Earnings Call Transcript - CMBT Q2 2021

Operator, Operator

Good morning, and welcome to the Euronav Second Quarter 2021 Earnings Conference Call. Please note that this event is being recorded. I would now like to turn the conference over to Brian Gallagher, Head of Investor Relations. Please go ahead.

Brian Gallagher, Head of Investor Relations

Thank you. Good morning and afternoon to everyone, and thanks for joining Euronav's Q2 2021 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, the 12th of August 2021 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 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 SEC's website at www.sec.gov and our own company's website at www.euronav.com. 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 those forward-looking statements. Please take a moment to read our safe harbor statements on Page 2 of the slide presentation. I will now pass over to Chief Executive, Hugo De Stoop, to start with the agenda slide on Slide 3. Hugo?

Hugo De Stoop, CEO

Thank you, Brian. Welcome to our call today. As usual, I will firstly run through the Q2 highlights and some comments on our current capital allocation strategy. This is to simultaneously rejuvenate our fleet and earnings potential, but also to invest in the latest technology to enable Euronav to be at the forefront of decarbonization of the tanker sector. Lieve, our CFO, will then run through a snapshot of our financing, before Brian, our Head of Investor Relations, will then look at the current themes in the tanker market before I return again to discuss in more detail our investment strategy and outlook for the tanker sector. So turning to Slide 4 and the highlight page. We said in early May that the first quarter was the toughest freight market we have had in recent years. I'm free to admit that factually, Q2 has proven equally, if not more challenging. As anticipated, recovery in freight rates did not materialize. Put simply, during Q2, there was too much tonnage chasing too few available cargoes. The members of OPEC+ have increased crude production to meet a growing recovery in crude demand. However, this has not been enough to gain traction in terms of reducing the oversupply of tonnage in the VLCC, but also in the Suezmax spot market. The result has seen freight rates in Q2 delivering levels not seen in the last decade. Euronav will nevertheless distribute a $0.03 dividend per share to reward patient shareholders. Despite these current headwinds, there are some positive signals. Both onshore inventory and offshore levels have been drawn back to pre-COVID levels. OPEC+ has signaled output rises of 2 million barrels per day between now and the end of the year. Finally, the high scrap steel price has translated into some recycling in the last 3 months, especially in the VLCC segment, where 5 VLCCs were demolished and recycled, but also in the Suezmax segment, where 3 Suezmax exited the world fleet. With that, I will pass over to our CFO, Lieve Logghe, to walk through the financial highlights. Lieve, over to you.

Lieve Logghe, CFO

Thank you, Hugo. It has been a challenging quarter as your comments highlighted. Euronav's focus is to maintain our capital strength, which we illustrate on Slide 5. Looking back over the previous cycle on Slide 5, our leverage has remained below our stated objective of 50% with our liquidity building during stronger freight markets in 2020. Our investment in new technology, which Hugo will cover later, has increased leverage and reduced liquidity, but well within our self-imposed limits. Liquidity is now just over $900 million with our dry-docking program 60% complete at the halfway point of the year. I will now pass on to Brian, our Head of Investor Relations, to run through some market slides.

Brian Gallagher, Head of Investor Relations

Thank you, Lieve. We spent some time on the last call going through the impact of the illicit trade that we identified, in particular, from Iran. Exports, as you can see from Slide 6, look to have continued to rise throughout Q2. These are cargoes, remember, which are not available to the global commercial fleet. This continues to be a drag on the wider recovery in the tanker market in our view. Moving on to Slide 7. We look at recycling in more detail. What is pleasing to report is that VLCC recycling has actually begun to start in earnest, and we've seen 12 VLCCs exiting the fleet over 12 months to the end of July, but only 4 Suezmax have also exited over the same period. This is behind where the old analysts' forecasts were expecting this number to be. And this is surprising, given the very high steel prices we've had throughout 2020-2021. What is very clear is that older tonnage is being resold into the secondhand market rather than being recycled. With some encouraging data points in our market then, why has the freight pricing background remained so challenging? We try to give some more insight on this in Slide 8. Slide 8 selects 3 key markets of the VLCC and Suezmax sector. Firstly, the core 5 OPEC nations based in the Middle East; secondly, the U.S. shale sector; and lastly, Russia. If we look at these individually, we can see that production on the left-hand side of the slide, you see on Slide 8, has looked pretty good, and we've seen sustained rises in production since February. However, if we look to the right-hand side of the slide, and I’m on Slide 8, the picture is far more mixed. Exports as a percentage of production have continued to fall, with exports in a range of between 18 million and 19 million barrels per day. Traction in freight rates can only really gain once we see exports follow the same trajectory as production growth. This helps explain the short-term picture, but there are robust grounds for optimism beyond that, and we would expect the export pattern to eventually follow from that of the production increases that we've seen. On this encouraging note, we look further in more detail on Slide 9. After some initial wrangling, OPEC+ in early July outlined plans to steadily increase production by 2 million barrels per day overall between August of this year and the end of 2021. As the previous slide indicated, production rises do not always translate into barrel for barrel increases in exports, but with global onshore inventory levels back at below 5-year level averages, then this production should start to translate into higher levels of available cargoes. Indeed, the ratio of available VLCC to available cargoes peaked in early June, according to Bloomberg data, and has fallen since. Looking further out beyond the end of this year and into the medium term, we believe that 6 million barrels per day of additional barrels will be required from the 4 key production areas to get back to pre-COVID levels of output. Remember, 1 million barrels per day roughly translates on an annualized basis to demand for 30 VLCCs. Overall, this medium-term picture provides plenty of scope for improvement and support for the tanker market over the coming quarters. Looking beyond that, on Slide 10. We look at ton mile growth, which is forecast by Clarksons and most agencies to rebound further in 2021 and then again in 2022, as emerging market nations take up the baton for the demand and consumption recovery, as Slide 10 shows. The tanker market has already adjusted itself by reducing capacity by slowing the speed of the vessels that are transporting cargoes at, partly due to the rising bunker costs and also due to the lack of cargoes. Should this discipline be maintained and ton mile growth materialize along this pattern in Slide 10, then perhaps consumption growth of 100 million barrels per day that we last saw in Q4 of 2019 will not be required to return the tanker market to equilibrium. Tanker speeds and freight rates have a very strong correlation of 62% since 2016. So if we were to see the fleet speed up and increase capacity, it would be in response to a higher level of cargoes. With that, I will now pass it back to Chief Executive, Hugo De Stoop, to highlight our recent investments for the future and outlook for the coming few quarters. Hugo, back over to you.

Hugo De Stoop, CEO

Thanks, Brian. Tanker shipping markets are volatile, cyclical, and normally seasonal. 2020 was an extraordinary year from many different angles, and 2021 has so far, unfortunately, met our expectations in terms of a poor rate environment. The Euronav platform has been designed to cope with all kinds of markets, and our capital allocation approach is dynamic and moves in tune with the cyclicality of our markets. We believe that we need to have a strong balance sheet and a decent amount of liquidity that provides both strength and perhaps more importantly, optionality during the difficult times of the cycle. Such a balance sheet is often built during the good times. But looking back over the past 18 months, we've been active in all facets of our capital allocation as Slide 9 illustrates. Cash dividends have been strong during the upper part of the cycle with nearly $350 million returned to our shareholders and nearly $120 million returned via share buybacks. This is the most progressive return amongst our peer group on a comparable per capita basis. Yet over the same period, the balance sheet has retained its strength with leverage below target thresholds and one-third of our funding being sustainability linked. In the past 2 quarters, we have been active in securing future investments to ensure the age of our fleet is reduced with more modern, less consuming assets, which will therefore improve earnings potential. In addition, those assets provide a degree of flexibility when it comes to future propulsion and fuel technologies. But you may wonder why now and why ammonia and/or LNG? Let's move to Slide 12. We are, first and foremost, a service provider, and we will always look at what our clients want. Without any addition, those ships are already the most economical tankers produced or ever produced. But they are also ready to be converted into either LNG or soon into ammonia-fueled vessels. LNG reduces CO2 emissions significantly and is a technology that's available now, but it’s still expensive. So we need customer support to justify this investment. Ammonia is not ready, but yards, engine manufacturers, and classification societies are working hard to develop this technology, which should be ready by 2025 for both newbuildings and retrofits. Slide 11 shows that ammonia from tank to propel will reduce emissions between 93% and 100% compared to today's tanker fuel. Therefore, this is a technology we believe will be one of the winning fuels in the future. Being involved in the development of those technologies, which is unusual for a ship owner, should provide Euronav with a competitive, technical, and also strategic advantage, and we're not putting all of our eggs into one fuel basket. We don't believe there will be one outright winner, but we will remain flexible going forward. And these ships will allow us to remain flexible. Turning to Slide 13. So why invest now at this stage of the cycle? Historically, Euronav has invested on a counter-cyclical basis, most obviously in 2014 and 2017, when we undertook transactions to expand our platform by 50% in terms of vessel count. Both times, freight rates were at loss-making levels and consensus outlook was very challenging for the upcoming quarters. Over the past year or so, we have taken delivery of 4 new eco-VLCCs and taken over contracts or filled abandoned slots or even ordered a further 3 eco-VLCCs and 5 Suezmax due to deliver now over the next 2.5 years. So with the latest technology and the capability to add either LNG dual fuel or ammonia provided all pieces of the ammonia puzzle fall into the right place, this is why we have signed a joint development program. This JDP, as we call it, has been signed with our technical partners in Hyundai for the next 3 years, and this should assist in the development of the technology itself, ammonia dual fuel vessels, and all should be achieved within the capacity of our balance sheet. Leverage remaining below our threshold target of 50%, supported by the actual forward sale of over 10 older ships in the past 18 months, recycling $150 million capital back into the latest technology. Why now? Firstly, the slide on screen attempts to show the crowded landscape we face as operators. Yard capacity to construct large tankers such as VLCC or Suezmax is now largely constrained until around late 2024, beginning 2025, given the surge in container and dry bulk orders over the past 6 months, but also LNG carriers. Secondly, operational regulation will start to bite from 2023 with the EEXI and carbon intensity regulations making all the tonnage obsolete or far less preferred as they will hit the bottom 20% of emission league tables. Also, the recent EU carbon trading scheme will add further pressure to reduce emissions and reward those with lower emitting fleets. Euronav is comfortable with the position we have taken so far, and I’m sure there will be additional questions in the Q&A shortly. So let's now move on to Slide 14, which is the final slide. This is the usual traffic light system that we have had for a number of years. As we said in our press release today, Q2 has been a static quarter following a depressed Q1. The immediate part of the cycle remains challenging and is likely to stay so until we either see a crude oil demand recovery or a sharper reduction of the fleet, which would require a decent number of ships to be recycled. Nevertheless, the demand for oil should improve seasonally. On average, demand increases by 1.7 million barrels between the summer and the winter of the Northern Hemisphere. So as Brian said, the seasonal raise in demand, coupled with reduced speed of the world could already move the rates up by the end of the year or the beginning of the next. On the supply side, you would have noticed that we have downgraded the vessel supply column as recycling has simply not occurred at a level we would have expected given other supporting factors. The other factors remain unchanged. That concludes our remarks. Thank you for your attention, and I'm now pleased to pass it back to the operator for a Q&A session.

Operator, Operator

The first question is from Jon Chappell of Evercore.

Jon Chappell, Analyst

Hugo, first question for you. I think the timing of the next evolution that you laid out makes a ton of sense. And as it relates to a source of funds, it feels like there is a bit of disconnect between secondhand asset values. The leases are quoted, maybe there is just not a lot of activity and the underlying rates and share prices. I know you've recycled, sold, disposed of a fair amount of your older fleet, but you still have a handful that are over 10 years old. Are there any more plans to use this kind of recycling, so to speak, of selling older ships into a strong underlying S&P market to fund some more of your next stage of evolution fleet growth?

Hugo De Stoop, CEO

Well, let me first say that we don’t need to do that. So it's not an obligation. But you're absolutely right that when we see the evolution of the values compared to the freight market or compared to our share price, there is clearly a disconnect. One should definitely take the opportunity if those opportunities exist because the market is very thin. So the volume of vessels that are being exchanged, certainly in the categories that you mentioned, which is 10 years old, is very thin. There's been a lot of exchanged vessels in the very old categories, around 18, 19, 20 years. Unfortunately, we know why and where those vessels have gone, and mostly, that is for the illicit trade, which is at the heart of the problem that we have. And then on the newbuilding or resale of contract front, there has been also a fair amount of exchanges. But in the sort of middle age 10 years, the volume is rather thin. Nevertheless, we are looking at every opportunity that we can find in the market. And on the Suezmax side, we do have some dealings that are hitting sweet spots where there could be interest from other ship owners.

Jon Chappell, Analyst

Okay. Great. And Brian, my follow-up for you. Page 8 is really interesting. And I'm just wondering, those 3 regions you've highlighted here. The U.S. inventories are not going up. I'm assuming that a lot of the Middle Eastern countries, Saudi especially are using some of their increased output for direct cooling generation during their summer months. And I guess, Russia is probably not maybe as transparent as some of the other western countries. Do you feel like as this outlet continues to rise, either there's going to be a seasonal component of the Middle East exit this summer or something related to U.S. exports, where there's going to be this relief valve where the production automatically turns into export and tanker demand and even with potential catch-up after lagging a little bit to the last few months?

Brian Gallagher, Head of Investor Relations

Yes, I think that’s a very good point, Jonathan. And I certainly would echo those comments. I think that’s what we’ve seen with the Middle East, and we deliberately picked those 5 Middle East exporters as the core drivers. And they’ve definitely been using that increased production for their own, as you say, domestic needs. But I think there’s definitely some pent-up or snap within the system that we would anticipate coming through at some point. Obviously, with the sort of data today from the IEA, suggesting that July has sort of moved backwards in terms of demand that is going to be a little bit further out. But yes, that’s definitely the theme we wanted to get across because I think there has been a disconnect from the engagement we’ve had with investors. We’ve all seen the production numbers, but it’s not been translated into increased cargoes. And I think you’re absolutely right that there will be a snapback at some point. Of course, when that will happen, we would like to think it will be the second half of this year into maybe Q4. But yes, I think you’ve explained it better than I can with the charts just to illustrate that background, what we think will change at some point. And of course, it is encouraging to have OPEC+ at least committing to have regular increases in those production numbers between now and the year-end.

Operator, Operator

The next question is from Chris Wetherbee of Citigroup.

Chris Wetherbee, Analyst

I guess, I wanted to talk about sort of the new emissions in propulsion systems and fuels as you think forward here. Where do yards stand in terms of preferences, if they have one? And if you could talk a little bit about what you think the return profile of these vessels might look like relative to traditional fuel vessels.

Hugo De Stoop, CEO

That's a very good question. It's probably too early to tell. I mean, the vessels that we have booked right now have the capability of being converted into vessels that can burn LNG and ammonia. Until we sort of decide that they should be converted, and that could be before their specific deliveries, they will be deemed as conventional vessels. The return should be fairly the same. The amount of money that you have to invest in order to have that flexibility is relatively conservative. We're talking about $1 million, $1.5 million, which anyway would have been spent anyway for Euronav specs. What do we do exactly there? First and foremost, we're talking about reinforcement of the deck, where the potential tankers that will hold either the LNG or the ammonia and its different weight for those specific tanks will be located. The second part that we're looking at is the piping system so that whenever we decide to put those tanks on the deck, the piping system will already be there so that we don't have to open the ship like a can, leading to the engine room. And then, of course, in parallel, there is quite a lot of development on the engine themselves. And you may have noticed in my introductory remarks that, in fact, the yards, but more specifically, the engine manufacturers, be it MAN or Wartsila, are looking at the development of new engines as well as retrofits. Both technologies should be ready at approximately the same time. If you have an engine today and it has the sort of minimum features to be converted, the conversion will be possible at a later stage. The amount of capital that you will need to spend in order to do those conversions is still unknown. Of course, we know what it costs to do that on an LNG vessel, and there are a lot of similarities. So it should be between $10 million and $15 million at the beginning. And I think that we would only do that if we had a contract. The reason why we believe that being an early adopter will provide a competitive advantage is that we have a feeling that there will be a race at some point, but certainly, as of 2023, to reduce emissions for our clients. As I mentioned earlier in the call, we are customer-driven. So whatever the customer wants, we should be able to produce. And that's exactly what we anticipate will happen on those vessels or the next generation.

Chris Wetherbee, Analyst

Okay, that's very helpful. I appreciate that information. As a follow-up, I wanted to revisit the topic of scrapping. I'm curious about what you expect for the second half of the year regarding scrapping. Also, what changes do you think would be necessary to either meet those expectations or possibly see an increase in activity that would encourage more people to participate?

Hugo De Stoop, CEO

Well, I wish I had a crystal ball or I wish someone would listen to my prayers. I think that we are all surprised that more than 50 ships that should have been scrapped are still trading. We have explained in the last call, so I’m not going to repeat what we said in the last call that pretty much all of them have been identified in those illicit trades. The way they circumvent the rules is quite astonishing, but it is what it is, and I don’t think that Euronav can do anything about it. The way we look at the second half is the following: we believe that there is a certain capacity that can do these trades, and we are probably at the limit. So we don’t see another 50 ships of that same age profile going into those trades because they won't be necessary to transport Iranian and Venezuelan crude oil. So we think that we are almost at the end of that capacity. Therefore, any ship that is facing a dry-dock, any ship that is not earning simply because they are at the back of the queue, and the owner decides what to do with their ship, it's likely to go to the scrap yard. So the second half will be a mix of a natural scrap profile that we have predicted and should have happened already, but we’re not talking about the same ship. We are talking about new ships arriving to the same age profile. And then, of course, if there is a change in the Iranian sanctions imposed by the U.S., that should open the floodgates for ships to be recycled. And there, we would be surprised if we wouldn’t see a number of the ships that are today trading rushing into those recycling yards because the capacity there is constrained. We believe that owners would be very, very quick to seize the opportunity at the current scrap prices, which are the highest that we have seen in more than 15 years.

Operator, Operator

The next question is from Magnus Fyhr of H.C. Wainwright.

Magnus Fyhr, Analyst

Just had a question on the fleet and how you feel about the fleet going forward as far as seeing fuel compliance. You mentioned that you need support to develop fuel compliant vessels. You have taken steps now to invest in the new generation vessels. How do you balance being too early and holding on to some of these older vessels that are likely to be big cash generators if we get an upcycle here in the next 2, 3 years? And I think we probably likely to have another downcycle before 2030. So just curious, how do you balance that investment in the new ships to meet these goals and also not giving up the cash generation capability of the older ships?

Hugo De Stoop, CEO

Yes. When you look at what we have sold, I think that this was not a surprise to the market. I mean, we're talking about forward sales in the form of sale and leaseback with no purchase obligation on some vessels. They will be redelivered to the owners when they reach 15 years of age. When you look at the way Euronav positions itself as a quality operator, the ships more than 15 years of age, regardless of their emissions, have always been trading in a different segment with different clients. And so that's not where we are positioning ourselves. Generally speaking, between 15 and 17.5 years, which is between 2 surveys, we are looking at selling the vessels. And as I said at the beginning, from time to time, we forward sell vessels because we believe there is a good opportunity to do that. As far as the newbuildings are concerned, it was a mixed bag of opportunistic acquisitions. You know that we have taken contracts that were abandoned by some owners who couldn't fulfill their obligations. The same for some slots. And then as we were busy contemplating the landscape, we saw that there are very, very few slots available until the end of '24, beginning of '25, and that we are more likely to see a continuous influx of vessels from containers, LNG, dry bulkers, meant that it was a little bit more opportunistic. We add this layer of flexibility on the new technology so that we could convert them. So I guess what you have to look at is regardless of the emissions, what we have done should not be a surprise to many people. Maybe with the exception that Euronav did not build a reputation for being busy at the yard, but we also need to be realistic and flexible in that approach. When you look only or purely at the emissions, we are recycling all the tonnage against newer tonnage, which is outperforming from an emission and consumption perspective. So earning potential in a normal market or in a market that is influenced by emissions is secured with the capability of doing even more on the emission front. We will continue to do that. And when you speak about another dip before 2030, yes, the market is cyclical. I guess that we have always had to balance what we get rid of when the values are very high versus what we retain. I don't think that this philosophy should change, and it will be the same going forward.

Magnus Fyhr, Analyst

All right. And my follow-up is, so you've invested quite a bit here in the last 2 years in new vessels. Do you feel like over the next 2, 3 years, you need more support from the charters or the oil companies to build new vessels that comply with the new regulations? Or would you continue to do opportunistic purchases?

Hugo De Stoop, CEO

I think that everything we do needs to be strategic or opportunistic. I think that we have done, what I would say, strategic in the sense that it's fleet rejuvenation for the reason I just explained. It just makes a lot of sense, especially from a value perspective. A modern vessel would consume 30% or 35% less than a 11 or 12-year-old vessel. If we do have support from our customers, we will always be there to render the service. We have mentioned that in previous calls, we are not at all against LNG. We believe that it's a technology that might be a little bit more risky given the amount of money that you have to invest without having a contract. We participate in various standards organized by Shell and Total. We felt that the returns were not big enough for us to cover this premium that we had to pay for the technology. There were also a lot of technical details that maybe you guys are not aware of, but the vessels ordered by Total are compared to the ones ordered by Shell, it's a different LNG technology. It’s low-pressure versus high-pressure and has its pros and cons. So now the market has stabilized, the price of newbuildings is going up, but the price of the premium on technology is going down. So let's see what the customers need. But from what I read in the press or even in the specialized sources, it seems that a lot of the oil majors, a lot of our customers are busy scratching their heads on how to meet those lower emission requirements. So they can always come to us or come to the market, and we will always be there to analyze whether it's worth building specific ships for what they want or whether we prefer to pass and continue being independent.

Operator, Operator

The next question is from Randall Giveans of Jefferies.

Randall Giveans, Analyst

So I guess, looking at your fleet and chartering strategy, you have a handful of vessels on relatively medium to long-term charters, but pretty small amount relative to the size of your fleet. So what are your thoughts or plans for chartering out tonnage? And if the rates are still too low, any appetite to charter in tonnage today?

Hugo De Stoop, CEO

It's a question we consider every day, so let me begin at the start. In a high rate environment like 2020, you face the choice of earning, for example, $100,000 a day, or chartering out for $60,000 a day. This forces you to decide whether to sacrifice immediate earnings for future protection, knowing you can only protect for a maximum of six months to a year. Staying on the spot market is also a consideration, as you are aware that it will fluctuate, with peaks offering high returns and lows bringing significant losses. We have explored many opportunities and accepted a few charters, as you mentioned, most of which have now been redelivered. Currently, we have just one VLCC and five or six Suezmax on charter. At this time, the rates for time charters are too low, leading to guaranteed losses, as charters are often looking for one or two-year options. This situation is not profitable and limits our flexibility. Therefore, we believe now is not the right time to pursue additional time charters. Regarding chartering in, we acquired two Suezmax vessels about four or five months ago. We are monitoring the market, but the terms being requested differ from our needs. Unlike larger traders, we prioritize optionality. It appears that when vessel owners lease out their ships to one another, the terms accepted can vary significantly compared to transactions with actual end-users. This might be due to established relationships or the presence of multiple time charters in negotiations. Presently, there are not many prospects available on either side, whether for time charters or other options, but we continue to keep a close watch on the market.

Randall Giveans, Analyst

Got it. All right. Fair. And then I guess the last question for me. Is it fair to assume the dividend will remain at around $0.03 a share even with negative earnings for sure in 3Q and possibly 4Q or will the primary return of capital be share repurchases eventually?

Hugo De Stoop, CEO

Well, we have dedicated a slide on that. We have done dividends, we have done share buybacks, we have done further capital investments. I think that it's part of the strategy, and I explained it in the preliminary remarks that every part of the cycle, but also every decision that management makes on the future will have an impact on what we do. We have a track record since we were listed in 2005, so 17 years as far as Euronext is concerned, 6 years as far as New York is concerned, and I think people can see for themselves what we have done with the capital. I prefer to, for instance, buy back my shares, $118 million worth of shares last year, than just doing that right now. Why? Because once you have bought back the shares, then there are more dividends for the remaining shares. I think that the order in which we did it was good. If you ask me, maybe we should have done a little bit more share buyback last year and a little bit less dividends because then it would have been even better for the current shareholders. Capital allocation is what it is, and I think that you have to entrust management to do the best they can with the capital.

Randall Giveans, Analyst

Got it. Understood. Is the $0.03 dividend a new minimum? How do you perceive that? Is it determined quarterly?

Hugo De Stoop, CEO

Yes. It's not a new minimum. We had $0.12 per year. We were able to distribute dividends, and now we are able to distribute full dividends. With the same policy going forward, we believe that it's a small amount of money, and we will try to maintain that for as long as we can.

Operator, Operator

The next question is from Omar Nokta of Clarksons.

Omar Nokta, Analyst

Just wanted to follow up on Randy's. Just a follow-up on Randy's question about the capital returns and whatnot. Obviously, there have been real signs of a recovery. But as you mentioned, the near-term is a bit iffy and cloudy. I know last year, you were a bit more aggressive with the share buybacks, taking advantage of a discounted stock price relative to NAV. And now here, you've actually got NAV that's probably a little bit more solidified just based off of market activity. So just wanted to think, as you think about this market here over the next 3 to 6 months, do you see yourself being more active, more aggressive on the buybacks? Or maybe just taking a step back and focusing on either liquidity, bringing those dry-docks forward, or thinking about the future? Any updated thoughts there?

Hugo De Stoop, CEO

I want to say, I don't really have further comments. I think we are opportunistic, obviously, as I just mentioned. I mean, I prefer to do buyback last year versus this year simply because everybody benefits already last year, but also this year on that and in the future. We don't really look at discount to NAV, even though we continue to be frustrated about where the share price is trading. I don’t believe that buyback is a good way to close the gap. It closes the gap when you are busy doing it. But in the long term, it usually doesn't close the gap, and we have seen that. I mean, even spending $120 million, yes, we had a much lower discount to NAV when we were doing the program. The minute we stopped it, we found ourselves getting the same discount or even a bigger discount. I think that you're buying back your shares for the long term, not for a discount to NAV, which is fluctuating according to the values of the vessels, etc. The long-term means that there are more dividends, more earnings per share for the shareholders that continue to be shareholders of the company. Going forward, I cannot tell you anything else. As I mentioned, we will continue to watch what we can do with the capital we are generating. It's true that we have been very busy in distributing dividends, buying back, now investing a decent amount of money. I mean, we're almost talking about $1 billion. Of course, a lot of that will be levered, but nevertheless, almost $1 billion investment for the next 2.5 years. So it's not insignificant. We're happy about the 3 ways we have spent the capital for shareholders, as we believe they will create a lot of shareholder value at the time of doing that or in the future.

Omar Nokta, Analyst

That's clear. I just wanted to get maybe just a little bit more emphasis on that. And maybe just as a follow-up, either for you, Hugo or for Brian. As you mentioned, the spot market has kind of really settled into a bit of a malaise here recently. You mentioned the Middle East having some higher cargo counts that have since kind of eased. I just wanted to get a sense of sort of export cargoes from what you're seeing on the Atlantic side, whether it's from the U.S. or West Africa. Any color you can give in relation to how that VLCC market has developed here over the past 3 months in comparison to the Middle East?

Hugo De Stoop, CEO

Brian, do you want to go ahead with that one?

Brian Gallagher, Head of Investor Relations

Yes. No, absolutely. Yes. I mean, Omar, it is a – it’s a good question. We’re seeing a little bit more increase than we’ve seen in terms of U.S. imports, which is offset, as Jonathan Chappell said earlier, with regards to some of the volatility we’ve seen in some of the U.S. exports. So that tended to sort of net off against each other. I did mention in the remarks that the excess level of ships in the Middle East, which is still what 40%, 45% of the marketplace on VLCCs, has actually very, very slightly improved in terms of that excess capacity. But it’s still very much on a fit-for basis. I think what we’ve seen from the IEA today is very reflective of the market over the last 3 months. As they say, June, we had a nice surge in demand, an increase in the amount of available supply and therefore, cargoes. Then July has reversed back with obviously some of the Delta variant restrictions that have come through there. So in a nutshell, yes, we’re seeing pockets of growth, but it’s not being followed through and sustained. Unfortunately, that’s been a holding pattern we’ve been in now for a while. We’re going to have to continue to adjust to that. Like you say, it is a malaise. It looks like it’s going to probably persist for at least the rest of this quarter. But pockets of growth, I think U.S. imports have shown some encouraging signs, both in the Middle East and from West Africa. But again, it’s been offset elsewhere. We need the exports to be sustainable and also to be more uniform across the various trading patterns.

Operator, Operator

The next question is from Chris Tsung of Webber Research & Advisory.

Chris Tsung, Analyst

I just wanted to ask about the optional third VLCC that you exercised back in July. How much is that for?

Hugo De Stoop, CEO

It was the same price, as a matter of fact. Lieve?

Lieve Logghe, CFO

$93.4 million.

Chris Tsung, Analyst

Okay. So that coupled with the 3 Suezmaxes or 5 total. Pleased about the newbuilding program of almost $600 million with $900 million of current liquidity. Just wanted to get a sense of timing around the cash flow, like when will you guys have to pay for the vessels, like on delivery? And also, it sounded like earlier that they were all going to be financed by your balance sheet, but is there any consideration or taking on additional debt?

Lieve Logghe, CFO

Indeed. First of all, your first question, Chris, on the payment schedule. Indeed, most of the amounts are due to be paid at delivery. A 50% to 60% is due to be paid on delivery. And in terms of financing, indeed we are looking to finance, find a good momentum in the market. So for the first ones now coming on the water, Q1 2022. It is currently a work in progress. The next will follow in 2022 to be delivered in 2023 and 2024.

Hugo De Stoop, CEO

Usually, so the financing ratio is 65%, 60%, 65%. But when you're talking about newbuildings, it's easier to get 65%. We are also looking at ECA type of financing, which is more available for newbuildings and not necessarily for second-hand purchases in the market. So that's maybe not our advantage.

Chris Tsung, Analyst

Great. Great. And maybe just for my follow-up, just turning back to Slide 10 that Brian covered concerning ton miles and its impact. I guess I wanted to understand, presumably, there's like a 4 or I guess at what speed would it make sense for the fleet overall to stock sort of thing like or can you go down to like half of this? Or are we near that level? Just trying to get a sense of how the ton miles came in internally?

Brian Gallagher, Head of Investor Relations

Sure. Chris, the speeds have only been recorded by Clarksons since 2010 on a monthly basis, and these are the lowest fleet speeds we've observed since those records began. This highlights that we have seen a capacity response. However, we also anticipate ton mile growth for 2021, which is a view shared by many observers and Clarksons. We expect a further increase in growth in 2022, particularly as the recovery in late 2021 and early 2022 is more concentrated in OECD countries with high vaccination rates, eventually leading to longer-term growth as emerging markets recover. To provide clarity for investors, our projections are uncertain, much like others in the market. There's a prevailing belief that we need to return to the consumption levels of Q4 2019 before we can see any real improvement. We want to emphasize that multiple factors are influencing our marketplace. There are two key variables that will play a critical role in gaining traction for freight rates. We anticipate a two-stage recovery in the ton mile story, and we shouldn't be overly concerned if capacity increases slightly. Historically, since 2016, excluding some volatility from 2020, there's been about a 62% correlation between fleet speed and freight rates, which makes sense when analyzed. We expect the fleet to speed up as freight rates improve. It’s important to understand that this isn’t just a straightforward calculation needing consumption to reach a specific level; there are several factors at play in the tanker market.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Hugo De Stoop for closing remarks.

Hugo De Stoop, CEO

Well, just to say, thank you very much, everybody, for listening to the second quarter earnings call. I look forward to talking to you next time with hopefully a little bit more positive news. Thank you. Bye-bye.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.