Cmb.Tech NV Q2 FY2022 Earnings Call

Good day and welcome to the Euronav Q2 2022 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask a question. Please note this event is being recorded. I would now like to turn the conference over to Brian Gallagher, Head of Investor Relations at Euronav. Please, go ahead.

Thank you. Good morning and afternoon to everyone, and thanks for joining our Euronav’s Q2 2022 earnings call. Before I start, I would like to say a few words. The information discussed on this call is based on the information as of today, Thursday, the 4th of August, 2022, 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 statements of historical facts. All forward-looking statements attributable to the company or to persons acting on its behalf are especially qualified in their entirety by reference to the risks, uncertainties, and other factors discussed on the company’s website and with the SEC, and which are available free of charge on the SEC’s website and on our own company’s website at Euronav. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the 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 two of the slide presentation. It’s now my pleasure to pass on to our Chief Executive, Hugo De Stoop, to start with the content slide on slide three. Hugo, over to you.

Thank you, Brian, and good morning or afternoon to everyone, and welcome to our call. I will run through the Q2 highlights before passing on to Lieve Logghe, our CFO, to give more details on the financials with a specific focus on the FSO. Brian Gallagher, the Head of IR, will then highlight some key and current trends in the wider tanker market, before I return to summarize our strategy and outlook. So turning to slide five and the Q2 highlights. Once again, we've had a very busy quarter across our businesses. Fleet rejuvenation was, again, front and center with nine vessels transacted. We sold our three elder Suezmax vessels. We also sold four older VLCCs that were non-eco and bought two almost new ones. These actions have substantially reduced the age of our fleet and, more importantly, the average consumption and emission profile. So we are fully ready for what we believe will be a sustainable freight rate market recovery. Also remember, we still have six vessels to be delivered to us over the next 18 months. So the Euronav platform will continue to grow and get younger into this freight recovery. We also bought out our joint venture partner in the FSO segment. This move gives us more visibility on income in an asset that we believe we know very well, because we have operated those two units since 2010. Strategically, just after the quarter, we formally announced the combination agreement with Frontline, and I will touch upon the next steps later regarding this combination. That is not all as we printed an important milestone that perhaps has been overlooked with all our corporate activity. We indeed organized our first sustainability presentation in early May. This has clearly set out our part to net zero, and we look forward to providing updates on this and other sustainability initiatives going forward. These moves were all made with the tanker markets showing sequential rate improvement and even stronger signals, in a normally weaker Q3. However, freight rates are still not at the levels where we can be satisfied as slide 5 illustrates, thus indicating a lot more progress is required to return us to sustain profitability. That brings me to slide six and further focus on some of the short-term catalysts. Ton miles are rising across the tanker market spectrum, as the dislocation from Russia continues to impact. Asset prices continue to rise with secondhand tonnage again rising over the past three months and new build prices are at multi-year highs. This has led to virtually no new ordering of ships. Also, we have seen increased volume of exports and therefore, cargoes in recent months. And this has, in turn led to Q2 performing better than Q1, which, given the seasonality history of our sector, is unusual. Turning now to Euronav specifically on slide seven and how we have positioned ourselves to this improving cycle. I wanted to point to the scale of our fleet rejuvenation during Q2. This has driven a material reduction in our fleet age, where we have taken advantage of the highest secondhand prices to recycle into younger tonnage. And yet the platform is still ready for growth with our core fleet ready to expand with six new vessels, adding around 11% to our capacity over the next 18 months when those vessels will be delivered to us. With that, I will now pass over to Lieve to provide more detail on the financials. Lieve, over to you.

Thank you, Hugo. All tanker shipping companies require a strong balance sheet to manage the highly cyclical and seasonal elements of our business sector. Euronav is no different, and retaining a two-year liquidity runway remains at our core. The fleet rejuvenation that Hugo spoke about earlier has all been done with book profits being recorded on sales. And the intention, as always, is to recycle this capital into younger, more efficient ships. Perhaps the key transaction for the finance team during Q2 was the buying out of our joint venture partner on the FSOs, which we cover in slide 10. On the financials for the FSOs, there are technically two contracts, one for each vessel, which switched to the new 10-year contracts running from Q3 2020 to Q3 2032. EBITDA will be around €40 million on a yearly basis going forward. The FSO operation has been a very strong performer in terms of operations with zero unscheduled downtime. Slide 10 shows what we wanted to remind the investors that we are not playing vanilla storage platforms, but possess various treatments to improve the quality of the crude on board. So owning 100% of the FSOs provides us with a strong, visible, and long-term income stream. I will now pass on to Brian Gallagher to run through current thoughts on the tanker markets.

Thank you, Lieve. On Slide 12, I want to point to two key points on the current tanker market. Firstly, crude tanker markets continue, and we believe will going forward remain highly seasonal. This is a fact that we've overlooked over the last two years, given the very exceptional trading in storage patterns that we've had to endure within the sector. The left-hand chart shows the seasonality on a daily basis in terms of freight rates according to the Baltic Dry Index going back to 1999. It's very clear from this pattern that we have a market bottoming out in a very extreme fashion, usually in August and September. What is also clear is that we then get an extreme rebound of seasonality that kicks in towards the end of September, and then continues through much of Q4, often with another uplift around Thanksgiving. The right-hand graph on this slide shows the same signal in light blue for the current run rate for seasonality in 2022 in dark blue. This inflation from the conflict that we've seen between Russia and Ukraine is very clear from late February and drove wider tanker market volatility. What is interesting is that since late May, the index has risen by 30% in a much more measured trajectory. This reflects another chart of tanker segments and a general reduction in oversupply of tankers yet an increase in terms of supply of crude. So the general background in terms of timing is encouraging, and we have got some real data points to support it. We now move on to Slide 13. We can look at other tanker points that will provide further support. Slide 13 looks at two key components of the tanker markets. Firstly, oil supply and ton miles. Over the past couple of years, growth in both of these segments has been pretty much absent. But US exports are continuing to recover following a reduction in June and July; US exports according to the EIA stood at another further 1.5 million barrels per day over the next 12 months. Ton miles were also set to recover during this calendar year and again into 2023, primarily as new trading routes driven by the dislocation from the Russia-Ukraine conflict that we highlighted in our Q1 call continue to kick in. This process is not finished yet, and still has some legs to go. Put simply, crude is likely to travel further in most tanker segments as new trading routes are established. We now turn to other data points on Slide 14. We can see sequential improvement in both vessel supply and the time charter market. Regular listeners to this call have known our focus on the Bloomberg Index that measures oversupply of VLCCs in the Middle East. Whilst a little volatile, this trend has come down markedly as you can see on the left-hand side of this slide in recent months. On the right-hand side, we look at the longer-term picture. This shows, longer-term, which we define as more than 12 months, time charters that have been agreed in the VLCC space. We've seen a steady improvement in the frequency of a number of those contracts agreed since Q2 of last year. So not only has there been an increase in activity and contracts, but we're also seeing, associated with that, an increase in rates. We've seen recent evidence that our three-year time charter with VLCC at $38,000 a day has been agreed. This is very encouraging, albeit it's being driven by new tonnage. This data point gives us a very strong signal that charterers and our customer base are looking to secure capacity and are increasingly prepared to offer better terms, both in duration and rate to secure that capacity. So a lot of encouraging data points for us to focus on both short-term and longer-term. And I will now pass on to our Chief Executive, Hugo De Stoop, to give some concluding remarks to this conference call. Hugo, over to you.

Thank you, Brian. Both Lieve and Brian gave indications of how you would have us continue to position ourselves for what we believe will be a sustained recovery in tanker markets. I would like to add to very important milestones that we announced after the quarter end with the combination agreement with Frontline. Slide 16 illustrates what the next steps will be. Frontline is currently relocating its corporate headquarters back to within the European Union into Cyprus specifically. And once that process is complete, they will launch an exchange offer on a set ratio of 1.45 times Frontline share for every one Euronav share. When the exchange offer is closed, we can then proceed with the next stage of the combination. If the exchange offer yields between 50% and 75% acceptance, that effectively gives Frontline control over Euronav. The governance will change in the combined entity, and Frontline and Euronav will act as one group. This will allow the new company to deliver the vast majority of the synergies and other benefits that we spoke about on the combination agreement announcement of July 11. If we are able to get the exchange offer at a level higher than 75% acceptance, then we can proceed with a full merger. We firmly believe that the combination and the attributes of the combined entity that are listed on this slide can come into force as long as we have more than 50%, will be very interesting, especially in the development of the tanker cycles as we see for the coming years and already for the coming winter. Turning now to our traffic light slide and current market outlook on Slide 17. It is clear from the continued movement to green that we anticipate further progress in the tanker market recovery. For Q2, we have another upgrade this time regarding the ton miles driven largely from what Brian covered earlier in the dislocation from Russia, driving structural change and longer-term lives across all tanker segments. Elsewhere, demand and supply continue to remain encouraging, albeit the demand is still not back to levels that we saw in 2019. It is, however, encouraging that the order book has continued to have virtually no order flow in the past 12 months. The organic growth we have with new vessels arriving in the next 18 months alongside the construction of the largest ever tanker platform via the Frontline combination means that Euronav will continue to grow its exposure to this improving market background. Thank you for your time and attention. And with that, I will pass it back to the operator for questions.

We will now begin the question-answer session. Our first question will come from Greg Lewis with BTIG. You may now go ahead.

Yes. Thank you and good afternoon, everybody. Hugo, I was hoping you could provide a little bit more color around, I guess, everything is in levels of magnitude, but at least over the last couple of weeks, we've seen a modest but yet a pickup in VLCC rates. Could you talk a little bit about what you're seeing in the market that has kind of reversed the benchmark headline rate from negative to positive? And just, I guess, start there.

Yes. Hi, Greg, thank you for the question. I must say, we are a little bit in new territories here, first of all, because I don't know what you would call the benchmark VLCC rate. But obviously, today, there is almost full benchmark VLCC rate, the average ship, you have the non-eco-ship and the super eco with or without scrubber. It's obviously this has an implication. What is also new is that normally, it's the VLCC segment that is doing the heavy lifting for all the other segments. And what we have noticed this time around that because of the dislocated distribution coming from Russia, and Russia is typically not a VLCC market, the pushing is coming from the smaller size. So, the Suezmax and the Aframax started with the Aframax pushing the Suezmax, Suezmax are now pushing the VLCCs simply because, when you look at the rates of Suezmax and you compare that to VLCCs, and certainly, when there are eco-VLCCs or eco-scrub VLCCs, it's a lot cheaper to use the VLCC. And that's what we have seen in recent weeks. And that's the main reason why we believe the VLCC market has improved after the Suezmax have already improved several weeks, probably five or six weeks prior to the improvement of VLCC. What we’re also seeing, and that’s very encouraging going forward is the number of VLCC cargos available, be it in the Middle East or be it in the Atlantic, which is growing. And we are still at a level, as Brian said, on overall demand, which is slightly below the pre-COVID levels. We anticipate that we will surpass pre-COVID levels when China reopens fully. It's a little bit difficult to say when that is going to happen precisely, but we believe that when they do, that will give a massive boost again for the VLCC. And at that time, we may return to some form of normality where the VLCC market is indeed doing the heavy lifting and probably taking the rest of the market with it at much higher levels than what we see today. I hope I've answered your question.

Yes. No, that was great. And then just following up on that. I mean, clearly, we're seeing a pickup in spot fixture activity. I think one of the things that a lot of people in the industry in the tanker industry are thinking about is shipping ton miles and you kind of alluded to Russia. It looks like those buyers of that Russian crude are India and China. Clearly, the VLCC route from the Middle East to India is harder. I think it'd probably be harder to find a shorter ton mile route for VLCCs than that. Is there any way to kind of – I don't know if the percentages or how you want to think about it that, we're seeing VLCC ton miles out of the Middle East expand as some of those Russian crudes are, I guess, largely finding homes in Asia. Has there been any change in ton miles out of the Middle East, or at this point, it's still kind of tracking along the same way?

We have observed several ships, specifically Aframax, Suezmax, and VLCC, transporting crude oil from Russia to the Far East, including India and China. We anticipate that this trend will persist. The most effective method for long-distance crude oil transport is via VLCC. However, VLCCs are too large to enter certain ports in Russia, which necessitates transshipment. We've noted some of these operations occurring primarily along the African coast, as conducting transshipment near European ports poses risks of ship seizure by European authorities. Additionally, cargo has been discharged in Libya and Egypt briefly before being transferred to larger vessels. Currently, we are witnessing parts of the industry reorganize to find the most efficient means of moving oil to the Far East. We are confident that this will continue. Considering the geographical context, the distances involved have increased since most shipments previously went to Europe, which was a shorter route and facilitated use of smaller vessels. This development marks the start of a long-term trend, especially since we anticipate that sanctions will remain in place even if the war in Ukraine concludes. We must keep an eye on these developments over the coming months. It is clear that ton miles will have a positive impact as a result of these changes.

Perfect. Super helpful. Thank you very much.

Thank you.

Our next question will come from Jon Chappell with Evercore ISI. You may now go ahead.

Thank you. Good afternoon. Hugo, short-term one, but just trying to understand, there's been a lot of talk about counter-seasonality improvements in rates over the last couple of weeks. We all see it, your quarter-to-date fixtures for the third quarter, almost halfway through, is substantially below your achieved TCE rate for the second quarter, which kind of goes in the face of everything we just talked about what's happened recently. Can you kind of explain what's behind that perceived sequential decline? And maybe, where the current rate environment is today and how we should think about trying to get to a blended average for Q3?

Yeah. No, go ahead, Brian.

You raised a very valid point, Jon. There are many factors at play, as our industry is always quite dynamic. In the short term, it's important to note that tanker markets are booking four to six weeks in advance of the calendar rates, which reflect the typical duration of our voyages. Recently, there was a significant spike in bunker prices and other associated costs, which explains why the run rate we've seen so far doesn't appear to show sequential improvement. However, as we've highlighted in our quarterly updates for Q3, the trading performance in the last two weeks has been significantly better than that run rate. This improvement is partly due to declining costs, and as Hugo mentioned earlier, better trading overall. The short-term market slowdown has been captured in the current numbers for Q3, but we expect this situation to stabilize, positively impacting our figures as the quarter progresses.

Yes. And I would add to that that we are also slightly more optimistic that the number will improve dramatically because of what Brian said, but also because when we analyze the voyages that we have done so far, I wouldn't say all of them but like a majority of them were what we call backhaul, so repositioning voyages that they are lower rate but then the ships will be positioned in the market that should be much better for them to take the next cargo. So I wouldn't be surprised if we would have a material improvement also coming from that angle.

So you would say that you're already substantially higher than that number, or are there just a lot of comment.

Yes. In the last two weeks as Brian said in last two weeks, substantially, it's more than double that. And we believe that it's sustainable. I mean the way we look at the market is when you have enough ships that have booked at a certain rate and then the market take a pause, but doesn't drop then it's a very good sign that it will either stay there or further improve in the next couple of weeks. And then obviously, let's all remember that we are in Q3. I mean Q3 is generally speaking the weakest market, even in a good market we wouldn't be surprised if we were at breakeven or slightly below breakeven levels. So we are very encouraged by that fact as well.

Okay. And then for my follow-up, Hugo, maybe you can just help me understand because it is a pretty rare situation. On the merger next steps on Slide 16, the light blue shaded on the left side. If you do end up in this 50% plus one share to 75% range. You say you're acting as one group. How does an investor think about that? I mean does Euronav still have a separate listing? And Frontline has a separate listing but you're acting as one. Is Euronav delisted? I'm just trying to understand the processes in a public market perspective on how getting absolutely – works.

Those are great questions, because it's true that this is a little bit peculiar. I think the main difference between Euronav, which is incorporated in Belgium, and other companies which are traditionally incorporate in other jurisdictions is, in order to effect the full merger, you would need only 50%. And in Belgium, we need 75% to sort of squeeze out the remaining 25% and to force the merger through. Obviously, we are all aware that we have a major shareholder, who's at the moment opposing the merger and they have something like 21% or 22%. And so if not all the shares are presented at the time of the exchange, at the time of the tender then one may suspect that we won't reach 75%. That's why we illustrate okay, we need 50% of one share, that's a minimum to act as one group and I will come back to a minute. And unless we have or until we reach 75% then we can offer to the full merger. What do we mean by acting as one group? Well, yes, Euronav would remain listed. But obviously, the more shares are swapped into the tender offer, the poorer the liquidity will be in Euronav and its listings. And so, I think when we talk to shareholders for the ones that are the institutional or even part of retail, they would prefer to be on the Frontline side because obviously, we exchange share for shares, so there would be more share, there will be even more volume than there is today. And certainly, much more liquidity than what we see in Euronav. Acting as one group would simply mean that, when you are thinking about the operation of the shipping company, there will be only one management responsible for the group, one board responsible to the group. And obviously, you have some managers remaining at the Euronav level, but this is shifting. So you are managing your fleet as one fleet, you need your OpEx as one OpEx, you benefit from your synergies, you do your purchase, your procurement taking into account the volume discount that you could have even if you were fully merged. So from that perspective, we don't believe that there's any difference from a synergy perspective. Maybe the only difference would be on financing, but given that our financing is usually done by subgroup of fleets. So we couple 10 or 15 ships together. It doesn't really matter, whether we're fully consolidated or not. So that's what we mean by acting as one group. And then obviously, we've said what would happen at the moment we get more than 50% and one share of Euronav are in the hands of Frontline, then there is a change of covenants that we have explained in the press release, which is a change of the Board and obviously change at the management level.

Okay. And sorry for the quick follow-up to the follow-up. But I just want to understand this. Once you get to 50% plus one, then you can enact the governance change and you can start acting as one group, but is the tender still open, so that you can have others continue to tender their shares in the weeks and months following kind of the similar to that 75%?

No. And that's a very important question. We will probably have another call specifically on that when we're getting closer to the tender process. We can decide to reopen it. But it's not automatic and certainly not an open-end tender because that would decrease the incentivization of people to tender in the first place, and we want as many people to tender as possible, simply because we want to get to the 50% and one share as early as possible and potentially to 75% as early as possible as well. So, it's not an open-end tender. It's reopened only when we decide to reopen it if we decide to reopen it.

Okay. That’s very helpful. Thank you, Hugo. Thanks, Brian.

Thank you.

Our next question is from Chris Wetherbee with Citigroup. You may now go ahead.

Hey, thanks. Good morning everyone. This is [indiscernible] filling in for Chris. Hugo, you briefly mentioned it, but could you provide some insight on how we should view the synergies or economies of scale in dollar terms as we move towards the merger? Any information that could help us quantify this would be appreciated.

And you would like a number or you would like precisely what we're going to do in the various sections of P&L?

Yes. Maybe just what you can do on the various sections of P&L. I understand you probably can't find numbers at this time, but I mean if you could that would be helpful, but maybe to start with more broadly on the P&L.

Yes. So obviously, you're talking about the revenue first, and the revenues is to operate the fleet and its combined fleet of VLCCs and Suezmax. To a certain extent the LR2 are a little bit separate. Frontline would join a pool. And the 20 ships that are in the hands of other people in the pool would remain in the pool. So we would have a pool that would be 85, potentially a little bit higher than 85 VLCCs. The desk of the Suezmax will continue to be next to the desk of VLCC and we benefit from the information that we gather in the market, which is very important. We are also mapping now the different clients, and believe it or not Frontline and Euronav are highly compatible in the sense that there's not a lot of overlap in terms of clients. Certainly on the Chinese accounts we're very complementary to each other. So that's a good thing. We believe that because of the market presence we will be able to deliver a much better service and would be the first choice of our customers when we have this platform enacted. On top of that, we would like to continue to grow the pool. I think once you have a platform that has this collection of ships and again I'm talking here not only VLCC, but also Suezmax will attract other owners to join and the bigger the better for a number of reasons, but those are relatively obvious. Then if you move to the cost side, well, it seems to be very obvious that you can do a lot of saving overhead because you don't need a full management team at the board, etc. But it's also a question of offices location. We have offices in similar jurisdictions; we can obviously put that together. Other than that, and as we have explained in the first press release, the initial one where we indicated the intention of doing this, we've said that again we're very complementary because one system is very lean and mean. The other one is more vertically integrated, i.e., the Euronav 1. So we don't expect to have a lot of redundancies. So it's more on the systems, the offices, and the platforms we would do the savings. We also expect to have a lot of savings on the technical side, namely the OpEx. It goes without saying and we've demonstrated that in the past when we first merged with Maersk. The merger we’re generating volume discounts we can achieve once we have a bigger presence is quite significant and we're talking about 2%, 3%, 4% but on relatively big numbers. The dry dock is another area where we see a lot of potential for saving a lot of money when we use to dry dock. And you can imagine with a fleet of 150 vessels, a number of dry docks that you need to achieve on a yearly basis. Finally, on the financing side, we also believe that we can save a few points and probably a few dozen points. That’s certainly what we've seen with other groups when they were achieving the size that we are achieving. Again we continue to do this analysis in the press release. We've indicated that as a minimum we would expect to save or to gain around $60 million per year. I think that we are all relatively optimistic that this figure can be improved substantially over the next couple of years. So that's very much as of the first year, first 18 months after the consolidation of the merger.

Thank you. That's really helpful. One follow-up just on the market, I know we've talked a lot about it. But we have these demand pushes and supply pushes and as you're talking about a countercyclical market and then going forward, I guess I'm just trying to understand, like, where does the scale lean? So, on the demand side we obviously have Russia and others. On the supply side, we have elevated ton miles and newbuild prices that are high. So that impacts the capacity. But as we move into the next couple of quarters, where should we think about that scale shifting? Is it, move over to the demand side in terms of the pressure or the supply side in terms of the pressure, how do we feature here?

We don't control many factors in this market. The supply side has very positive fundamentals, particularly because the average fleet age is increasing. We anticipate a number of fees being scrapped because ships can't be kept indefinitely, and they are aging each year. On the newbuild front, there haven't been any orders in almost a year, and we have taken most of the order book in the first half of this year, leaving us with very little for this year and the following years. Looking at demand, the ton miles have been affected by the dislocation of Russian oil and the ongoing recovery from the COVID-related downturn, especially with the Chinese market expected to recover significantly once they cease their opening and re-lockdown strategy surrounding COVID. We are currently in a seasonally weak period, but many indicators suggest that the market is strengthening with notable improvements from one quarter to the next, giving us optimism for the winter season. Winter generally sees higher demand compared to summer, and we have consistently expected the next winter to be robust. If we factor in elements like scrapping ships or some disruption, we could enter an exciting multi-year cycle.

Make sense. Thank you all.

Thank you.

Our next question will come from Omar Nokta with Jefferies. You may now go ahead.

Hi, thank you. I wanted to delve a bit deeper into the market and discuss the effects of the Russia-Ukraine situation in Europe. Hugo or Brian, could you estimate how many Russian crude barrels are still entering the European market today? It seems likely that these will need to be redirected and replaced in the coming quarters. Do you have an indication of how much is still being supplied to Europe?

It's challenging to obtain precise data. However, I've observed that Bloomberg is attempting to track this weekly, and their findings indicate that flows are now higher than they were in February. The best estimate suggests a reduction of about 0.75 million to 1 million barrels of oil flowing into Europe. While this reduction has been widely reported, the EU has slightly relaxed some sanctions until December 5, which indicates they are still trying to keep oil flowing. Ultimately, it appears that only around 1 million barrels of Russian oil have been diverted from Europe, with the remaining oil redirected to Indian and Far East markets. The complexities arise from ship-to-ship transfers, making it difficult to trace the oil’s route accurately. The impact of these changes does not seem as significant as initially expected. Regarding the net effect, we anticipate around 2 million to 2.5 million barrels will be replaced by oil from the Middle East and the Atlantic, a trend we are already starting to observe. This situation is not a short-term occurrence; it will evolve over several months and quarters. We expect an increased flow of Middle Eastern oil into Europe well into next year, along with continuous imports from the Atlantic to offset the Russian barrels lost. This emphasizes the longer-term structural changes mentioned earlier.

Yes. Let's not forget that you have a part of that which is carried by pipeline. And from what we know that continues to flow very normally. There are not a lot of sanctions, but there are a lot of self-sanctions. I mean, banks are very reluctant that you would carry rationale, insurance, B&I, clearly the same. But today it's not illegal. People who are doing it are not advertising doing that. So that makes the data very, very difficult to gather and to follow.

Thank you, Hugo, for that. I also appreciate Brian's comments; they provide good context. As a follow-up, concerning the increased oil flow we expect in the Atlantic Basin, primarily driven by the US Gulf along with Brazil, Canada, and Guyana, the 1.6 million barrels you mentioned projected through the end of next year raises a question. Are you worried about the sustainability of Suezmaxes and Aframaxes transporting more of those barrels, or do you see VLCCs starting to regain more market share, as Hugo touched on earlier in response to Greg's question?

It's a very difficult question to answer. But at the same time, I'm not too worried about it, because when you look at the Suezmax flows in general and VLCC flows, there is a lot of markets where two Suezmax or two cargoes of Suezmax can go into one VLCC. You do have this push-pull impact. So the Suezmax market is doing very well and to a certain extent is showing or seeing many more cargoes naturally that would have a knock-on effect on the VLCC market. Those two markets are really, really well interconnected. When we speak to chartering desks of our clients it's usually the same people and they do monitor the pricing of one versus the other. So as I said in the last two, three weeks what we have seen is a lot of cargoes that were shown towards Suezmax were disappearing from the desks and then they were popping up in the pool and they knew that those two cargoes were being combined in order to be carried by VLCC. So I cannot imagine a world where Suezmax and to certain extent Aframax are doing very well and the VLCCs are doing poorly. I mean that would be highly surprising.

Understood. Thank you. Appreciate that. I’ll turn it over.

Okay. Thank you.

Our next question will come from Frode Morkedal with Clarksons Securities. You may now go ahead.

Thank you. Hi, guys.

Frode. We are experienced enough not to predict the market. However, my intuition suggests that we are closer to the conditions of 2004 and 2003 than any other market we have encountered. This assessment is based on the order book, the prices of newbuildings, and the almost complete inability to expand the fleet for the next three years due to limited capacity in shipyards. A slight increase in demand could lead to market growth at certain levels, followed by a gradual improvement as some parts of the fleet become too old to operate and there will be nothing to replace them. This situation strongly resembles the lead-up to the four to five-year cycle we observed from 2004 to 2008, which was characterized by growth in those particular years. From a fundamentals perspective, it appears to be shaping up similarly.

That's great. 2004, 2003 was a good year. As a follow-up, I believe many generalists might be cautious and concerned about a recession. How would you address that? Also, could you discuss the inventory cycle and the effects of pricing?

Yes. That's a very difficult one, because God knows that we knew very little about macro economy and our market is sort of polluted or impacted by so many different kind of events. Many of them are positive for marketing, and very often we feel sorry to say that, and that's why we secure with the Russian dislocation. I think that a recession is not good. Obviously, normally you have demand that is, obviously, being reduced on the other side. But at the same time, we have an energy crisis and the energy crisis is not entirely due to what's happening in Russia. It’s much broader. We're talking about an energy transition. What happens in energy transition is that people tend to mislead their investment; this time the investment, you are too early, you are too late, all of those dislocations are usually shipping benefit from it. Given where we are, given these profiles, given where the order book is, I think that many scenarios are manageable but obviously, manageable through more or less scrapping.

Yes. Thank you.

Thank you.

Our next question will come from Chris Tsung with Webber Research. You may now go ahead.

Hi, good afternoon, everyone. I wanted to just understand if Euronav is under any restrictions from now, until the tender offer in Q4, with regards to the combination of Frontline? Are you able to continue buying or selling ships or taking on net, etcetera?

Yes, we are. Everything that is business as usual, we can do, and fortunately shipping businesses as usual is quite broad. As a matter of fact, the conditions have not materially changed since we announced the intention to do, and that was confirmed in early July. At that time, we were also restricted obviously, once you set the ratio, you set the economics and therefore, you're not supposed to do major things. You’ve seen that we have transacted on current ships and we bought out our 50% joint venture partner, and that were under the same restrictions that would apply today to us. We can do a lot of things. What we are always doing is talking to our partner. There is an NDA between two companies, and from that perspective, we can also do a lot of things, not wanting them in advance, definitely telling them that this falls within the close of the contracts that we signed.

Right. Okay. Thanks for that, Hugo. And just a follow-up. Looking at that press release from July, can you provide some color on what the absence of material adverse changes in?

That clause is a standard part of many contracts, and this one is no different. We discussed with the liners whether it needed to be spread out, and since it was so standard, there was no need to do so, and the regulator agreed. While major conflicts are being monitored, especially regarding China and Taiwan, the risk from a major company typically changes significantly. The failure of Lehman Brothers in 2008 is an example of a material change that can impact everything. However, this doesn't mean the deal is canceled; it allows the parties to withdraw if they believe the economics have changed for one of them. In our situation, both parties are in the same business and are excited about the opportunity. I don't foresee many events that could alter that.

Great. Yes. That was super helpful. Hugo, Lieve. Thanks. That’s it for me.

Our next question will come from Anders-Redigh Karlsen with Kepler Chevreux. You may now go ahead.

Yes. Good afternoon. Most of my questions have been asked but I'm thinking a little bit about the supply situation. If we were to place an order today, when would you get delivery? And also in terms of the existing order book, are there any delivery delays following the lockdowns in China and some labor conflicts in Korea? Can you elaborate a little bit on that?

Yes, those are very good questions, and it's encouraging. If we were to place a VLCC order today, we might see one or two deliveries in 2025; otherwise, we would be looking at 2026. The situation with Suezmax is slightly better, as we could expect a few units in Korea by late 2024, with the rest in 2025. However, the numbers are not substantial. Regarding pricing, we're discussing the 80s range. Based on specifications, I currently don't see prices shifting significantly beyond a few million, influenced by factors such as whether the ship will be dual fuel. The options could include ammonia, LNG, or methanol. For VLCCs, pricing starts around 120. Presently, yards are not providing official quotes, and there aren’t many operational yards as we pursue further tanker orders. They are aware that the segment has yet to fully recover, and they are still seeking clients who are financially stable from operating their existing fleets, primarily in the container and LNG sectors, where most current orders are being placed. In terms of disruptions and delays, there have been some in Korea, likely due to inflation-related social unrest, as people seek better wages. We've seen Daewoo on strike for 10 days and it’s likely not resolved yet. Similar issues are emerging in other yards, though perhaps on a smaller scale. In China, there are reports of delays in other sectors; however, keep in mind that not many VLCCs are being constructed there unless they are for Chinese accounts, so the data we receive regarding deliveries and delays can be limited. We understand other segments are experiencing delays too. Additionally, some delays may stem from orders placed when prices were cheaper due to inflation and steel costs. Some yards are attempting to renegotiate pricing, and if they fail to do so, they may face bankruptcy. The overall situation in the tank sector appears somewhat different, yet still positive for the fundamentals.

Okay. Thank you for that.

Our next question will come from Chris Robertson with Deutsche Bank. You may now go ahead.

Hey, thanks for fitting me in here. You spoke about the fleet rejuvenation in the press release and you just hit on the future fuel technologies in the last question here. So I just wanted to follow-up on that and ask, how do you think your fleet renewal efforts will evolve, especially in the back half of this decade as we get closer to 2030? And then do you think that the current landscape of yards that exist will be sufficient to kind of renew the fleet once these future fuel technologies are available and a little bit more mandatory?

It's a great question. I don't have a crystal ball, but we do have a joint development program that we signed, making us the only ones on the tanker side. We've partnered with the largest yard, Hyundai, so we hopefully have more insight than others. The first ammonia ship for VLCC, which utilizes the 70-bore engine—the largest in the shipping industry—will probably be ready in late 2026 or early 2027. The first ammonia engine ownership will be developed and available by 2024, gradually increasing to our size and segment for the 70-bore, which again is expected around late 2026 or early 2027. In our ESG presentation from May, we outlined a timeline with milestones aimed at achieving climate-neutral emissions by 2030, 2040, and 2050. We also expressed our goal to operate at least one ship capable of net-zero emissions. This could be achieved with either ammonia, which doesn’t emit CO2, or green LNG or methanol, provided that any CO2 emitted is captured. This is our preferred path, but we need to see what developments occur in the shipping industry, knowing it will be multi-fuel. It's essential to monitor developments within specific segments. Regarding your second question about capacity, we have been in this industry for 20 years and have often heard concerns about this. If there is significant demand for the new technology, space will be created, and if there's willingness to pay, it will be developed and made available. We have witnessed this pattern repeatedly, so I have no major doubts about it. However, there may be a gap between client demand and supplier capacity, with early adopters benefiting due to their access to mostly developed technology from shipyards and engine manufacturers. As awareness of supply chain emissions increases due to Scope 3 reporting requirements, we believe our clients will face higher demand compared to the number of vessels meeting those standards. Additionally, a carbon tax is expected before 2030, likely starting in Europe and broadening beyond that, which will further drive demand for ships with lower or zero emissions.

Thank you, Hugo. Really comprehensive. I appreciate the color on that. I will turn it over.

Thank you.

Our next question will come from Quirijn Mulder with ING. You may now go ahead.

Yes. Good afternoon. Thank you for picking up my questions. I have, in fact, two questions. First about, let me say, the situation with regard to the scrapping because we have discussed that earlier that last year was somewhat disappointing that scrapping was picking up very, very slowly. So what is the current situation? What is the expectation of that? Is that picking up? Is that accelerating? Because that can provide the big boost. And what's the situation with regard to Iran? I heard that the negotiation will restart after some delays, I think. So is that something which we are closely following what happens there?

Yes, you are right. It has been a bit slower than we anticipated. We can count five VLCCs scrapped year-to-date and eight Suezmax which has been a bit lumpy. Last year wasn't really disappointing where our original expectations were but it ended up being reasonably good to certainly the highest we've seen since 2017. So, yes, it's not the way we were thinking. There’s a logical explanation for that that we've had this solicit fleet buildup. That's been largely doing some of the trading trades to some extent Venezuelan trade as well. Very VLCC focused. At the same time, we're still seeing very high asset prices as Hugo said earlier. That's a very, very encouraging background. We still remain of the view that we'll see owners start to move to the recycling at some point, but it's just a question of when rather than if. On the Iranian side, we are in the same camp as you. We read the same newspapers. We've obviously alluded to and given an indication of how impactful this would be on the tanker market. It will be more impactful on the tanker market than it would be on the crude oil market. However, we are just going to wait and see and see if there's any opportunity for negotiations to develop. I don't know if you guys going to the cap about but we are continuing to remain in a wait and see as you are in the union situation.

No. And with regard to the Suezmax for example benefiting from the Russian situation, isn't there a risk that you will also see there somewhat illicit trading in 2023 when there's a serious boycott?

You may see that, I mean, there's no doubt about it, but it's much more difficult to organize compared to the Iran-China trade. If you look at the map, you understand directly, what we mean by that because your illicit Suezmax will probably take the oil out of Russia. But then if you want to have something that is the best economics, I mean, the economies of scale largest cargo transport over a long distance, then you need to discharge them into VLCC. Those VLCCs and Suezmax can only do that outside territorial waters or economic borders of the EU, and that is off the course of Africa. It’s not in any place, obviously, because you need to find the right area; it's hard enough to do that. It's very, very different from what we've seen in Iran, developed for many years now. But having said that, it's obviously people will try to benefit from it. It's very important for the energy in general that this oil flows somewhere. We are looking at a ton mile. We're okay. This oil was going over a very short distance between Russia and Europe and now it has to grow and find clients on the other side of the world. Obviously, these clients which were getting their oil much closer to their territories, they will let that oil go, and that oil will come to Europe. From a shipping perspective, it's an advantage. From a trading perspective, you may rearrange a certain type of fleet, with certain nationalities, and certain flags may need to do certain trades. But overall, it's relatively positive, and it's a very different situation than what you see in Iran.

Thank you.

This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.