2/20/2025

speaker
Operator
Conference Operator

Hello and welcome to OET's fourth quarter 2024 financial results presentation. We'll begin shortly. Aristidis Alassizos, CEO and Iraklis Sparounis, CFO of Okeanos 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. Iraklis will begin the presentation now.

speaker
Iraklis Sparounis
Chief Financial Officer

Welcome to the presentation of the results for the fourth quarter of 2024. We will discuss matters that are forward-looking in nature, and actual results may differ from the expectations reflected in such forward-looking statements. Please read through the relevant disclaimer on slide two. So starting on slide four in the executive summary, I'm pleased to present the highlights of the fourth quarter of 2024. While Q4 fell short of the market's expectations a few months back, It closes a year of very healthy commercial and financial results. We achieved fleet-wide time-chartered equivalent of about $39,000 per vessel per day. Our VFCCs were at $38,500, and our Suez maxes at $39,500. We report adjusted EBITDA of $37 million, adjusted net profit of $13 million, and adjusted earnings per share of $0.41. Continuing to deliver on our commitment to distribute value to our shareholders, our board declared an 11th consecutive distribution in the form of a dividend of $0.35 per share. Total distributions over the last four quarters stood at $3 per share, or 89% of our earnings for the year. In November, we successfully completed the five-year drive-up for the Nasus Danusa, concluding our six-vested 2024 VHCC's drive-up project. We look into 2028 with only our two 2020 build series maxes, which will undergo the five-year dry dock sometime in the second or third quarter. So on slide five, we show the detail of our income statement for the quarter and full year. For the year in 2024, our TCE revenues stood at $262 million, with daily fleet-wide TCE of $53,000 per day, 56 on the VLCCs and 49 in the suites. EBITDA was approximately $204 million, and net income was just shy of $109 million, or $3.38 per share. Moving on to slide six and our balance sheet, we ended the quarter with $54 million of cash. Our balance sheet debt continues to amortize by approximately $12 million every quarter, now standing at $646 million as of year-end. On slide seven, we recap our main driver behind our operational and commercial success, and one of our key competitive advantages, our fleet. Our 14 vessels, all built at first-class yards in Korea and Japan, have an average age of 5.4 years. That is the youngest crude oil tanker fleet amongst recent years. We're also the only pure, eco, and fully scrubber-fitted fleet. These elements allow us to set a benchmark above the spot market established by conventional or mixed yields. Slide eight, moving on to our capital structure. After a busy 12 months, we're now in a position to reap the benefits of the improved pricing achieved by refinancing most of our vessels. Having improved our margins by 130 basis points across 12 vessels, our interest expense starts to show material improvement in Q4 and going forward. We have successfully set our balance sheet with added flexibility and extended maturity. Our book leverage stands at 59%, while our market-adjusted net LTV is approximately 40%. Our financings are a mix of traditional mortgage-backed banking loans, as well as sale and lease bets, and our financiers are balanced with both traditional European shipping banks, as well as Asian banks and leasing houses. We are particularly happy to have relationships in all these markets. This gives us flexibility in the future and allows us to develop and strengthen relations. We look forward to next year when we will have the opportunity to refinance the last outliers within our capital structure, the Nisros Vinyas and Nisros Despotikos, a massive opportunity for further improvement over break-even costs. In the meantime, while we're not actively in pursuit of further deals, we're always on the lookout for creative opportunities. If one arises in this competitive financing market and it makes sense, we will not hesitate to take advantage of it. I will now pass the presentation to Aristides for the commercial market output.

speaker
Aristidis Alassizos
Chief Executive Officer

Thank you, Dr. Lee. Let me start by saying that Q4 was less interesting than we expected, but at least Q1 of 2025 began on a different note. In early Q1, the Biden administration significantly expanded the sanctions framework, which impacted more vessels, Russian banks, and charters. Almost immediately, the market rebounded quickly and significantly, a topic we will discuss in more detail later on. However, Q4 ended relatively weakly, with crude markets lacking their usual seasonality. During Q4, and specifically in November, as Herakles mentioned earlier, we successfully completed the five-year dry dock for Nisos Danousa, marking the conclusion of our six-vessel VLCC dry dock project. Given the crude market weakness, we took the opportunity to clean up one more VLCC, and repositioned her in the west. Again, this captured a higher earning spot voyage for a backhaul that we like doing to bring our ships to the west. We also continued to strategically position our vessels in the west with selective Suez Max voyages to the east to maximize the earnings potential. As a result, our Suez Maxes outperformed our BLTCs in the fourth quarter. Despite the continued seasonal weakness from Q3, we achieved a fleet-wide PC rate of $39,000 per operating day for the fourth quarter and $52,900 per operating day for the full year of 2024, while utilization stood at 98% in Q4 and 97% for the full year, demonstrating efficient vessel deployment. If we compare our earnings with peers that have already reported Q4 results, Our outperformance for the year stood at 19% for the VLCCs and 29% for the Suez Maxims. Now going into Q1, and as mentioned earlier, the expanded sanctions framework has significantly improved the market. The Chinese, Indians, and Turkish buyers became wary of using sanctioned SIPs and more specifically of buying Russian and Iranian crude oil in general. As a result, they started sourcing alternative crews, leading with India and China actively importing from West Africa, the Middle East, and the US Gulf, and Brazil. This shift had notably improved market rates and sentiment. In addition to the above, continued growth in a Brazilian crew production is boosting demand for long haul voyages. As far as our fleet is concerned, fleet triangulation remains a priority. ensuring we maximize laden legs and optimize vessel deployment. We've also repositioned one of our Suez Maxes to the clean product trade, allowing us to capture premium earnings while repositioning her to the west after her front haul voyage to the east we fixed in Q4. Given these developments, so far in Q1 of 2025, we have fixed 81% of VLCC spot days at 39,100 per day. and 77% of Suezmax spot phase at 33,400 per day. With the ongoing OPEC Plus production policies and the new U.S. sanctions on Russia and Iran, we see further upside potential for ton-mile demand in the near term. Today, we are earning around $50,000 per day on the VLTCs and $45,000 to $50,000 on the Suezmaxes. Many of the stronger fixtures we concluded after mid-January when the market firms will reflect in the last part of our Q1 earnings, as well as in our Q2. Similarly to the full year 2024 results, and based on peers that have reported earnings, our Q1 performance on fixed day stands at 7% outperformance for the VLCCs and 39% for the Swiss masks. As we now move to slide 12, OAT remains the only publicly listed pure play echo scrubber fitted tanker platform. enabling us to consistently outperform the market. Our VLCC and Tudor Max fleets have delivered higher TCs than our peer group for multiple years, reinforcing our competitive advantage. In 2024, OET's VLCC significantly outperformed peers, demonstrating the earnings, power of our modern fleet, and the strong performance of our commercial fleet. It is important to note that for Q4 2024, we have used guidance figures for peers that have not reported yet. We believe the gap will widen even further once actual rates are published. All in all, our charting team, fuel efficient vessels, scrubber advantage, and strategic training patterns continue to differentiate OET in a volatile market. Now let's discuss the market outlook and the latest market dynamics. On slide 13, we see the crude tanker market is experiencing a structural supply imbalance, driven by an aging fleet and low new building orders. By 2028, over 700 VLTCs and Suez Maxis will be more than 20 years old, while only around 200 vessels are scheduled for delivery in the same period, indicating a further tightening of supply. Notably, this calculation does not even account for vessels over the age of 15 years old, which will be less efficient and by 2028 will represent 40-50% of boat seconds. The expanded sanction list now includes almost 10% of both VLCC and Suezmax fleets. While 20% of the total VLCC and Suezmax fleets operate in the dark grey fleets and with limited yard availability and rising shipbuilding costs, fleet expansion remains significantly constrained. Also, if sanction enforcement continues, the sanction fleet can double as we calculate 10% of the fleet is engaged in OFAC-sanctionable activity. especially involved in Iranian and Venezuelan business, which is almost exclusively reliant on the OTCs. Against this backdrop, OET's modern fleet and eco positions us well to capitalize on this supply constraint that's coming. Now moving on to slide 14, crude demand is expected to outpace supply in 2025, driving increased time miles and higher fleet utilization. Key agencies forecast a continued recovery in oil demand, particularly from Asia. China had positive data with strong traveling around the Lunar New Year and a new record corporate borrowing in January. Refinery alignments, realignments and new sourcing routes are leading to longer voyages and greater tanker utilization. Geopolitical factors, sanctions and shifting trade routes are further strengthening demand for modern compliant fleets like OEPs. We expect these factors to support higher fleet utilization and firmer rates in the coming quarters. From slide 15 to 18, we aim to illustrate the significance of sanctions-exposed trades and its potential impact on the conventional fleet in light of the latest wave of sanctions. The shadow fleet has expanded due to sanctions on Russia and Iran and Venezuela. Approximately 20% of the global banker fleet is now engaged in sanctioned trades, with 10% already being on the olfactory. effectively reducing the supply of vessels available in the conventional market. As compliance measures tighten, compliance fleets will be more positioned to capture premium rates driven by higher utilization. We believe the market divide between compliance and non-compliance fleets will continue to widen, favoring modern, efficient, and transparent operators. As mentioned earlier, India, China, and Turkey are increasingly moving away from sanctions-exposed trade, seeking compliant crude from alternative routes. This shift both ton mile demand and the utilization of the conventional fleet. Slide 16 focused on Iran. And given the new administration in the US, a potential decrease in Iranian exports levels seen during the previous Trump administration could push conventional VLCC fleet utilization above 90%, which has historically led to very strong tanker market rates. To conclude the presentation, a reduction in Russian and Iranian exports could generate a significant increase in demand for modern, compliant VLCCs. If all Russian and Iranian barrels are lost and replaced by long-haul VLCC voyages, we estimate a need for an additional 20 to 60 VLCCs. The current fleet size, order book, and utilization of close to 88% do not support such an increase, reinforcing the bullish outlook for compliant modern fleet. OAT is optimally positioned to capitalize on these shifts and generate strong cash flows for shareholders. During the Q4 softness, OET delivered a strong full-year performance and remains well positioned for 2025. Market fundamentals remain supportive with tight supply, increasing ton miles, and geopolitical shifts working in our favor. We will continue to optimize our fleet, maximize utilization, and capitalize on strategic advantages. With that, we thank you for your time and happy to take any questions.

speaker
Operator
Conference Operator

Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, please press star two. Our first question comes from Liam Burke at BU Riley. Please go ahead.

speaker
Liam Burke
Analyst, B. U. Riley

Yes, thank you very much. In your prepared remarks, you laid out a number of strong reasons why there'll be tight capacity for the VLCC class going forward. What would you say are some of the positive pressures on Suezmax capacity going forward?

speaker
Aristidis Alassizos
Chief Executive Officer

Hi, Liam. Thank you for your question. A large part of the Suezmax trade of the Suezmax, a large part of the Russian trading fleet right now moving the Russian barrels uses Suezmax vessels. So over time, if we see if we see further sanctioning of that fleet, it will further tighten the supply of Suezmax vessels. And the age profile on that fleet is very old as well. In addition to that, and I think more importantly, we've seen that with the reduction of interest from Indians and the Chinese for buying, you know, whether a Russian and for the Chinese, Iranian and Venezuelan barrels, it opens the arc for longer haul voyages on asset classes that are less efficient than the VLCC. So you have to look at two as much. For example, a trend we've seen recently is that there's a big port in the Black Sea controlled predominantly by Western oil majors, including Chevron called CPC. Historically, this port has lifted Afromax and Suezmax stemmed cargoes because nothing larger than a Suezmax can fit laden through the Turing Strait. Because of the tightness due to the lack of purchasing of Iranian and Russian barrels, we've seen that there's been CPC cargoes that are moving again towards Asia. While since the Red Sea closed, this trade has completely stopped. In January, for example, prior to the, in February, prior to the sanctions on the Russian fleet, there were no cargoes that were sold in the east. While after the sanctions were put on in February, we already have 11 cargoes potentially going east just from this one port. So I think we'll see more barrels from whether West Africa, Libya, Algeria, the Black Sea moving east on the Suez Maxes. And we're quite constructive on the Suez Max segment.

speaker
Liam Burke
Analyst, B. U. Riley

Great. Thank you. You talked about a slow start to the first quarter, 25, and you announced the fixtures for both the Suez and BLCCs for a partial quarter, for most of the first quarter. Then you follow by saying that there's strength into the end of the first quarter and into second quarter, which generally you think a second quarter would, you see moderation in rates. What do you see into the second quarter as driving the rate momentum here?

speaker
Aristidis Alassizos
Chief Executive Officer

All right. Well, I think one thing to understand is that, especially on the VLCCs, And if you're fixing longer voyages from the U.S. Gulf, you're going to be working very far ahead. So you're going to be working maybe even a month or a bit longer ahead. So in mid-December, we were negotiating a cargo that would load in mid-July. And that voyage would last through Q1. So a weak fixture in Q4 might have little impact on actual Q4. and have a big impact on Q1 and maybe even, I mean, if it's a round voyage from the U.S. Gulf East, which we don't do, but it could even lead into Q2. So I think what we were saying is that the fixtures that we fixed after January 15, which was when Biden sanctioned the additional ships and the charters and squeezed the system, have improved a lot. But because those fixtures you're fixing maybe a month in advance from the U.S. Gulf on a VLCC or slightly less on a Suezmax, you'll only start feeling them towards the end of Q1 when the vessel actually loads and discharges, especially with the IFRS accounting principles, and they will roll into Q2 as well. So I think that our earnings for Q1 were also impacted by the IFRS TC principles, which we have a bigger, we're impacted at times more because of the slightly smaller fleets than some of our peers who have 50 or 60 ships. And, you know, three or four ships having a very bad, you know, by the principles how you allocate the income makes a much bigger effect to us. Great.

speaker
Liam Burke
Analyst, B. U. Riley

Thank you very much.

speaker
Operator
Conference Operator

Thank you. Our next question is from Bendik Nitingnes from Clarkson Securities. Please go ahead.

speaker
Bendik Nitingnes
Analyst, Clarkson Securities

Yes, thank you. So to my understanding, you now have one to smack that is cleaned up. And that's the only one cleaning in your fleet as of now. If that's correct.

speaker
Aristidis Alassizos
Chief Executive Officer

Yeah, that's correct.

speaker
Bendik Nitingnes
Analyst, Clarkson Securities

And just wanted to ask a bit about the dynamics there because you you have been been cleaning up several of your wheels previously. And how easy is it going to be to switch those back into the clean trades? Is it easier now that you have cleaned them relatively recently, or is it going to take the same couple of weeks to get that done?

speaker
Aristidis Alassizos
Chief Executive Officer

No, once you go dirty, the cleaning process is more or less similar. Maybe it's slightly, but marginally easier, but we would allocate the same cost and time when we're budgeting for a voyage.

speaker
Bendik Nitingnes
Analyst, Clarkson Securities

And for the SUSEMAC now, do you expect to keep that trading clean or is it as the other ones sort of opportunistically positioned in the clean market for a single voyage?

speaker
Aristidis Alassizos
Chief Executive Officer

No, we basically sailed the disport in Asia. We had this clean opportunity. uh we compared it with a crude opportunity to come west and reposition the ship in the west the clean voyage made a little bit more money and we knew the cargo was firm because with the counterparty we worked with before so we took the opportunity to book it um i think once we come west all you know i can with almost certainty i can say we'll go back into the crude market okay thank you Thank you.

speaker
Operator
Conference Operator

The next question is from Petter Haugen at ABG. Please go ahead.

speaker
Petter Haugen
Analyst, ABG

Good afternoon, guys. First question on the market in terms of what can happen here. There are obviously lots of alternatives, but in terms of only the Red Sea transit, if we were to assume that the only thing changing from now to the future is normal transits through the Red Sea again. How do you think that will impact your markets that we also see on the Swiss-Mex markets?

speaker
Aristidis Alassizos
Chief Executive Officer

Hi, Peter. Thanks for your question. And thanks for only asking one part of all these different elements like Russia and Iran, because, you know, you can go on and speak for hours. But about the Red Sea, I think initially most of these changes and disruptions that occurred to the oil markets are positive for tankers. I definitely think it would allow, it would be positive for Suez Maxis because it will bring back part of the trade which had been priced out just because of the cost to go around the Cape. And this is principally either the Basra West on Suez Maxis, which was a huge trade before. And that today has just been cannibalized by the BLCCs because they load two Basra stems to go around the Cape. And also to see Mediterranean and Black Sea barrels going east again, which had completely stopped. So I would say that overall, for the Suze Maxis, it may be positive for the Red Sea to reopen.

speaker
Petter Haugen
Analyst, ABG

Okay. And for the VLCCs, do you think?

speaker
Aristidis Alassizos
Chief Executive Officer

I don't think we'll have a major impact for the VLCCs. There's been a lot of, you know, some of the the people who have equity barrels and they discharge in the Red Sea and loading from the AG, they're using their own ships for this. So you might see a bit more business for the normal fleet to do this business. But I think for the VLCCs, they won't have the same impact as it will for the Suez Maxims.

speaker
Petter Haugen
Analyst, ABG

Okay, thank you. If I could follow up with a few questions on and what to use in valuation, really. So currently, we see brokers are quoting for the five-year ECO VLCC $112, similar for SUSEMAX at 74. So these numbers are obviously lower than they were last summer, but I would say it looks as if they're holding up quite well, although we haven't seen that, or at least I haven't seen that many relevant transactions there. In terms of 112 for a five-year-old VLTC and 74 for a five-year-old SUSEMAX, how do you think those numbers compare to if you were to see a transaction today in the markets?

speaker
Aristidis Alassizos
Chief Executive Officer

I think, as you correctly mentioned, there haven't been many transactions recently, so it's hard to benchmark where prices are today. At times, since last summer or the period you mentioned, you know, the markets felt weaker a little bit, but as these potential developments happen around Iranian reduction in Iranian exports and Chinese imports of Iranian crude, I don't think that the VLCCs will fluctuate down very much at all. I think that there is such a limited pool of sellers of five-year-old VLCCs that their values are quite firm. Um, I think as well on the Suez maxes, it's just the Suez max of a much bigger order book and delivering sooner. So there may be some downside and potential market weakness on Suez my values, but on the VLC, I'm pretty confident.

speaker
Petter Haugen
Analyst, ABG

Okay. Thank you. And a foreign one from me in terms of, um, uh, well outlook here, I guess it's fair. Well, my interpretation is that you, you're still a pretty optimistic, but If given the opportunity to take coverage now, what would you deem to be interesting in terms of, say, one and three years for the LCCs and SuisNaxis?

speaker
Aristidis Alassizos
Chief Executive Officer

I mean, I think we have the classic Greek approach, which is 5,000 higher than the Charter's ideas. But, you know, I mean, generally speaking, the market for CCs, It gets a lot more liquid when the market is firming a lot. And so if there's an opportunity to time charter out some vessels, you have to take advantage of that when there's a big movement in spot rates and also in paper rates. Unfortunately, most of the charters today, they do tend to hedge a part or most of their TC exposure using SFA. So a liquid time charter market often need to coincide with a liquid FFA market. And I think there's a lot of, you know, if you're, if you're aware of when these opportunities present themselves, you can find some attractive deals to do. So it's something we've looked at in the past. We didn't really find it that attractive, but we will keep looking at it in the next fight as well.

speaker
Petter Haugen
Analyst, ABG

Okay. Thank you. Thank you for that color. That's all for me.

speaker
Operator
Conference Operator

The next question is from Clement Molins at Value Investors Edge. Please go ahead.

speaker
Clement Molins
Analyst, Value Investors Edge

Good afternoon. Thank you for this thorough presentation. Most has already been covered, but I wanted to delve a bit into the dark fleet and the sanctions currently in place on Russian trade. Could you give us some color on whether there are big differences on utilization of targeted vessels by European or United States sanctions? Do standalone European sanctions also have a large impact on efficiency?

speaker
Aristidis Alassizos
Chief Executive Officer

Thanks for your question. I think by far the biggest impact on utilization is by US sanctions. I don't think that the impact of EU sanctions or UK sanctions is very large to Chinese buyers. Although it may be more pertinent to Indian and to Turkish buyers. But for sure utilization falls drastically once you enter the grey fleet. And then even more so if you're sanctioned by the EU or the UK. And I think drastically so if you're sanctioned by the US. Some of the research outlets like Kepler or even some of the shipping brokers, they do some really nice research on this, which I'm sure you can find some articles where they describe. And they go through each ship by ship and compute some nice data.

speaker
Clement Molins
Analyst, Value Investors Edge

Makes sense. Thanks for the call. I'll turn it over. Thank you for taking my questions.

speaker
Operator
Conference Operator

As a final call for any last questions, please press Start 1 on your telephone keypad. We have no further questions on the call, so I'll hand the floor back to Iraklis for any closing remarks.

speaker
Iraklis Sparounis
Chief Financial Officer

Thank you. Thanks, everyone, for listening in. We look forward to catching up again in mid-May for Q1. Thank you.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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