Euronav sees multi-year upcycle in large crude tanker freight markets

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Euronav NV reported its non-audited financial results today for the first quarter ended 31 March 2023.

Hugo De Stoop, CEO of Euronav said: “The counter seasonal strength recorded in Q1 underpins our view that strong and durable drivers are in place to continue a multi-year upcycle in large crude tanker freight markets. Our confidence is reflected in our returns to shareholders. The combination of our final 2022 dividend and the dividend related to Q1 means that USD 1.80 per share will be returned in Q2 2023. In addition to enjoying strong earnings, we are proud to co-operate with United Nations in Yemen, providing a solution to a potential environmental challenge.”

All figures, except for Proportionate EBITDA, have been prepared under IFRS as adopted by the EU (International Financial Reporting Standards) and have not been audited nor reviewed by the statutory auditor.

For the first quarter of 2023, the Company realized a net gain of USD 175.0 million or USD 0.87 per share (first quarter 2022: a net loss of USD 43.4 million or USD (0.22) per share). Proportionate EBITDA (a non-IFRS measure) for the same period was USD 258.5 million (first quarter 2022: USD 42.9 million).

TCE

The average daily time charter equivalent rates (TCE, a non IFRS-measure) can be summarized as follows:

Sale of older Suezmax vessels continues in Q1

In February the Suezmax Cap Charles was sold (2006 – 158,881 DWT). This transaction generated a capital gain of USD 22.1 million. The Cap Charles was debt free and delivered to her new owner on 16 February 2023.

Sale VLCC Nautica to United Nations for salvage operation

On 10 March 2023 – Euronav NV signed an agreement with the UN to sell a VLCC as part of a wider salvage operation for the FSO Safer located in Yemen. Euronav can confirm that vessel is the Nautica (2008 – 307,284 dwt) which we bought back from a sale and leaseback agreement before retrofitting the vessel for necessary modifications and regular maintenance before sailing to the location of the FSO Safer.

The Nautica will replace the FSO Safer and will stay there. Euronav will help transferring the oil and operate the vessel for a transition period of several months. The entire team of Euronav is very committed to be able to participate to such project and do their utmost to help providing a solution for a potential environmental challenge.

Update – Newbuilding delivery schedule

Outstanding capital expenditure for the 6 vessels (1 VLCCs and 5 Suezmax) currently under construction at the end of Q1 2023 was USD 279 million, split as follows: USD 142 million in 2023, USD 137 million in 2024.

Euronav took delivery of the VLCC Cassius (2023 – 299,158 dwt) on 11 January 2023 and VLCC Camus (2023- 299.158) on 28 February 2023.

TANKER MARKET & OUTLOOK

The key feature of Q1 has been the counter seasonal strength in freight rates. Sequential improvement in rates in both VLCC and Suezmax was experienced month on month from January to March. This unusual trading pattern – only the third time this has occurred since 1990 in both VLCC & Suezmax sectors – underpins the strong fundamentals of the large crude tanker market.

The key structural drivers of our market remain in place with very little change in:

(a) contracting – zero VLCC and just six Suezmax year-to-date

(b) fleet capacity – average vessel speeds remained unchanged during Q1

(c) shipbuilding capacity – constrained until end of 2025/6 by other LNG/Container orders

(d) asset values – remain well supported with 5-10 year old vintages still rising

Since the quarter end, rates in both the VLCC and Suezmax segments have declined and the announcement by OPEC+ to reduce production from May 2023 likely to create a headwinds. However, these reductions will be primarily focused on Middle East sources. With Far East markets the key driver of demand and consumption growth is in the Far East, so the alternative crude sourcing will have to come from Atlantic barrels thus requiring transportation of about twice the distance. This positive ton mile dynamic in favour of tanker markets should offset some of the loss from lower Middle East cargo supply.

Asset Values

The pace of asset value increase for crude tankers has continued to ease and remains focused on 5-10 year old vessels. During Q1 2023 5 and 10 year old VLCCs rose 5% and 9% in value with their Suezmax counterparts increasing 5% and 11% respectively. New and vintage tonnage age classes remained stable during the quarter.

Crude oil demand

The IEA continue to forecast a sharp acceleration of crude demand over the course of 2023 from 710k bpd in Q1 2023 to 2.6m bpd in Q4 2023. Global oil demand is expected to reach a record 102m bpd consumption during calendar 2023. The key drivers of this rebound will be recovering air traffic and the release of pent up Chinese demand as global consumption of crude is restored to levels pre-Covid-19 for the first time.

Vessel Supply

In the eight quarters to end Q1 2023 just two VLCC and 17 Suezmax were contracted. Suezmax contracting has “accelerated” with 5 orders in Q1 on the back of 9 orders in Q4 2022 (source: Clarksons). Orderbooks remain at historically low levels – VLCC at just 1.7% at end March 2023 with Suezmax ratio at 3.5%. Unsurprisingly there was no recycling of VLCC or Suezmax vessels during Q1 given such buoyant freight markets.

Freight rates – consistent improvement and time charter emerging trend

Sequential improvement month on month for freight rates was recorded in both VLCC and Suezmax sectors during Q1. It is also encouraging that despite higher freight rates vessel speeds were kept in check with no change between average speeds in Q1 compared to Q4 2022 in either VLCC or Suezmax category (source: Clarksons).

Further encouragement is emerging within longer term time charters. The number of time charter opportunities is increasing and the duration are getting longer. Previous cycles have shown that the time charter market should develop further and should provide optionality and opportunity for owners as the cycle unwinds.

The large crude tanker market is therefore well positioned to continue a multi-year upcycle based on strong fundamentals. Sequential quarterly improvement in freight rates may be challenging given the in-built seasonality hard wired into crude tanker markets. Seasonal factors tend to reduce cargo volumes during Q2 and Q3 (owing to refinery maintenance programmes, lower energy consumption during northern hemisphere spring, inventory planning etc).

So far in the second quarter of 2023, the Euronav VLCC non scrubber fleet in the Tankers International Pool earned ~ USD 67,255 per day and 62% of the available days have been fixed. Euronav’s Suezmax fleet trading on the spot market has earned ~ USD 62,000 per day on average with 51% of the available days fixed.

DISTRIBUTION TO SHAREHOLDERS

Full Year 2022 Dividend

The Supervisory Board outlined with the full year results on 31 March 2023 a proposal to the Annual Shareholders’ Meeting of 17 May 2023 to distribute a full year gross return in the amount of USD 1.10 per share to all shareholders. This payout will be a combination of a dividend and mainly a repayment from the share issue premium.

COUPON 32 & 33:

    Ex-dividend date 1 June 2023

    Record date 2 June 2023

    Payment date 13 June 2023

Q1 2023 Dividend

The Supervisory Board is proposing a dividend of USD 0.70 per share to reflect both the strong fundamentals attributes of the crude tanker market but also the robust operational leverage that the Euronav platform has to these market conditions.

COUPON 34:

    Ex-dividend date 8 June 2023

    Record date 9 June 2023

    Payment date 20 June 2023

Euronav shareholders will therefore receive USD 1.80 dividend per share during calendar Q2 2023 reflecting the Supervisory Board’s confidence in the company and tanker sector’s capability of delivering strong freight markets for the foreseeable future.

SUSTAINABILITY UPDATE

In January 2023, Euronav was included in the Bloomberg Gender-Equality Index (GEI) for the sixth year, since the Index was established in 2018. For 2023, our score sequentially improved from 2022. Euronav remains committed to such initiatives and looks forward to continuously improving its ranking year after year.

MANAGEMENT BOARD UPDATE

Euronav is pleased to announce three appointments to the management board during Q1.

Thierry de Grieze joined the company as Chief People Officer in March 2023 and joined the management board in May 2023. Thierry holds a master’s degree in Organizational & Labour Psychology and is a qualified coach. Thierry brings to Euronav a wealth of experience he has acquired over the last 23 years in various industries such as industrial part distribution, flooring solutions and precision machining for aerospace among others.

Sofie Lemlijn joined Euronav in 2019 as Senior Legal Counsel progressing to Secretary General in 2022 and a member of the Management board in April 2023. Before joining Euronav, she worked almost 10 years for the privately owned Dutch Ship-owner Vroon where she took up various roles gaining extensive shipping industry experience.

Michail Malliaros joined Euronav Ship Management Hellas in 2005 moving to General Manager in June 2022 and a member of the Management Board in April 2023. He is an Associate Member of the Hellenic Marine Environment Protection Association (HELMEPA), a Fellow of the Institute of Chartered Shipbrokers and a Chartered Shipbroker.

CORPORATE UPDATE

Shareholdings of two core shareholders

On 3 April 2023 Famatown Finance Limited filed a 13D to announce they have acquired additional shares. The Group has acquired an additional 88,127 shares, which brings the total shares of C.K.Limited to 53,401,478 shares, or 24.29% of total number of shares in issue or 26.46% of voting shares.

CMB and its affiliates on its last update and 13D filing announced it held 50,425,600 shares, or 22.92% of total shares in issue equivalent or 24.99% of voting shares.

Arbitration proceedings

On 9 January 2023, Frontline announced that it had unilaterally decided to terminate the Combination Agreement. Euronav determined that unilateral action pursuing the termination of the Combination Agreement has no basis under the terms of the Combination Agreement and that Frontline failed to provide a satisfactory reason for its decision to pursue termination. On 30 January 2023 Euronav announced that it has filed an application request for arbitration on the merits in relation to Frontline’s unilateral action in pursuing the termination of the Combination Agreement.

Change in board composition at SGM

On 23 March 2023, Euronav held a Special Meeting of Shareholders to vote on resolutions submitted by Famatown Finance Ltd. (Famatown) and CMB NV (CMB). Shareholders approved the appointments of four new directors: John Fredriksen and Cato H. Stonex, representing Famatown; and Marc Saverys and Patrick De Brabandere, representing CMB. Shareholders also voted to maintain independent directors Grace Reksten Skaugen, Anita Odedra and Carl Trowell and approved a resolution proposed by CMB to terminate the mandates of the other independent Board members Anne-Hélène Monsellato and Steven Smith.

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