on its return to shareholders policy to be applied to the 2019 results and the quarterly results as from 2020 onwards.
On 22 January 2020, for the third consecutive time, Euronav was included in the Bloomberg Gender-Equality Index (GEI)
On 27 January 2020, all Euronav’s managed vessels were informed of the safety measures taken regarding the upcoming COVID-19 virus for the first time.
On 21 February 2020 Euronav sold the Suezmax M/T Finesse (2003 – 149,994 dwt) for USD 21.8 million and delivered the vessel to her new owners.
On 26 February 2020 Euronav entered into an agreement for the acquisition through resale of three VLCC newbuilding contracts.
On 13 March 2020, Euronav shore staff started working from home to counter the rapidly spreading COVID-19 virus.
Euronav entered into an agreement on 26 March 2020 for the acquisition through resale of one more VLCC newbuilding contract.
On 9 April 2020 the Suezmax Cap Diamant (2001 – 160,044 dwt) was sold for USD 20.8 million and delivered to her new owners.
On 5 June 2020 the VLCC TI Hellas (2005 – 319,254 dwt) was sold for USD 38.1 million and delivered to her new owners.
On 25 June 2020 Euronav launched an exceptional campaign, in which Euronav honours ships’ crews on the ‘Day of the Seafarer’ and demands the status of ‘key workers’. This would enable crew changes for the thousands of confined seafarers worldwide due to COVID-19 related restrictions.
Euronav started a series of several share buybacks on 30 June 2020, which continued throughout the rest of the year.
On 30 September 2020 Euronav sold the Suezmax Bastia (2005 – 159,155 dwt) for USD
20.5 million and delivered the vessel to her new owners.
Euronav received the award for ‘Best Market & Competitive Information 2020’ from the
Belgian Association of Financial Analysts (ABAF-BVFA) on 15 October 2020.
On 4 November 2020 Euronav announced that the joint venture with International Seaways has signed an extension for ten years for the FSO Asia and the FSO Africa, in direct continuation of their current contractual service.
On 10 December 2020 Euronav obtained a ‘B’-score from the Carbon Disclosure Project (CDP) for our actions and leadership shown against climate change.
On 16 December 2020 Euronav held its first ever virtual naming ceremony to welcome Delos and Diodorus, two out of a total of four sister Eco-type VLCC newbuildings, that were due to join our fleet in 2021.
Events occurred after the end of the financial year ending 31 December 2020
In January 2021 Euronav was a signatory of the ‘Neptune Declaration on Seafarer Wellbeing and Crew Change’. The declaration addresses the ongoing crew change crisis caused by the COVID-19 pandemic. It contains a list of concrete actions to facilitate crew changes and keep vital global supply chains functioning. The maritime stakeholder initiative was officially launched during the World Economic Forum’s Davos Agenda Week, in the week of January 25th.
Euronav has improved the Company’s score in its fourth consecutive inclusion in the Bloomberg Gender-Equality Index (GEI). The GEI provides transparency in gender- based practices and policies at publicly listed companies, increasing the breadth of environmental, social, governance (ESG) data available to investors.
On 3 February 2021 Euronav announced it has entered into an agreement for the acquisition through resale of two eco-Suezmax newbuilding contracts. The vessels are the latest generation of Suezmax Eco-type tankers. They will be fitted with Exhaust Gas Scrubber technology and Ballast Water Treatment systems. The vessels have the structural notation to be LNG Ready and Euronav is working closely with the shipyard to also have the structural notation to be Ammonia Ready. This provides the option to switch to other fuels at a later stage.
On 22 February 2021, Euronav has entered into a sale and leaseback agreement for one VLCC with Taiping & Sinopec Financial Leasing Ltd Co. The vessel concerned is the Newton (2009 – 307,284 dwt). The vessel was sold for a purchase price of USD 36 million.
COVID-19 update and impact on oil demand
The COVID-19 outbreak has impacted many countries around the world and disrupted the lives of many millions of people. The Company has been taking the risks associated with the outbreak extremely seriously, and the safety and wellbeing of its employees is of paramount importance.
In that respect, the biggest operational challenge was to conduct crew changes. Apart from serious humanitarian and crew welfare concerns, there is an increasing risk that fatigue will lead to serious maritime accidents. To resolve the difficult situation, Euronav’s management decided to accommodate deviations by ships to facilitate crew changes.
Many Euronav employees shifted from office to remote working in no time. We explicitly want to mention and are proud of the reaction of our people, where our global workforce bonded together to support one another.
Going forward, it remains difficult to estimate the future impact of the pandemic on the economies where we are active, and hence the impact these factors might have on the financial results.
In general terms, the market will become more challenging as demand for crude oil is negatively impacted by the COVID-19 pandemic. This decrease in demand combined with the gradual release of vessels that were used as storage may distort the supply-demand balance and thus the freight market. However, these negative consequences could very well be offset by continuing logistical delays of ships in ports, increased level of recycling, reduced ordering of newbuild vessels and increased crude oil production, partially neutralizing the COVID-19 impact to a certain extent. In view of these different dynamics which the company does not control, the longer term global macro-economic impact on the Company’s results related to the COVID-19 outbreak remains difficult to accurately quantify. Any forward-looking statements should be regarded with caution because of the inherent uncertainties in economic trends and business risks related to the current COVID- 19 outbreak. More in detail, the significant assumptions and accounting estimates, to support the reported amounts of assets and liabilities, income and expenses, were regularly reviewed, and if needed updated, during 2020.
Euronav does not only maintain a strong balance sheet with which to navigate tanker market cycles, but also a very strong liquidity with more than 1 billion USD available in the form of cash and of undrawn revolving credit facilities. Thanks to this strong balance sheet, we are confident about the future and will continue to monitor the situation carefully and remain fully committed to adapt our actions in the best interest of our stakeholders.