Cmb.Tech NV Q2 FY2020 Earnings Call

Good morning everyone, and welcome to the Euronav Q2 2020 earnings conference call. At this time, I'd like to turn the conference call over to Mr. Brian Gallagher, head of IR. Sir, you may begin.

Thank you. Good morning and afternoon to everyone, and thanks for joining Euronav's Q2 2020 earnings call. Before I start, I would like to say a few words. The information discussed on this call is based on information as of today, Thursday, 6th of August 2020, and may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements reflect current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events, performance, underlying assumptions and other statements which are not historical factual statements. All forward-looking statements attributable to the company or to persons acting on its behalf are expressly qualified in their entirety by reference to the risks, uncertainties and other factors discussed in the company's filings with the SEC which are available free of charge on the SEC's website at www.sec.gov and on our own company website at www.euronav.com. You should not place undue reliance on forward-looking statements. Each forward-looking statements speaks only as of the date of this particular statement, and the company undertakes no obligation to publicly update or revise any forward-looking statements. Actual results may differ materially from these forward-looking statements. Please take a moment to read our safe harbor statement on Page 2 of the presentation. I will now pass to our chief executive, Hugo De Stoop, to start with the main presentation. Hugo, over to you.

Thank you, Brian. Welcome to our call today. In terms of the agenda, I will firstly run through the Q1 highlights before passing on to Lieve Logghe, our CFO, who will provide a full financial review of the income statement and the balance sheet. Then Brian, our head of investor relations, market research and communication, will look at the current themes in the tanker market and Euronav's outlook before we take questions. So turning to Slide 4 and the highlights page. Tanker markets continued to be very strong during Q2, even stronger than in Q1, which is surprising as usually the second and third quarter are seasonally weaker. What is remarkable is that we have already enjoyed three consecutive quarters of VLCC rates over $60,000 a day in the spot market, and this is the first time since 2008. This robust freight market has continued into Q3, with nearly half of our VLCC covered at rates just over $60,000 a day. The Suezmax also performed very well with just under $40,000 per day so far in Q3. This is a solid foundation to enter the second half, but admittedly, with far less visibility than usual. We told earlier in the year that Q2 would bring a strong and sustained storage market opportunity. This was not really the case. Yes, a number of VLCCs were and are still being used as storage units but far less than what many analysts and ourselves had predicted. Nevertheless, as the figures illustrate, this has been one of the strongest markets for over a decade. With the super strong cash generation, Euronav has been able and very keen to return a lot of cash to our shareholders. We started to distribute a total of $1.57 per share in cash dividends since late May. And more recently, we have executed $75 million in share buybacks over the past two months, and we will do more. This brings me to Slide 5 and capital allocation at Euronav, which remains an important and key focus for the board and management. Indeed, Euronav remains committed to returning capital and creating value for our stakeholders. And obviously, a strong freight market has given us the opportunity to demonstrate this. Given the lower equity valuation, as illustrated by our share price in the last few months, we have started to buy back our own shares. So far, we have used $75 million from the Q2 earnings to buy our shares at an average value which is very accretive to existing shareholders. In addition, today, we announced that we will use a further $25 million to buy our shares using proceeds from the earnings of Q2, and we will do this by the end of September. At Euronav, we always try to be balanced and consistent in our allocation. We do have some mandatory debt repayment as well as some revolving credit facilities reductions which aren't in cash. But given where our current leverage is, we do not need to repay more debt for the time being. We have designed our return to shareholders' policy, taking many aspects of the business into account. And indeed, we are very pleased to be in a position to pay a cash dividend of $0.47 per share related to the second quarter, in addition to the $100 million I just spoke about on the share buyback program that will be returned also to our shareholders. So overall, the shareholders will receive $196 million in cash from Euronav as they relate to the Q2 earnings, roughly half of it in cash dividends and half of it in share repurchase. At the same time, Euronav's balance sheet is improved by $60 million cash to reduce our net debt position. When repurchasing shares, we will always try to create long-term shareholder value rather than giving support to a share price which indeed has been very, very volatile during the quarter. This concludes my remarks, and I will now pass on to CFO, Lieve Logghe, to run through the financials. Lieve, over to you.

Thanks, Hugo. As you mentioned, the first half year of 2020 and more specifically the second quarter was very strong in terms of performance reflecting the strong tanker markets. Revenues generated are $535 million, while EBITDA generated was $355 million resulting in a net income of more or less $260 million. Whilst navigating the COVID-19 crisis, the company's clear priority has been the safety and well-being of our employees and to provide support to the extent required in the communities in which we operate. Despite the extra costs to support our crew, combined with mask and other surgical material, strong cost control of the full scope more than offset the impact in the G&A line. Whereas the first quarter included a positive impact of strategic fuel stock in 2019 compared to the market, we noticed a negative impact in Q2. We want to mention however that this fuel stock was actively managed as more than 85,000 metric tons were bought for an amount of $22.1 million for the Oceania. This represents more or less the consumption of the second quarter. Due to the strong cash management resulting in a reduced debt level and due to a beneficial interest rate environment, also interest costs reduced significantly in the first semester compared to last year. Moving now on to Slide 7 and the balance sheet. The company remains in a solid position with a strong financial balance sheet. I refer to the leverage ratio of 38.3% as well as the liquidity in excess of $1.1 billion. We have kept a strong level of cash at our disposal for an amount of $280 million which is more or less in line with last year. Even though we were active during the first semester in purchasing four VLCC resales requiring a down payment of more than $100 million, this cash out was partially offset by the proceeds of the sale of the vessels, the Finesse, Cap Diamant and TI Hellas. Moreover, the business required more working capital because of increased outstanding cash to be received from the customers due to the high market rates. Also, clear focus has been put on the cash collection in order to create value for our stakeholders. The good performance, combined with the cash focus, allows Euronav to keep 20% of the net income to further deleverage with high cash returns to the shareholders. I will now hand over to our Head of investor relations, Brian Gallagher, for the market size slides. Brian, over to you.

Thank you, Lieve. We will now discuss four major themes in the presentation before sharing our outlook. On Slide 9, you'll notice that the contracting of Very Large Crude Carriers (VLCCs) has had a positive impact on the broader tanker market. This creates a favorable medium- and long-term environment for the tanker sector and investors, which Euronav regards as a structural shift. The light blue sections indicate the order book to fleet ratio, which has consistently declined over the last decade and is now at a 20-year low. The blue bars represent new VLCC orders per quarter, showing a strong correlation with VLCC earnings as illustrated by the green line. Notably, in the past three quarters, we have experienced the best earnings for VLCCs since 2008, yet this has not led to a surge in new vessel orders. This is encouraging and supports our view that a combination of structural, regulatory, financial, and environmental factors will likely keep new orders low moving forward. Moving to Slide 10, we see more positive signals from the global fleet. The average ages of both VLCC and Suezmax fleets are now back to levels not seen in 18 years. An aging fleet poses challenges, especially since around 20% of the VLCC fleet is over 15 years old and will need a special survey in the next seven quarters. This situation is critical, as such aging vessels are less desirable for charters and will contribute to a reduced market. Additionally, the costs associated with conducting a special survey, which can exceed $4 million depending on the ship's condition, provide a significant incentive for owners to decide whether to keep or scrap their ships. If freight rates fall, as they did in 2018 when many VLCCs were scrapped, we may see more owners take their ships out of service. On Slide 10, there may be an underestimation of VLCCs needing special surveys since it's unclear how many were surveyed in the first half of 2020 due to COVID-19 restrictions. Now moving to Slide 11, disruptions in the first half of the year, particularly in Q2, have proven beneficial for the VLCC market. Slide 11 highlights that around 150, or 18% of the global VLCC fleet, has experienced some form of disruption, though not all are related to contango and storage needs. 60 VLCCs will remain sidelined due to covering Iranian sanctioned vessels and others in long-term storage. An additional 40 or so have found trading difficult, particularly those involved in Venezuelan trade over the past year, removing about 100 VLCCs from the active market. Several categories shown in blue on Slide 11 have also contributed to supporting freight rates by being largely absent from trading. These include approximately 35 vessels in market storage driven by contango, 18 VLCCs idled in Singapore during most of Q2, and around 20 vessels delayed due to congestion at Chinese ports. We anticipate that this congestion will persist for a few more months, gradually returning 60 to 80 VLCCs back into the trading fleet, though this will not happen immediately. On to Slide 12, which summarizes Q2's developments. As Lieve previously mentioned, Q2 revolved around the oil market, particularly with oil supply significantly diminishing the expected storage opportunities for the tanker sector that we initially projected in May. The sharp fall in oil demand during March and April due to COVID-19 restrictions led to increased inventory in both onshore and floating storage, peaking at roughly 200 million barrels in May. During our last earnings call in early May, we believed this figure would be even higher, thus creating substantial, positive disruptions for the tanker market, but this did not unfold as anticipated due to rapid OPEC+ cuts and swift reductions in U.S. production. The tanker market only benefited from an additional 200 million barrels of storage needs, about half of which went to Suezmax and Aframax vessels, a crucial detail since the high rates for VLCCs in April also influenced vessel choices. Looking ahead, the EIA predicts a continued recovery in demand to about 97 million barrels per day by September, though this rate of recovery may slow in Q4. Crude supply is expected to remain below these levels, suggesting further inventory drawdowns. According to the EIA's projections, most inventory should be depleted by the third quarter of next year, aligning with the five-year average, while floating storage on VLCCs and other tankers will also need to decrease. These factors will present challenges for the tanker sector into 2021, compounded by uncertainty surrounding COVID-19. Slide 12 does not intentionally include forecasts for floating storage beyond July, but it is clear that although floating storage has decreased from its peak, it remains elevated. Some congested barrels off the coast of China are part of this storage classification. Now, moving to Slide 13 and our outlook for the tanker market using our traffic light system. We refrained from using this system during the extreme volatility in March and April, resulting in more variability than usual. Oil supply and demand shifted from green to red, primarily due to OPEC+ production cuts and their decision to hold monthly meetings for flexible supply management. Demand will take time to recover to prior levels, especially highlighted by recent surges in COVID-19 cases that have reinstated lockdowns. Ton miles transitioned from green to amber, reflecting lower U.S. crude export potential resulting from decreased shale production. However, there is some good news. Vessel supply has moved to a full green, indicating a positive direction, attributed to the lack of new orders despite very high freight rates over the past three quarters. We believe this is a constructive structural feature that offers robust medium-term support for the tanker market. Our balance sheet remains strong, with liquidity exceeding $1 billion, which stays on the full green. In conclusion, there are clearly more negative shifts than positives, pointing to a challenging outlook for tanker markets. As Hugo noted earlier, we have less visibility than we have had in some time. The two primary demand drivers, oil supply and ton miles, will continue to face uncertainty on the pace of GDP recovery and how inventory will adjust to meet rising demand. While Euronav has limited control over these macro factors, we can manage our balance sheet and strategic positioning proactively. With over $1 billion in liquidity, we are prepared for a period of sustained lower freight rates. Our leverage is among the lowest in the sector, and we have actively allocated capital by repurchasing $75 million worth of our own shares over the summer. Additionally, we are now poised to buy back another $25 million in shares based on Q2 earnings. I'll now return control to the operator for questions. Thank you for your attention.

Our first question today comes from Amit Mehrotra from Deutsche Bank. Please go ahead with your question.

Thanks operator. Hi Hugo. Hi Lieve. I appreciate the fair and balanced approach in the presentation. I mean the fact of the matter is a weak market could actually be quite good for a shipping company with a good balance sheet. And Euronav obviously has built the fleet through counter-cyclical investing via Maersk and Gener8 kind of earlier several years ago. With the balance sheet obviously getting better and better every quarter, even despite the big payouts, are there any opportunities for end block transactions, Hugo? There are obviously many private tanker fleets out there that maybe there's not as much transparency or visibility on in terms of what's for sale and what's not or the bid-ask spreads maybe are still wide. But if you can just comment on opportunities for growth in a market that's uncertain and a little bit weaker given the legacy of the company and how they've built the fleet.

Yeah. Hi Amit. Well, very good question. You know that when you talk about the two transactions that you mentioned, the Maersk and the Gener8 one, if you remember, it's something that came up and we acted upon it very quickly. In the case of Maersk, I think we did it over a Christmas holiday, in literally two weeks. And in the case of Gener8, if we really are talking about the agreement that we made with the board and the shareholders, it was certainly something like less than a month of negotiation. And I guess what I'm trying to say here is that you don't have a shopping list. You don't have a target fleet because that's not how the market works. I mean it seems that some people suddenly change their position and they decide to sell their fleet. And then it comes onto your desk. And when you have the capacity, and that is obviously balance sheet and liquidity, but also the management time to act upon those opportunities promptly, then you can seize those opportunities. And so we're not going to change that recipe. And I think that's really how it's going to happen. When it relates to your question, are there already small deals to be done, I don't think so or at least I haven't heard any. And I think that the reason is that we are on the back of three super strong quarters, Q4, Q1, Q2. What we have booked, and I believe the others have also booked fairly good numbers in Q3, is very, very healthy. I mean, no matter what environment we are in right now, the quarter will end up to be a very good quarter. And then there's a big question mark. And as I mentioned, and Brian did too, there's probably more uncertainty about what comes in the future than in other periods of time that we have seen in the past. But I just think that it's too early for people to sort of throw the towel or decide to sell their fleet or do something like that because the cash that they've generated very, very recently and up until today is phenomenal.

As you accumulate cash flows or decrease net debt, capital allocation essentially involves keeping it on the balance sheet, paying dividends, or buying back stock. Regarding the stock buyback, do you continue repurchasing shares as long as the equity remains below NAV? There are certainly concerns about float and liquidity. If I understand correctly, the AGM allows you to buy back 10% of the stock each year. Can you elaborate on your limitations and how you approach the buyback, considering the financial benefits of purchasing below NAV and the constraints this places on liquidity?

Yeah. So two very critical points. Yes, we believe that we are buying at a significant discount below NAV, but that's not how we're measuring it. And that's certainly not how we trigger it. The way we trigger it is by translating the current share price into a price of a VLCC or Suezmax for that matter. And at this price, we'll buy the cheaper vessel that we can buy in the market. Because if you only look at the NAV and the discount to NAV, then obviously, you're taking a picture of something that is a moving target. If the market continues to be like it is today at $25,000 or let's say, between $20,000 and $30,000 a day, I have no doubt that the values are going to come off. And if the value comes off, then the NAV comes off. And then potentially, you are improving your share price with the NAV decreasing and you going back to NAV. So fundamentally, we prefer to have a long-term perspective. And we say, OK, today, at the current share price, we're buying a ship at probably $72 million, $73 million. Is that good value? A lot? Yes, it is. If we were to go back to maybe $80 or $85, that may become the NAV of tomorrow. And there would be less reason we would be less keen to buy back our shares. On the second point that you touched, which was liquidity. Honestly, I think that we are very, very, very far from decreasing the liquidity that it took us many years to build, by the way, over the two exchanges. You have seen that we are buying over the two exchanges. They are fairly balanced. I mean one has 60% of the trade flows. The other one has 40%, the European one. And I think we are adding sort of to the current volume of liquidity that we see in the share exchange. And it's not because you hold 5% of your capital that certainly you don't enjoy a very strong liquidity which many investors cherish because that's the only way for them to make sure that they can buy and sell out at the time of their choosing without moving the share price. And that's maybe the last point which we have said already in the remarks earlier, we're not buying to improve the share price. We are buying because it makes a lot of sense if we want to create long-term value for our shareholders. So you're not buying in order to push the share price higher in order to make a transaction the day after we've done that program. We are buying because it makes sense. That's it.

Our next question comes from Jon Chappell from Evercore ISI. Please go ahead with your question.

Thank you. Good afternoon everybody. Hugo, so the first question, kind of shorter term, the numbers you put up for the third quarter in both fleets, but especially the Suezmax fleet, substantially above what I would say have been market value since the start of the third quarter. So kind of a two-parter here. First of all, was there any kind of legacy carryover from the strength of the second quarter, whether it was short-term charters or just extended voyages that got you to elevated level? And as we think about the rest of the quarter, should we think about benchmarks or do you have an elevated kind of starting point for the back half of the quarter as well?

There is no legacy to consider. However, when looking at the results from Q1, Q2, and half of Q3, and comparing them to Clarksons or some of our peers who haven't yet released their results but have provided trading updates, we can observe that our fluctuations are larger than usual. We were significantly ahead of our peers in Q1, this quarter we might be slightly behind, but in Q3, it appears we are ahead again. On average, we seem to be operating within the same ranges as others. This might explain the market's surprise at our strong Q3 numbers. The positive ton miles for VLCC voyages suggest that average voyage durations are increasing, often nearing 90 days, which is essentially a quarter. Depending on fleet positioning, one might experience some challenging voyages, but these can be beneficial for positioning. Consequently, you may face lower rates in the current quarter but benefit from higher rates in the following quarters. This situation illustrates that while there is no legacy, it reflects a strategy related to the majority of the fleet aimed at capitalizing on more favorable rates in certain regions compared to others.

Understood. And then for the follow-up, the liquidity situation is obviously incredibly robust and something that really helps you stand apart. However, you shifted two of your stoplights to red. There's a ton of uncertainty. Your inventory chart, if we just follow that to the eye, it looks like mid-'21 before things get better. With the revolving credit facility rolling off, with the new bank financing coming on for the fleet renewal growth, are there any other measures you foresee taking to kind of establish a greater war chest given the cheap levels of debt right now?

No, we are refinancing some facilities that may expire next year because we believe it's a better time to do so now rather than wait. However, I wouldn't categorize this as a major program. It's a decision we have to make regardless, so whether we do it now or in six months, the timing doesn't change much for us. We prefer to act now. We will likely have additional updates to share next quarter. When we buy back our own shares without destroying them, we enhance our financial flexibility. Unlike a one-time dividend where the cash is gone once paid out, buying back our equity allows us to hold it as an asset on our balance sheet.

Thanks and good morning, afternoon. So I want to circle back to the question that Amit had or really I guess the answer that you gave, Hugo, about sort of the state of the market and asset values and how people are perhaps a little bit more insulated now than in previous down cycles given three really, really good quarters. Obviously though less cash flows probably do mean you have more sellers. How are you thinking about sort of the cadence? Do you think that ultimately, this down cycle will be substantially less severe from an asset value perspective even if it does stretch or what would you think about as sort of the tipping point? If you have any color there.

It's quite similar to when you're asking us to forecast market freight rates. It's very challenging because ultimately, it's based on supply and demand. Companies can lower their prices based on their urgency. After a period of strong cash generation, companies usually aren't in a desperate situation. However, they also don't want to see their accumulated cash used to offset potential losses or, if there are no losses, to invest in costly repairs like a dry dock. It's worth noting that older ships, especially those over 15 years old that lack a ballast water treatment system, will face expenses ranging from $1.2 million to $1.5 million for such upgrades. Owners will think carefully about whether to spend their cash on these investments after a strong cash flow in recent quarters. For the younger fleet, smaller ship owners are encountering several challenges, particularly due to the fragmented market and various regulations, chiefly concerning CO2 emissions, as well as difficulties accessing capital. Lenders are more inclined to finance larger public companies with strong corporate governance than smaller players. Consequently, small ship owners face significant challenges that we believe can only be addressed by consolidation with larger firms like Euronav or other public companies. This situation gives us hope that as the market softens and asset values decline, some may see this as a good opportunity to exit the market, either by becoming shareholders in a bigger entity or simply cashing out to reinvest elsewhere. We appreciate Euronav's flexible structure, which allows us to pursue mergers and acquisitions funded by cash, equity, and debt. We are ready to act on opportunities when they come, but we're not in a rush to overpay for assets that we believe will decrease in value when the market cools down.

I'm curious about something that may not be very relevant at the moment, but you had hinted at an interest in scrubbers. Currently, investments in scrubbers made at the beginning of last year have not been very successful, but I believe prices are decreasing. You mentioned that you might consider this in the future. Has your perspective changed on this, especially regarding longer-term plans if the spreads widen? Or is this not something you wish to pursue?

I want to reiterate my previous statements. We are not inflexible about this. We may have an opinion on whether scrubbers could negatively impact the environment, but that's ultimately up to regulators. Regarding the economics, which is what we're currently analyzing, the forward curve indicates that retrofitting is not a wise investment at this time. For new constructions, the costs are relatively lower, almost inexpensive. This is why we are pleased that the four vessels we acquired earlier this year are equipped with scrubbers; it allows us to benefit from the price spread. However, when evaluating the forward curve and spread, having the option for a scrubber on a new building could be beneficial. As I previously mentioned, we are not inclined to place orders for ships right now, especially not for retrofits. Retrofitting can exceed $3 million, and while some equipment is cheaper, the true expense lies in the yard bill and the need for proper installation. We've seen numerous cases where the system may function inconsistently. Our decisions also depend on market conditions, which can fluctuate, meaning that once committed, you have to account for loss of hire when considering investment viability. Currently, we maintain that retrofitting is not a good investment choice, so we will not retrofit any vessels. However, if we were to commission a new building, we would certainly consider the option of a scrubber.

Hey. Good morning guys. How are you?

Hey. Great. And you Mike?

Good. Most of the near-term market issues have already been addressed. However, Hugo, I wanted to revisit a topic I mentioned last quarter regarding propulsion and the changes we’re observing, as well as the concerns about expanding the order book due to fears of obsolescence risk. We have seen a few LNG-powered VLCCs ordered this year, typically supported by long-term contracts, but this raises the question of what you envision as the optimal mix going forward. Looking at Euronav over the long term, if we consider five years ahead, what do you anticipate the fleet will look like? Are we approaching a point where you might realistically consider adopting some form of differentiated propulsion that aligns more closely with ESG mandates and renewable initiatives in the coming years?

It's a complex question with many variables and uncertainties. Currently, we've only secured one contract for two dual-fuel LNG vessels, which was based on a time charter agreement with Total. We submitted a bid for that contract but were unsuccessful because the return offered to the owner was unacceptable for us at Euronav. Our perspective from last quarter remains unchanged; we believe that the premium required for a dual-fuel vessel needs to be compensated by a contract, or else we're offering the same freight as the market. While you might find LNG to be slightly cheaper than LSFO, that can also fluctuate. We're actively exploring ways to secure that discount to justify the premium, but so far, we haven't seen a favorable return on investment. The price difference is about $15 million compared to a conventional vessel, but it's important to note that shipyards are becoming more eager for orders, recognizing that they face two primary challenges: market uncertainties and owners' indecision about which technology to adopt for the long term. If we're merely looking at a transition period of five to ten years, which is only half a ship's lifespan, investing in technology for just that duration could result in a premium nearing $50 million, making it quite costly. Many recent announcements concerning hydrogen have emerged, with the potential for it to become a viable fuel sooner than previously thought, perhaps within the next five years. This continued uncertainty may limit newbuilding orders, and we’ll have to evaluate if the potential for hydrogen can translate into practical applications. If that happens, we might see an increase in orders for hydrogen vessels in other markets already moving in that direction. We also need to determine whether LNG dual-fuel vessels will have a sustainable future, especially as LNG can also be produced synthetically, eliminating its status as a fossil fuel. We are closely monitoring developments, as are many other owners. Our large fleet gives us an advantage; if we were to order two vessels with specific technology, our risk is minimized compared to owners with smaller fleets, who could risk more significantly by ordering just a couple of ships.

Got you. Well, there's a good parallel to discuss regarding the combination of hydrogen and natural gas, as well as the necessary bunkering infrastructure. It's interesting that you participated in that tender. To be more specific, there's a shortage of bunkering infrastructure to support LNG as a propulsion option for merchant vessels. You couldn't really refuel in the U.S. Gulf at the moment if you wanted to. However, this situation could present an opportunity, and you have shown an openness to exploring innovative approaches to bunkers and your supply requirements. I am curious whether you see a viable possibility to vertically integrate and provide some of the infrastructure needed to support that trade, or if that's too ambitious.

It's not too far away, but it's not going to become a core business line. If we need to bridge a gap, we might consider it. We prefer to work in joint ventures. If you place an order for a ship based on a contract, it’s not really your issue to resolve. The customer has to handle the logistics since the banks are paid by them. Therefore, it’s the customer's responsibility to find a place to refuel. This could explain why we are still discussing dual-fuel options instead of single-fuel LNG because shipyards are beginning to look at single-fuel LNG ships. Currently, that would be too risky due to inadequate infrastructure. If we were to order one or two ships speculative, we would typically order them in pairs, with both dual-fuel LNG vessels and single-fuel options involved, without a contract tied to them. This would be feasible if we can secure LNG at a lower price compared to LSFO to justify the premium. That would require physical delivery, shifting responsibility to the bunker provider, likely a larger player. Thus, I don't anticipate that happening with LNG. In contrast, hydrogen presents a different scenario because its quality is solely determined by its production. Brown hydrogen produces a significant amount of CO2, necessitating green hydrogen. There isn't much initiative for green hydrogen development, despite some support from the EU in Europe. If we can receive government funding for projects, it becomes highly attractive, not just because we’re building an asset and gaining knowledge, but also potentially using it for our purposes, all subsidized by the state, which is advantageous. You could view it as a business line, but it's uncertain. However, there are many intriguing opportunities that could benefit us and our shareholders.

Howdy gentlemen. How is it going?

Hi Randy.

Good. Good. Obviously, congrats on the strong second quarter and the impressive 3Q rates here, obviously above kind of all-in breakeven levels in the seasonal trough period. With that, how has time charter rates, how has that market responded in terms of rates and also liquidity? And has Euronav signed any time charters over the past couple of weeks here in the summer?

No, we haven't signed anything new in the past couple of weeks. There was a surge in time charters related to storage activities or a mix of trading and storage, but that was mainly in May rather than June or July. Currently, we've seen rates fluctuate. They increased significantly for a few weeks but have declined again. Because of this, I don't expect strong rates in any time charter. Even if those rates were available, I’m unsure we would be interested in signing a long-term time charter for more than a year at unappealing rates, unless there was a profit-sharing aspect involved. Therefore, we haven't made any moves. We are not observing a decline in liquidity in the market, and even if there were changes, the current spot market rates might not compel us to deploy any ships. So in conclusion, there are clearly more negative moves than positive reflecting the more challenging outlook for tanker markets, and as Hugo said earlier, a lack of visibility that we haven't had for quite a period of time. But the two drivers of demand, oil supply and ton miles, will continue to be subject to uncertainty on how quickly GDP growth will return to more normalized levels and in the meantime, how crude inventory, both onshore and offshore, is drawn down to match that return in demand. However, Euronav has very little control over these macro drivers. But what we can control is our own balance sheet and our positioning which is what we will continue to do on a proactive basis. As we mentioned before, we have $1 billion-plus of liquidity to manage our business should we enter a period of sustained challenged freight rates. Our leverage remains among the lowest in the sector, and we have acted proactively over the summer months in our capital allocation by already repurchasing $75 million of the cheapest asset that's available to us, mainly our own shares. We've also added today the capacity to buy another $25 million of share buybacks derived from Q2's earnings. With that, I'll pass back to the operator and prepare for questions. Thank you for your attention.

Our next question comes from Jon Chappell from Evercore ISI. Please proceed with your question.

Thanks operator. Hi Hugo. Hi Lieve. I appreciate the fair and balanced approach in the presentation. I mean the fact of the matter is a weak market could actually be quite good for a shipping company with a good balance sheet. And Euronav obviously has built the fleet through counter-cyclical investing via Maersk and Gener8 kind of earlier several years ago. With the balance sheet obviously getting better and better every quarter, even despite the big payouts, are there any opportunities for end block transactions, Hugo? There are obviously many private tanker fleets out there that maybe there's not as much transparency or visibility on in terms of what's for sale and what's not or the bid-ask spreads maybe are still wide. But if you can just comment on opportunities for growth in a market that's uncertain and a little bit weaker given the legacy of the company and how they've built the fleet.

Yeah. Hi Amit. Well, very good question. You know that when you talk about the two transactions that you mentioned, the Maersk and the Gener8 one, if you remember, it's something that came up and we acted upon it very quickly. In the case of Maersk, I think we did it over a Christmas holiday, in literally two weeks. And in the case of Gener8, if we really are talking about the agreement that we made with the board and the shareholders, it was certainly something like less than a month of negotiation. And I guess what I'm trying to say here is that you don't have a shopping list. You don't have a target fleet because that's not how the market works. I mean it seems that some people suddenly change their position and they decide to sell their fleet. And then it comes onto your desk. And when you have the capacity, and that is obviously balance sheet and liquidity, but also the management time to act upon those opportunities promptly, then you can seize those opportunities. And so we're not going to change that recipe. And I think that's really how it's going to happen. When it relates to your question, are there already small deals to be done, I don't think so or at least I haven't heard any. And I think that the reason is that we are on the back of three super strong quarters, Q4, Q1, Q2. What we have booked, and I believe the others have also booked fairly good numbers in Q3, is very, very healthy. I mean no matter what environment we are in right now, the quarter will end up to be a very good quarter. And then there's a big question mark. And as I mentioned, and Brian did too, there's probably more uncertainty about what comes in the future than in other periods of time that we have seen in the past. But I just think that it's too early for people to sort of throw the towel or decide to sell their fleet or do something like that because the cash that they've generated very, very recently and up until today is phenomenal.

As you accumulate cash flows or decrease net debt, your capital allocation options include keeping it on the balance sheet, paying dividends, or repurchasing stock. Regarding stock buybacks, do you continue to buy back shares as long as the equity trades below NAV? I understand there are considerations around float and liquidity. The AGM seems to have allowed you to purchase up to 10% of the stock annually, if I'm correct. Can you discuss your limitations and how you approach buybacks in relation to the benefits of purchasing below NAV versus the liquidity constraints that come with it?