Euronav Announces Strongest Ever Q2 Operating Performance

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Euronav NV reported its non-audited financial results yesterday for the second quarter ended 30 June 2023.

Lieve Logghe, CFO and CEO ad interim of Euronav said: “Euronav has delivered its strongest ever Q2 operating performance outside the exceptional Covid pandemic situation of 2020, with net profit of USD 162 million, in a largely counter-cyclical quarter for the large crude tanker market.

We have delivered on several fronts, with an increase in the size and earnings power of the fleet. Furthermore, we continue to focus on our people and their safety with the launch of a new safety campaign. Apart from our continued daily efforts in our road to decarbonization, we have agreed on a new sustainability-linked facility. We are also proud to have supported the United Nations (UN) in the salvage operation of the FSO Safer in Yemen, thereby helping to avert a potential environmental challenge.

Euronav’s operational and commercial platform is robust, well prepared for future challenges and positioned for further growth to extract maximum value from the strong multi-year upcycle of the large crude tanker market, for the benefit of all stakeholders.”

For the second quarter of 2023, the Company recorded a net income of USD 161.8 million or USD 0.80 per share (second quarter 2022: a net loss of 4.9 USD million or USD (0.02) per share). Proportionate EBITDA (a non-IFRS measure) for the same period was USD
247.6 million (second quarter 2022: USD 74.9 million). This represents the Company’s strongest Q2 operating performance on record outside the Covid pandemic of 2020, when floating storage of surplus oil drove a surge in freight rates.

EURONAV TANKER FLEET DEVELOPMENTS

Sale of VLCC Nautica to United Nations for salvage operation

On 10 March 2023, Euronav announced it had signed an agreement with the UN to sell a VLCC as part of a wider salvage operation for the FSO Safer located in Yemen. The VLCC Nautica (2008 – 307,284 DWT) was sold and delivered debt-free to her new owner on 17 July 2023.

The UN has begun the transfer operation of more than 1 million barrels of oil from the FSO Safer on 26 July 2023, which is likely to take around 20 days.

Update – Newbuilding delivery schedule

The outstanding capital expenditure for the five Suezmaxes currently under construction at the end of Q2 2023 was USD 209.6 million, of which USD 73.0 million is due 2023 and USD 136.6 million in 2024.

On 30 May 2023, Euronav held a naming ceremony for two newbuildings, VLCC Clovis and Suezmax Brugge. VLCC Clovis (2023 – 299,158 dwt) was delivered on 30 May 2023 and Suezmax Brugge (2023 – 156,851 dwt) joined our fleet on 11 July 2023. This followed the delivery of the VLCC Camus (2023 – 299,158 dwt) and VLCC Cassius (2023 – 299,158 dwt) on 28 February and 11 January respectively.

SUSTAINABLE FINANCING

Euronav has received a commitment of USD 190.5 million to finance 4 newbuildings entering service in 2023 (1 VLCC Clovis, and 3 Suezmaxes Brugge, Brest and Bristol). The new facility will carry an interest rate equal to SOFR plus margin 184 basis points (bps). Achievement of ESG KPI’s, could lead to a blended rate of 177 bps. The term loan has a maturity of 12 years and was coordinated by DNB and ING, supported by K-Sure (premium included in the blended rate). This brings Euronav’s sustainable financing level at 62%.

SUSTAINABILITY UPDATE

Euronav’s industry-leading sustainability practices have been recognised at the first ever ESG Shipping Awards in Athens. The May 30 event, held under the auspices of the Greek Ministry of Maritime Affairs and Insular Policy as well as the Hellenic Chamber, rewards exemplary Environmental, Social and Governance practices in the Greek Maritime industry.

Euronav was the winner of the Silver Environment Award in recognition of the strength of its sustainable financing associated with environmental management and reporting, air emissions, energy efficiency, pollution prevention, biodiversity, climate strategy, waste, and water-related management.

Webber Research 2023 ESG Scorecard

Euronav has been placed in the top quartile of the only major report into Shipping Corporate Governance undertaken by Webber Research since 2016 (previously Wells Fargo). The Company was listed 16th out of 52 shipping companies of various sectors (containers, bulk, tankers) in the scorecard for 2023. Euronav will continue to observe and apply the highest standards of corporate governance. The ESG Scorecard ranks the public shipping universe on a number of corporate governance metrics with the goal of identifying both high quality shipping platforms and points of conflict based on underlying factors.

TANKER MARKET & OUTLOOK

Seasonal factors that are hard-wired into crude tanker markets typically tend to reduce cargo volumes during Q2 and Q3 (owing to refinery maintenance programmes, lower energy consumption during northern hemisphere spring, inventory planning, etc.). However, the impact in Q2 2023 and in Q3 so far is far smaller than historically observed, providing further evidence and confidence that the large crude tanker market is therefore well-positioned to continue the current upcycle based on strong fundamentals.

Crude oil demand & supply

Demand for crude oil continues to see consistent upgrades for 2023 – the IEA has raised 2023 consumption forecasts nearly every month since November 2022. In total, the IEA is now forecasting 2.5m barrels per day (bpd) consumption growth for 2023 – up 0.9m bpd from Q4 2022 forecast. This sustained upward revision contradicts the performance and signals of a range bound oil price (Brent USD 71-85 year to date). Increased supply from non-OPEC sources and inventory drawdown (both strategic and commercial) provides some explanation for the oil price performance and buoyant tanker markets – as this supply needs to be shipped.

The key development during the quarter was the surprise OPEC+ announcement of a commitment of further supply cuts of up to 1.6m bpd to end 2024 and Saudi Arabia’s additional commitment to voluntarily reduce up to 1m bpd production on a month-by- month basis. The cuts are focused specifically on Middle East exporting nations and will therefore provide a clear headwind for tanker operators primarily focused on the VLCC segment.

However, there are a few caveats. Firstly, non-OPEC production continues to surprise on the upside with EIA forecasts for 1.9m bpd supply expansion. The key leading sources of this are the US, Norway, Canada, Brazil, and Guyana (source: EIA) which should also be supportive for ton miles as consumption growth continues to be focused on the Far East. Secondly, OPEC members (that are not part of OPEC+ cuts) (Venezuela, Iran, Nigeria) have seen stable production and exports. Thirdly, Russian barrels continue to defy most market forecasts with production and exports at similar level as late 2022.

During the quarter two key patterns of trading have emerged. Firstly, smaller tankers (Suezmax, Aframax) have continued to exhibit more resilience than VLCC markets given the higher dislocation from Russian trading and consequent higher utilisation. Secondly, volatility within VLCC freight has been more elevated than usual. These two trends have however coalesced into another quarter of counter seasonal strength in freight rates. June saw a very large spike in VLCC freight rates reflecting a tight market between supply and demand. The average Q2 VLCC and Suezmax spot rates since 1990 have been USD 34k per day and USD 27k per day respectively, for Q2 2023 they amounted to USD 55k and USD 68k per day respectively, reflecting an exceptionally strong performance.

Vessel Supply

An arguably long overdue uptick in contracting occurred during Q2 with focus remaining on smaller tankers. Q2 2023 saw 15 Suezmax orders taking the orderbook-to-fleet ratio to 5% and the first four VLCC orders in almost a year (VLCC orderbook-to-fleet ratio at 1.6%). Unsurprisingly, there was no recycling of VLCC or Suezmax vessels for a second consecutive quarter given such buoyant freight markets.

Contextual factors help to explain why new vessel contracting in Q2 could not remain at its previously very low levels. Contracting has come from highly reputable and disciplined owners with large established fleets as part of fleet renewal programmes. In addition, delivery dates are now on average 30 months after order placement – toward the higher end of the range since 1990. Finally, orderbook-to-fleet ratios remain extraordinarily low by historical standards (1.6% for VLCCs and 5.0% for Suezmaxes).

Suezmax asset prices continued to rise during Q2 for Suezmax, with five and ten-year old vessels increasing in value by 8 to 10% over the quarter. Prices were flat for all age categories of VLCCs and recent inflation in older tonnage appears to have moderated across all tanker segments.

Freight rates – consistent improvement and time charter emerging trend

Freight rates retained their counter-seasonal trend during Q2 – a quarter when historically refinery maintenance and lower seasonal crude demand would see rates recalibrate lower from winter rates. Whilst rates are lower quarter-on-quarter, the reduction is modest with VLCC and suezmax rates remaining far above the average since 1990 for comparable Q2 periods (USD 33,708 per day for VLCC and USD 27,315 per day for Suezmax).

The last period during which Q2 freight rates were sustainably above USD 40k per day for both VLCC and Suezmax sectors was in 2003-2008. Core industry fundamentals are similar today. In 2023, the global fleet average age is 11 years for VLCCs (vs. 8.2 years in 2003)

and 11.1 years in 2023 for Suezmax (vs. 8.4 years in 2003). Then as now, owners faced incoming regulations requiring longer-term fleet adjustments, with the move from single- to double-hull vessels in 2003.

So far in the third quarter of 2023, Euronav VLCCs in the Tankers International Pool have earned ~ USD 44,750 per day with 45% of the available days fixed. Euronav’s Suezmax fleet trading on the spot market has earned ~ USD 49,500 per day on average with 50% of the available days fixed.

DISTRIBUTION TO SHAREHOLDERS

Q2 2023 Dividend

The Supervisory Board is proposing a dividend of USD 80 cents per share to reflect both the strong tanker market fundamentals and the robust operational leverage that the Euronav platform has to these market conditions.

COUPON 35:

• Ex-dividend date: 06/09/2023
• Record date: 07/09/2023
• Payment date: 19/09/2023

Euronav shareholders will receive USD 2.63 dividend per share during calendar 2023 reflecting the Supervisory Board’s confidence in the company and tanker sector’s capability to maintain strong freight markets for the foreseeable future.

MANAGEMENT BOARD UPDATE

The composition of the Company’s Management Board underwent some key changes in the first half of 2023. In May, Euronav announced the departure of Hugo De Stoop, CEO and Egied Verbeeck, General Counsel. Lieve Logghe was appointed CEO ad interim and continues her role as CFO. Sofie Lemlijn was appointed General Counsel.

Thierry De Grieze, Chief People Officer and Michail Malliaros, General Manager Euronav Hellas, joined the Management Board in April and May 2023 respectively.

SUPERVISORY BOARD UPDATE

On 17 May 2023, Euronav held a General Meeting of Shareholders. The Shareholders approved the appointment of two new independent directors: Julie De Nul and Ole Henrik Bjørge. Carl Trowell and Anita Odedra, having come to the end of their terms, decided not to stand for re-election.

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