Okeanis Eco Tankers Corp.

Welcome to OET's first quarter 2023 financial results presentation. We will begin shortly. Aretidis Alafouzos, the CAO, Herakles Sparonos, the CFO, and Konstantinos Ikhinomopoulos, the Chief Development Officer of Okines Ecotankers, will take you through the presentation. They will be pleased to address Any questions raised at the end of the call? I would like to advise you that this session is being recorded. Heraclius will begin the presentation now.

Welcome to the presentation of Kiani's cycle timetable results for the first quarter of 2023. We will discuss matters that are forward-looking in nature, and actual results may differ from the expectations reflected in these forward-looking statements. We'll start with slide four and the executive summary. During my first conference call with the company back in February, I was privileged to present our then-strongest quarter since inception. I'm very happy to now present you the highlights of yet another record-breaking quarter in terms of revenue, EBITDA, and net income. The firm's time-to-market dynamics, in combination with our echo, young, and fuel-efficient fleet, has resulted in a fleet-wide time charter equivalent of $70,800 per vessel per day. That includes our fixed time charters. We report net TCE revenue of over $88 million, an 80% increase from our fourth quarter of 2022, adjusted EBITDA of over $74 million, and adjusted net profit of $1.60 per share, marking yet another quarter-on-quarter growth. Finally, our board has declared a fourth executive capital distribution of $1.60 per share. That is 100% of our EPS, a testament to our commitment to delivering value to our shareholders. In previous quarters, we made certain adjustments related mostly to our capital structure and then returned all remaining available value. Our current liquidity position, standing at levels of above $115 million as at the end of the first quarter, gave us the flexibility to return our full profit for this quarter. We continuously monitor our performance, the crude oil time care market outlook and fundamentals, global inflationary and interest rate dynamics, and naturally our balance sheet. We plan on carefully balancing this in the future, while staying true to our promise of delivering maximum available value to our shareholders. Our latest distribution, annualized, implies a yield against our current trading price of approximately 28%. We're now moving to slide five. On slide five, we summarize our corporate and capital structure, as well as our employment profiles. On the latter, the latest related to the Nisos Despotiko is that we expect her to be re-delivered from our time charters in late June. The Milos is also expected to conclude its shorter-term time charter within the next few weeks. Both will join our other 10 vessels trading spots. The two Suezmax long-term time chartered vessels, Nisos Sykinos and Nisos Syknos, are expected to be re-delivered to us sometime within the fourth quarter of this year. While we're currently fully financed, we're constantly in discussions with our financing partners, both current as well as potential new ones. The current banking market, in combination with us being able to demonstrate to our financiers our solid track record and state-of-the-art fleet, may provide some opportunities to refinance certain vessels at accretive levels from a pricing and debt service perspective. Of course, we expect a meaningful improvement in our capital structure with the opportunity of the first purchase options coming up with respect to the Milos and the Koliagos in the first and second quarter of next year. I will now hand over to Aristides for a commercial and market update. There is a most of you have probably tuned into this presentation for.

Thank you, Achli. Overall, it was another record quarter for OAT. To give a recap of Q1, we began with weakness in the freight markets, which carried over from Q4, but this rallied strongly towards the end of the quarter. The rally was driven by the Atlantic Basin exports, mostly on VLCCs to Asia and Europe, and these cargoes are less systematic and often driven by arbitrage opportunities. At times, the trade seems binary. All of a sudden, the U.S. Gulf and West Africa come alike with 10 live cargoes, and this creates great volatility and can quickly change the fundamentals of the market. Q1 Chinese crude oil imports were very high in March and marked the record month. Chinese refineries go into maintenance in Q2, so expectations that imports would come off before increasing again after turnaround season. Chinese Golden Week holiday travel data show domestic tourist numbers increased by 70% year-on-year. Recovering above 2019 levels, and this is from data from the Chinese Ministry of Tourism. Data from the ministry also revealed that flight traffic jumped up 500% year on year and 4.2% above 2019 levels. We are more focused internally on Chinese transportation and travel demand as opposed to COVID recovery driver of oil demand. On both segments, we looked to take advantage of longer voyages when opportunities arose. We continued our strategy of maintaining a strong western presence on our VLCC fleet. We put a lot of focus into optimizing our selections of voyages to limit waiting and maximize the speed during laden and ballast passages. These two factors can have a greater effect on the TCE of a voyage than small to medium fluctuations in market rates, and this is even more apparent on shorter voyages. During the quarter, we have achieved a fleet-wide TCE of $70,800 per operating day, including our time charge. Our VLCC generated $76,300 per day in the spot market, a 50% outperformance relative to our tanker peers that have reported Q1 earnings. And our Suez Maxis generated $95,900 per spot day, a 56% outperformance relative to our tanker peers who have also reported Q1 earnings. These numbers reflect our actual BOOKTC revenue within the quarter as per our accounting standards. Moving on to the next slide for guidance and a market update on Q2. First, let's quickly recap what has changed since last week in the market. The weakness on the VLTCs in the West vanished, as well as all of the available tonnage, and rates have firmed from around $2.8 million for U.S. Gulf TVA voice to mid $4 million in just under a week. Within less than a week, the U.S. Gulf, Guyana, and West Africa have absorbed a very over-tonnaged Atlantic Basin VLCC position. The positivity in the West and increase in rate has also given confidence, along with increased cargo inquiries in the East. Rates will increase now into the low 40s from the high 30s. Cargo allocation by suppliers in Asia is also expected to come out this Sunday, so we expect more firm inquiries on Monday. To give you an idea of how quickly the market fluctuated in the West, we put a ship on subs, which was the Nicos Kipnos, at almost $25,000 per day higher than what we would have pictured two days earlier. The market snapped back in a little over a month since the OPEC voluntary customer announced. I find this positive, and we expect to see further volatility in the market going forward. Reviewing Q2 then, Q2 began with eventful news from OPEC that they will voluntarily cut oil production. As usual, and even more as it's voluntary, we expect OPEC Plus overall to not cut the full extent stated in their afternoon, which ruined my Sunday and I assume a lot of other Sundays as well. These cuts came at an inopportune time, though, as rates were falling anyways for VLCCs, sentiment was weak, and refineries in Asia were going into maintenance. OPEC cuts will always have the greatest effect on the VLCC market, and as expected, that market weakens on a comparative basis much more than the Suez Maxis and AfriMaxis. The VLCCs have found the floor, as we discussed earlier, and the East as well. The Suez Maxis market has also weakened, but is more resilient given its more regional trading and the cargoes from the non-OPEC nations. So far in Q2, we have 74% of our fleet-wide spot days at $82,800 per day, 72% of our VLCC spot days at $75,500 a day, an 11% outperformance relative to our tanker peers who have reported Q2 earnings, and 79% of our SWSMAC spot days at $86,500 a day, a 61% outperformance relative to our tanker peers that have reported Q2 earnings. In Q2, NISOS, as Irakli's mentioned as well, NISOS Despotico will be re-delivered to us following the completion of our three-year time charter, and therefore we will have 100% of our VLCC fleet in the spot market. Milos will also re-deliver from our short VC. Moving on to slide nine, we highlight our continued outperformance above our peers, which is consistent, and which is a consistent 40 and 20% for the Suez Maxis and VLCCs respectively. Part of this output performance is due to our assets. We are the only pure eco-scrubber fitted and youngest crude tanker company. Moving to slide 10, we focus on the medium-term outlook. The OPEC voluntary cuts reduced available cargoes in the market and inevitably weakened the supply-demand balance. The silver lining here is that this leads to global economy being undersupplied with crude oil. Inventories will draw, creating the foundations for much stronger fundamentals in the future. Q2 will counter seasonally draw before accelerated draws in Q3 and Q4. What excites us the most is the expected seaborne crew tanker demand, which looks to have a 5% increase in tons transported, but more importantly, a 5.7 increase in ton miles. Ton miles have been a key factor in the strength of the market in 2022 and will be sustained through 2023. This growth occurs as the normal fleet loses ships to the grey fleet, and we effectively have a fleet contraction this year. We hold the view that the grey fleet cannot compete on normal business and becomes marginalized to only engage in grey and black trades. Moving on to slide 11. As we have discussed consistently in the past, the key oil demand driver comes east of Suez, and China being one of the critical factors. Chinese crude imports are expected to surpass historic highs this year, and as this inventory situation tightens in the second half, this demand will pull incremental barrels from the West, and especially the United States. We expect to see a further increase in the East of Seward market share on the U.S. Gulf exports. Jumping to slide 12. From a supply perspective, the fleet has never been more attractive in my career. Realistically, a delivery window for VLCCs or Suez Maxes from ShipGuard is into the second half of 2026. There may be a very finite number of berths available slightly earlier, but the number will be entirely negligible if you look at it on a whole fleet basis. If you wanted to order them, you're most likely to receive a ship in 2026, and yards are quoting prices in Korea of over $125 million for a VLCC. Zooming forward to 2026, 50% of the VLCC and Suez Max fleet will be over the age of 15 years old. The black and gray fleet lifts sanctioned cargoes from Iran, Venezuela, and Russia. The Iranian and Venezuelan lifters are classified as the black fleet. They have zero interaction with normal market participants, such as owners, charters, agents, etc. The insurance classification and slag that they fly are worth nothing. Some ships may not even bother to have any of these. The grey fleet is different. It is of a non-European nexus and lifts non-price-capped Russian cargoes. The quality of management on both fleets is questionable at best, and the tonnage is much older. Like the black fleet, the ownership structures are obscure and the insurance is debatable. This poses an environmental risk. If there is an incident, who will step forward to cover the pollution or damage? The owner that owns a vessel for a single purpose vehicle based out of a Middle Eastern country. I assume the person with the money is not the person who appears on the corporate documents. Or the insurance. The insurance companies are not large P&I clubs who use reinsurance and reinsure their risk all over the world like we do. But small, marginal office who issue a certificate to facilitate trade and consider the consequences only once they've occurred. I'm convinced that the owner and likely the insurance cover would disappear and potentially leave the bill with the nation defected. We have an example now of the aftermath that blew up off Malaysia called the Paslo. Luckily, so far pollution has been minimal, but let's see who covers the bill and the recovery of the vessel. The EU is considering legislation to not allow calls in Europe by the Greek League, which would marginalize it further into a category closer to the Black League. This is an effective removal of tonnage from the international white fleet. Although environmentally scary, all of the above is extremely positive for the normal fleet. We have a rapidly aging fleet and a large gray-black fleet that keeps absorbing normal tonnage to meet the inefficient long-haul service demands. Beginning next year, the market will also have to consider the effects of the CII rating and the EU ETS. This will create barriers to the less sophisticated owners and even more so to the less efficient ones. We believe that our fleet will further develop a competitive advantage of this. And now handing you back to Irakli for the financials.

Thank you Aristidi. Moving on to slide 14. We summarize our income statement for the quarter. Our increased DC revenues translate to record EBITDA of over $74 million and net profit above $51 million or $1.60 per share. Moving to slide 15 and our balance sheet summary. As of March 31st, we had cash on our balance sheet of approximately $118 million. Our debt stood at $727 million, reflecting approximately $12 million amortization since year end. Our book leverage came in at 58%, while market adjusted LTV based on broker values stands at a very comfortable level of approximately 45% to 46%. Moving further with our customary ESG reporting on the next couple of slides, On emissions reporting, we publish our fleet annual efficiency ratio data and fleet energy efficiency operational indicator data, which are in line with guidance and our regulations. On slide 18, we have the latest figures relating to benefits of our ecodesign and scrubber penetration within our fleet. We calculate our competitive advantage based on average banker spread of around $150 per metric ton, to stand at $17,000 per day for VLCCs and a little under $10,000 per day for Suez Maxis. Okay, Anis owns Ekman's Criber Fleet of Vessels and holds a significant competitive advantage against 72% of the VLCC fleet and 83% of the Suez Maxis fleet. This concludes our presentation. We'll be happy to answer any questions, so handing it back to you, operator. Thank you.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will take the first question from line Peter Hogan from ABG. The line is open now. Please go ahead.

Hello, guys. A quick question first. We have many shades in the tank now, so could you just be specific in what you now label dark, gray, and black? Or dark is perhaps not the color you use.

No, I... Hey, Peter. Thanks for your question. I just wanted to point out that in the past, let's say a ship that was non-European in its ownership insurance and financing banking was able to lift normal cargoes and also transport non-price cap cargoes. Going forwards, the European Union has stated that they don't want vessels who trade outside of the price cap to lift normal cargoes. So we see that the gray fleet will be restricted to pure, or let's say the Russian non-priced gas cargo fleet will be restricted to only Russian type cargo.

Okay, the gray fleet is, if I were to summarize, the gray fleet is those ships lifting more expensive than $60 Russian oil.

Yes, that's correct.

Okay, understood. And, well, market-wise first. You now talked about the volatility scene in the past couple of days and perhaps weeks. We are normally entering, from a seasonal perspective, a weaker summer market, and then it seldomly turns earlier than, say, September. How do you think about... the seasonality and the seasonal factors for the next, say, two quarters?

Well, I think that for sure, given the large U.S. production and the SPR and the ability for these barrels to be sold when trading windows open, that this creates an additional element that may sometimes be contrary to the seasonality we're used to. And I think that we will continue seeing that again this summer. So we do expect that the VLCCs specifically will strengthen in the next weeks. I wouldn't be surprised if it quietens down or weakens. But again, I don't think that we will spend the rest of the summer in only a weaker and afterwards stable environment. I do think once it weakens, we'll see volatility again. I think that the US Gulf and the long-haul cargoes, which tend to move in certain windows, will keep volatility in the seasonal weak part of the year.

Yeah, this is going to be some interesting months ahead for sure. More on the strategy now going forward on dividends. So nevertheless, it seems as if we're in a weaker market now than we were back in the winter months. So in Q2, Q3... How should we think about the dividends from you guys now going forward? Will we just put in 80% payout, or should we think something else?

Yeah, hi, Peter. It's Heracles. Look, there's no magic number that I can argue on. I can definitely speak about how our strategy has been that we have been making certain adjustments, which we're well aware of. that have mostly to do with our capital structure in the previous quarters, and then try to give out as much as possible. This ended up being around the 80% that you mentioned in the previous quarter. In this specific quarter, our liquidity position, which was assessed against a lot of factors, including the market dynamics and other global economic data, We've made a decision for this quarter that we have the flexibility to go a little bit higher, up to the 100% of EPS that we issued. I think we're going to go through a similar thinking process the next few quarters. I think the baseline is something along the lines of what we have been doing so far, where it is likely that we might be looking at certain adjustments. But it will also depend on what our balance sheet figures will look at at that point. And of course, our expectation and market dynamics then. So it hasn't really changed too much. But this specific quarter, we had that flexibility given our balance sheet. Hope this answers your question.

Yes. Well, thank you. Thank you. I suppose your investors at least appreciated that. those 100% today. And one final question from me on the cost side. Your G&A was up this quarter. Could you just quickly explain why and then perhaps shed some light on what we should do with that number going forward in our modeling?

Yeah, I think, I mean, the first quarter is slightly on the higher side. It also reflects you know, certain personnel costs that are more particular at the beginning of the year. But admittedly, the cost with regards to salaries have increased a little bit as we have ramped up a bit the number of the team. So there will be a slight increase, not to the levels that we're seeing in this quarter going forward versus last year. And we also have had a little bit of extraordinary more general and administrative and advisory type costs this quarter. So I think, I don't believe that this quarter is indicative of the rest of the year, but a slight increase versus last year is something that you should take into account.

Okay. Yeah, well, it doesn't come for free to have those very good new CFOs. That's for sure. Okay, that was all for me. Thank you. Thanks, Peter.

Thank you. We will take the next question from Clement Mollies from Value Investor. The line is open now. Please go.

Good morning. Thank you for taking my questions. I wanted to start by asking about a potential US listing. This has been discussed in the past, but is this something currently on the table? And if so, how should we think about timings?

Yeah, happy to take that. Look, we've been pretty vocal in the past that we see a potential US listing having the ability to unlock tremendous value from for our stock given the expanded investor base. We're seriously considering the process along with our advisors as well. And we hope to have some further updates in the latter part of the year.

Thanks for the call, Robert. And a bit of a modeling question. How should we think about the amount of ballasting days on the back end of the quarter? I mean, that will depend on the exact positions you end up doing, but could you provide a rough approximation of what we should expect?

Yeah, I mean, it's true that with regards to Q1, the ballasting days were most of essentially our unfixed days versus what we had guided earlier in the quarter. So specifically about this quarter.

Yeah, I mean, I think that Eric is here. I think that this quarter we will not have the negatives like impact like we did last quarter, which as Ereklis mentioned that basically the spot to be fixed days in our previous guidance because we loaded after the quarter finished were basically zero revenue or even had expenses that were incurred under the voyage that the ship was going to do, but before she loaded. So this quarter, I think that the number of ships that we will have load before the end of the quarter is much greater, and I don't expect a similar effect as last quarter.

Thank you. Makes sense. That's all from me. Congratulations for another solid quarter.

Thank you.

Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. It appears there's no further question at this time. I'll hand it back over to your host for closing remarks.

Thank you. Yeah, this is Irakli. I see through the system, the web system, we have a question from Eric Havelson from Pareto. Let me just go through the question. The fleet is aging, but what do you expect will happen to ships during 25 years old? What will be the cost of a 25-year-old surface, be in your opinion? Do we need to see significant accidents for strapping to actually happen, or will there be a natural depletion almost regardless of market conditions?

Well, it seems that historically 25 years tends to be like the maximum age that ships do these long voyages beyond coastal trading. I tend to agree that we will see 25 years for the black and gray fleets seems to be the upper limit. What is the cost? That's a difficult question. It depends a lot on the maintenance of the ship. A 25-year-old vessel will have a lot of extra expenses that a five or ten-year-old vessel wouldn't have. There's a lot of replacement of steel expenses, both in the ballast tanks and in the cargo tanks that we don't have. If it's a lot of tons that need to be replaced, it could be in the multiple of millions of dollars. Another thing is that these ships which are trading in these types of trades, I don't think they have access to spare parts from makers. I wouldn't be surprised if we see issues concerning their major machinery like engines or boilers or generators because they can't KYC with the sellers of genuine spare parts. So they may also have to buy imitation spare parts which also create further damages. I don't think that Unfortunately, accidents will lead to somehow forcing these ships to be scrapped. I think that they will just generally create more scrutiny on the market and that fleet. But from the point that these ships are all conducting trades for pariah states, they're outside of the control of the West. So unless countries like Singapore or Egypt get involved somehow and increase their quality concerns and environmental concerns, I don't see that it will be easy to force-scrap it. I think it will be, as you asked, a natural depletion as we see ships going into their mid-low 20s and they get scrapped.

Okay. We've actually managed to go through the full 30 minutes. I think this concludes our session today. Thank you very much for listening, and we'll touch base again in early August. Thank you very much.

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