Earnings Call Transcript - ECO Q3 2025

Iraklis Sbarounis, CFO

Thank you. Hi, everyone. Welcome to the presentation of the earnings results of Okeanis Eco Tankers for the third quarter of 2025. We will discuss matters that are forward-looking in nature, and actual results may differ from the expectations reflected in such forward-looking statements. Please read through the relevant disclaimer on Slide 2. So starting on Slide 4 in the executive summary. I'm pleased to present the highlights of the third quarter of 2025. We achieved fleet-wide time charter equivalent of about $47,000 per vessel per day. Our VLCCs were almost at $46,000 and our Suezmaxes at $48,000. We report adjusted EBITDA of $45.2 million, adjusted net profit of $24.7 million and adjusted EPS of $0.77. Continuing to deliver on our commitment to distribute value to our shareholders, our Board declared a 14th consecutive distribution in the form of a dividend of $0.75 per share. Total distributions over the last 4 quarters stand at $2.12 per share or approximately 90% of our earnings. Since the end of the quarter, we have declared the purchase options for our last sale and leaseback financings on the Nissos Rhenia and Nissos Despotiko, which will be delivered to us in the second quarter of next year. Moving on to Slide 5. We have, over the years, stated our clear and strategic policy of distributing and maximizing value directly to our shareholders. Since we have had a fully delivered fleet in 2022, we have distributed over 90% of our adjusted EPS. Since our IPO in Norway in 2018, we have distributed approximately $435 million in dividends or 1.8x our initial market cap. This quarter, with visibility into very strong Q4 bookings as well as projections that run into Q1 and our view on the current market dynamics, our Board decided to distribute 100% of our reported EPS at $0.75 per share. On Slide 6, we show the detail of our income statement for the quarter and the 9-month period ending in September of 2025. TCE revenue for the 9 months stood at $172.5 million. EBITDA was almost $125 million and reported net income was over $63.5 million or almost $2 per share. Moving on to Slide 7 and our balance sheet. We ended the quarter with $58 million of cash and approximately $51 million of trade receivables on top. Our balance sheet debt was $617 million. Book leverage stands at 57%, while our market adjusted net LTV is around 40%. On Slide 8, I'm taking the opportunity to go over one of our key competitive advantages, our fleet. We have a total of 14 vessels, 6 Suezmaxes and 8 VLCCs with an average age of only 6 years. That's the youngest fleet amongst listed crude tanker peers. All our vessels are built in South Korea and Japan, are scrubber-fitted and eco-designed. Our focus on modern assets is clearly paying off in our commercial performance. We have recently completed the dry dock of the Nissos Sifnos, while the Nissos Sikinos follows during the quarter. And I remind you that for 2026, the only capital expenditure we have is for 1 Suezmax, the 10-year dry dock of the Nissos. Slide 9, moving on to our capital structure. At the end of the summer, we concluded the refinancing of the Nissos Sanafi with a Greek bank, completing the series of refinancings of our 3 Chinese leased vessels, all 3 at margins between 135 and 140 basis points. These transactions continued within the strategy we set when we commenced the cycle of improving pricing and breakevens, extending maturities and adding flexibility. Since 2023, our margin has improved by 155 basis points on the 12 refinanced vessels or 125 basis points across the entire fleet. That's a benefit of about $8 million per year at our current debt levels or $1,500 per vessel per day across each vessel of our fleet. As I mentioned earlier, we recently declared the purchase options for the Nissos Rhenia and Nissos Despotiko. The former is expected to be delivered to us in early May and the latter in early June of 2026. We have several options available to us at the moment on how to refinance those vessels, and we look forward to the opportunity to further improve our capital structure and breakeven levels. As an illustration, we have calculated the imputed margin across all 14 vessels in the second half of next year, assuming we finance these 2 VLCCs at similar terms as the ones we have achieved in our recent refinancings, potentially bringing our fleet-wide average margin down to 160 basis points. I will now pass the presentation to Aristidis for the commercial market update.

Aristidis Alafouzos, CEO

Thank you, Iraklis. First, I want to express my gratitude to the entire OET team and the technical manager, as this success reflects a true team effort. These results stem from our dedicated in-house management and a passionate commitment to shipping in Greece. Traditionally, the third quarter is a slow season for us. However, we once more managed to achieve strong operational performance. Our fleet's time charter equivalent was $46,600 per day, with VLCCs at $45,500 and Suezmaxes at $48,200, and we achieved nearly full utilization across the fleet. When we compare our earnings with peers who have already reported for Q3, our VLCCs outperformed by 30% and Suezmaxes by 45%. This quarter, our commercial strategy involved positioning the VLCCs to open in mid-Q4 with a solid balance in the West in anticipation of the winter market. One of our VLCCs completed a backhaul voyage for clean air products to reposition to the West, while three other VLCCs secured transatlantic voyages to take advantage of improving summer rates, maintaining their positions in the West for Q4. For the Suezmaxes, both Sikinos and Sifnos took on long-haul front-haul voyages heading east for their dry dock schedules, and the remaining four Suezmaxes stayed in the West, benefiting from robust regional conditions. The Suezmax is a highly versatile asset that we greatly appreciate. By optimizing triangulation, identifying niche trades, and minimizing waiting time, we can outperform the market. Our Suezmaxes have consistently outperformed our VLCCs on a per-day basis for five consecutive periods. Looking ahead to Q4, prospects are very promising. What excites me the most is that rates are still strengthening, and we are already securing days in Q1 at six-figure rates. Currently, 80% of our VLCC spot days are fixed at $88,100 per day, with 48% of our Suezmax days at $60,800 per day, leading to a fleet-wide average of $80,700 per day on the fixed portion, which represents about two-thirds of the quarter. Similar to our Q3 results and based on peers who have reported earnings, our guidance for fixed days shows 37% outperformance for VLCCs and 33% for Suezmaxes. The positioning decisions made in Q3 are yielding great results. Four VLCCs that we had in the West are now fixed on long-haul eastbound voyages, securing strong long-term returns. Nissos Kea fixed a prompt cargo from West Coast India to move to the East at very attractive rates. Additionally, we’ve secured a VLCC backhaul at rates we would typically prefer for a front-haul voyage. If we can successfully fix the U.S. Gulf East cargo with minimal waiting at today's rates, we could cover over four months at more than $125,000 per day on that vessel. The Suezmax segment remains strong, with Sifnos now out of dry dock and Sikinos next in line. However, our earnings from the six Suezmaxes were affected by their repositioning to and from dry dock. We have not yet encountered delays in Turkish trades, which is a significant driver of Suezmax strength during winter. Now, a bit about the market. We are currently experiencing a genuine bull market in tankers. Rates have become robust since the end of summer, typically a weak period, and continue to improve. What gives me confidence is that all segments are pushing upward. VLCC rates may rise by 20 points one week, only for Afra and Suez rates to catch up the next week, and then VLCCs rise again. This pattern has been consistent throughout Q4. The increased flow of cargoes does not allow charters to relax or push down rates by letting the position list swell. Ongoing global sanctions continue to limit the supply of compliant vessels. With OPEC+ announcing incremental production increases in recent months, combined with rising tonne-miles from the U.S. Gulf, Brazil, Guyana, and West Africa, we are anticipating a strong winter in Q1 for both asset classes. It's clear that sanctions from the U.K., U.S., and EU have created hurdles for Indian, Chinese, and Turkish receivers, but we will delve into those details later. We are consistently outperforming the market as shown on Slide 13, outshining our peers quarter after quarter. As the only listed platform with eco-friendly and fully scrubber-fitted tankers, we consistently rank at the top of the earnings chart. Since late 2019, we have achieved approximately $220 million in cumulative outperformance, with $113 million from our VLCCs and $107 million from our Suezmaxes. This could be attributed to luck but may also reflect a disciplined strategy, fleet quality, and a nimble commercial approach that allows us to react more swiftly than the broader market. This slide illustrates a trend that remains steady and greatly supportive. Over 40% of the global VLCC and Suezmax fleet is over 15 years old, and around 20% is involved in sanctioned trades. These older vessels are effectively out of mainstream service. Meanwhile, the order book remains modest, at about 14% for VLCCs and less than 20% for Suezmaxes, with many vessels delivering post-2027. While it is true that ordering has recently increased, several critical factors mitigate any stress on this situation. Most new orders are scheduled for the distant future, often in the years 2028 and 2029, due to the unavailability of earlier slots. A significant number of these orders are replacement vessels for very old ships rather than representing incremental growth. Moreover, sanctioned tonnage continues to increase faster as a proportion of the global fleet compared to the order book, further reducing the fleet available for compliant trades. I firmly believe that ships under sanctions and those using dubious flag states and insurances to engage in sanctioned business will never return to the mainstream market. Therefore, even with a rise in orders, the overall landscape is improving. Retirements are not being replaced quickly enough, compliance is decreasing, and the modern segment of the market, where OET operates, remains extremely tight. Building on the prior slide and current order situation, another mitigating element is yard capacity. Even if owners wanted to place large orders today, they couldn’t do so on any significant scale anytime soon. Global shipbuilding capacity has been cut in half since 2010, affecting both the number of active yards and overall output, and yards are prioritizing capacity for higher-margin projects. This reinforces our belief that the value of a modern, efficient fleet like ours will continue to rise. In this context, OET is designed for resilience. Our fleet is young, fully eco-friendly, and 100% scrubber-fitted, purpose-built to excel in an aging market where many older, non-compliant vessels will struggle to meet EEXI and CII requirements. While approximately 40% of the global VLCC and Suezmax fleet is eco-designed, OET's fleet stands at 100%. Moving to the broader macro environment, fundamentals remain favorable. The IEA forecasts a modest supply surplus over demand through 2026, resulting in some stock builds. Even more promising, the IEA has returned to the no peak oil scenario, suggesting that oil and gas consumption will continue to rise through 2050, while coal usage will decline more slowly than many anticipated. This undermines the idea of peak demand and indicates a longer and stronger role for fossil fuels in the global energy system. Personally, I do not agree with the theory of substantial stock builds. OPEC+ has underproduced its quota, leading to many sanctioned barrels floating in transit. The effective supply of compliant crude is more manageable. A flat forward price on crude or even a slight contango is beneficial for our market. It discourages storage draws like those seen in backwardation and does not incentivize real storage during periods of deep contango, which might offer short-term gains but result in pain in the medium term. A flat oil market, or shallow contango, as we are experiencing, makes long-haul business viable, aligning perfectly with tanker operations. What’s crucial is the source of these barrels. Incremental supply is coming primarily from the Atlantic Basin, the U.S., Brazil, and Guyana, while demand growth is concentrated in China, India, and broader Asia. India has remarkably surprised us this year with significant oil demand growth. This scenario means longer voyages, increased ton-miles, and higher utilization for large crude carriers. On Slide 18, we visually demonstrate that most incremental production is originating from the Atlantic while demand resides in Asia. This shift increases tonne-miles and tightens vessel availability, creating the ideal environment for our fleet to excel. This slide is particularly relevant when we consider the effects of sanctions, which we'll discuss further in the next slide. As India, Turkey, and China redirect their purchases toward Western compliant crude, we must consider their new sources. Some of this will come from the Arabian Gulf, as well as West Africa, Brazil, the U.S. Gulf, and Guyana. Observing cargo quotes daily with my spot team, it's clear that this transition is happening, which is precisely what we need—a surge of compliant cargoes taking the place of non-compliant shipments. This development is highly advantageous for freight and time charter rates, as well as for asset values, which I’ll touch on in the next slide. Regarding sanctions, they have significantly influenced the market structure. Approximately 16% of the global fleet is subject to sanctions. When including shadow tonnage that likely won't return to compliant trading, the mainstream crude fleet is actually decreasing. This marks the first instance in many years where we are witnessing negative effective fleet growth on the compliance side. I want to reiterate my belief that these ships will not re-enter compliant trading. Notably, Iranian and Russian exports remain at near-record levels, but sourcing such barrels has become more complex, leading to more crude being stored on vessels. Furthermore, due to newly imposed sanctions on Rosneft and Lukoil, the availability of compliant tonnage that was legally facilitating Russian cargo has diminished significantly. Additionally, recent drone attacks in Ukraine have substantially restricted Russian refinery outputs, impacting product exports. So, what are the implications of Turkey, India, and China reducing Russian crude imports? To date, exports have not ceased, and we do not foresee them stopping either. Halting production in Russia carries medium-term ramifications that overshadow short-term difficulties, so where do these laden ships head? They redirect to China, the most likely future buyer. Immediately, this doubles the average voyage, and as China cannot fully absorb this influx of crude, every journey incurs extra waiting time while cargo remains unsold. This waiting time can easily add another 20 to 30 days per voyage. Recent sanctions also mean that available compliant vessels that previously transported Russian cargo legally have drastically reduced. Lastly, the impact of recent Ukrainian drone strikes on Russian refinery output has meaningfully limited product exports. All of this means more crude exports. These four factors have significantly stretched the capacity of the dark fleet. I believe the size of the dark fleet we observed this summer will not be adequate to manage the current cargo base, which now incorporates extended voyages, longer wait times, fewer compliant vessels, and increased crude exports. Consequently, the dark fleet must expand. It will expand, further contracting the compliant fleet and driving up asset values. Substituting sanctioned barrels with compliant supply will boost demand for mainstream vessels, squeezing effective supply and bolstering freight rates. For owners of modern vessels like ours, this trend represents a strong tailwind. Another noteworthy point in today's market analysis is inventories and crude in transit. OECD inventories hover near the lowest end of their 10-year range, while crude in transit is at multi-year highs. China is acquiring crude for their strategic petroleum reserve, and much of the floating crude in transit consists of sanctioned crude that faces challenges discharging due to stricter enforcement of sanctions. This indicates a tightening market and supports elevated freight conditions, particularly for modern, efficient vessels like ours. Given the circumstances from both supply and demand perspectives, crude tanker utilization has now reached 93%, the highest level in three years, correlating with highly favorable rates, reminiscent of the period just before the EU ban on Russian crude. An increase of just one percentage point in utilization translates to approximately $25,000 per day for VLCCs and $15,000 per day for Suezmaxes. Considering our cost structure, this highlights the significant operating leverage of our platform. Historically, Q1 has been a robust quarter, often the strongest. We don’t think achieving 95% to 96% utilization in Q1 is unrealistic. In conclusion, rates have risen considerably. VLCC earnings on the Middle East to China route have surpassed 2022 highs today, and Suezmax rates are following suit. Eco and scrubber-fitted vessels command a clear and consistent premium, and OET stands at the pinnacle of this trend. We are fully exposed to spot rates, maintain a strong balance sheet, and operate a young, high-spec fleet. This combination provides us with exceptional exposure to the upside in crude tanker markets. As a team, we are now focused on continuing this level of outperformance during critical times like these. Thank you.

Iraklis Sbarounis, CFO

Operator, we're opening up for questions. Thank you.

Operator, Operator

Your first question comes from Frode Morkedal with Clarksons.

Frode Morkedal, Analyst

My first question is about your time charter opportunities. How do you view them now? What is the expected duration and what levels do you think you can achieve? Additionally, what indicators would prompt a shift away from being fully spot exposed?

Aristidis Alafouzos, CEO

Thank you for your question, Frode. The current strength of the market has surprised many charters. Since the summer, the rates that are considered favorable for owners have changed significantly, and charters are still trying to evaluate and become comfortable with these new levels. Recently, especially in the Suezmax sector, we have seen a lot of activity in the 1- to 2-year segment, along with some 3-year deals. The same applies to VLCC, where longer-term deals are less common. Additionally, many oil majors have cut down the size of their time charter fleets and will need to expand that soon. Oil majors are being more selective about long-term partnerships, preferring established owners over funds or speculative arrangements. If you are looking for fixed time charters, those are available. However, the earnings on a VLCC on a west position, which is currently around $145,000 for a trip to the U.S. Gulf, China, and back to Singapore over 80 or 90 days, indicate that TCE rates need to rise a bit more. From Okeanis' standpoint, our outlook for the next 6 to 12 months is promising, and we believe TCE rates must be significantly higher than current quotes.

Frode Morkedal, Analyst

Makes total sense. So it sounds like you're going to be spot for the time being at least. So maybe my second question is, can we talk more broadly on your strategy today? I guess you mentioned your IPO a few years ago. At that time, I think you're more like an asset play and growth. Of course, that was a different time and a different point in the cycle, right? Now you've clearly been more in the harvest mode and just paying out dividends. But things are changing, I guess, again. And so where do you see investment or buying ships in today's market? It seems like if I look at the broad peer group, equities are trading above NAV again, and then that might be more tempting again. I don't know, what's your view on investments?

Aristidis Alafouzos, CEO

So, I think for Okeanis, the most important thing for our shareholders is for us to continue paying dividends. So as we've said over multiple calls, the main focus will be to be able to pay out dividends to shareholders at levels similar to that we do today. In terms of investments, I think the most attractive investments are assets that you can have delivered quickly. I mean, I think purchasing something that delivers in 3 or 4 years is too far out and it's too much capital committed for a company like us at the moment. But overall, as an organic shareholder, I think that we continue to buy dividends, dividends and more dividends.

Operator, Operator

Your next question comes from the line of Omar Nokta with Jefferies.

Omar Nokta, Analyst

Congratulations on the quarter; the bookings for Q4 look impressive. I wanted to follow up on Frode's question regarding assets. After a period of significant outperformance, the stock has achieved a premium valuation compared to the group, and you are noticeably above NAV, which seems well justified. It appears the market is indicating a desire for growth or the addition of more assets to maintain this outperformance. You mentioned that newbuildings might not be an option and that you're looking for assets already in operation. I have a two-part question: First, do you plan to continue expanding into VLCCs and Suezmaxes, or will you consider moving into Aframaxes? Second, how do you assess your ability to maintain the premium rates you have been achieving if your fleet grows from 8 VLCCs to 16?

Aristidis Alafouzos, CEO

Omar, thank you for the question. I appreciated your report, as it was the first thing I read before taking my kids to school and it provided a positive start to my day. Regarding opportunities, we are exploring various options, but we've yet to find one that aligns with our objectives. We are cautious about selecting the right opportunities for the company and our shareholders. When considering which assets to scale into, our focus remains on VLCCs and Suezmaxes. Our family has historically been comfortable with Aframaxes as well. However, it's important for us to stay within familiar sectors that our investors recognize, avoiding surprises with orders in product tankers or unfamiliar areas. Currently, we control 8 VLCCs in Okeanis, with more on the private side, and we believe we can comfortably grow our fleet to 20 or 25 ships without significantly disrupting our trading approach. This is a theoretical discussion, and we do not plan to surprise anyone with a large newbuilding order. That said, we could manage an additional 4, 6, or 8 VLCCs while continuing to optimize our trading strategy. Growth requires careful management to prevent excessive overlap of ships operating in the same area at the same time, which could force us to select suboptimal cargoes. Larger fleets in our sector have faced these challenges, and avoiding such situations is advantageous for us. As a smaller company, it's crucial that we distribute our ships effectively when fixing contracts, allowing us to capture market volatility throughout the quarter. Fortunately, Q4 has been exceptional for us. Early October saw a significant spike in demand, but we had only one ship available at that time. Had that been the end of Q4, we would not have locked in many contracts. However, by spreading our ships throughout Q4, we were able to secure contracts in late October and throughout November. Thus, strategic positioning becomes increasingly important as we grow or scale back our operations.

Operator, Operator

Your next question comes from the line of Liam Burke with B. Riley Securities.

Liam Burke, Analyst

Yes. You traded one vessel clean this quarter. Do you plan on continuing trading clean? Or is the market on the crude side so good that you'll flip it back into the crude fleet?

Aristidis Alafouzos, CEO

Thanks for your question, Liam. We've mentioned previously, as hard as we tried, we've never been able to trade a crude carrier for a consecutive voyage in the clean market. So we were able to get to clean her up, load in the Arabian Gulf, come to Europe and discharge. We've tried to do some transatlantic voyages, and we weren't able to get fixed on that to go load in the U.S. and come back to Europe. So the plan is that once we've discharged all the gas we have on board, we go over to the U.S. Gulf for Guyana or Brazil and load a front haul East and make $145,000 a day for 75-plus days.

Liam Burke, Analyst

It's a good business if you approach it correctly. You mentioned looking into the capital structure. You've addressed some immediate opportunities by purchasing your vessels from sale leaseback arrangements. What other areas in the capital structure do you see potential for improvement?

Iraklis Sbarounis, CFO

Liam, let me take this one. Yes, the low-hanging fruit have actually provided quite a significant amount of value, both in terms of pricing, in terms of extending maturities, in terms of improved amortization profile. All of that effectively adds to the bottom line. So we look at it more from the perspective of how we can structure anything that's accretive. So, so far, we have taken advantage of an extremely competitive financing market with relationships that we have already in the banking segment as well as new markets that we have been developing and are achieving really, really good rates. So long as we continue to do that, I think it's an easy and good strategy to improve and increase value. So now that we have indeed declared the purchase options for the 2 remaining leases, we have a bit of time. Those come in, in May and June. This is obviously still an option for us to go down that path. And so long as we continue to see the very competitive rates, I think there's a lot of value to be extracted there. The next maturities that come in line, I think we still have time. And given where the average cost of our capital structure will be, hopefully, post June. I don't think that there's going to be anything imminent that we would need to be working on. But we have options and we continue to explore them all the time.

Operator, Operator

Your next question comes from the line of Climent Molins, Value Investor's Edge.

Climent Molins, Analyst

I wanted to start with a market question. Aframaxes have been consistently outperforming LR2s for a couple of months, and the delta has been quite significant at times. Could you talk a bit about the factors that have kept the dirty over clean premium so wide?

Aristidis Alafouzos, CEO

Thank you for your question, Climent. Aframaxes have been performing better than LR2s. The LR2 segment has had a steady order book, with many owners traditionally associated with Aframaxes. In their initial voyages, they may operate clean routes to move west, which is preferred for modern Aframaxes, before transitioning to dirtier operations. As crude exports rise, the demand for compliant trades has also increased, particularly for Turkey, India, and China, which are looking to replace the crude they can no longer import from Russia, Venezuela, and Iran. This shift creates more opportunities for dirty Aframaxes. Historically, these vessels have shown more volatility and regional trading patterns. For instance, the Cross Med route is a 15-day voyage, and there are several shorter routes in the U.S. Gulf that contribute to this volatility compared to LR2s. Additionally, we can now clean a ship in approximately 15 days, and since VLCCs, which are three times the size of Aframaxes, have more flexibility, the coated LR2s can trade more easily between clean and dirty. This dynamic will likely cause rates between the two types to eventually find a balance, though they will likely fall out of balance again, leading one class to switch between clean and dirty performance repeatedly.

Climent Molins, Analyst

Makes sense. It's just that I would have expected some more switching, but the premium has remained at least for a while. And final question from me. You've had several dry dockings throughout 2025, but it seems you only have Suezmax to dry dock in 2026. Would you tell us when you expect to conduct it?

Aristidis Alafouzos, CEO

The Milos, which is the ship we'll dry dock in 2026, we're looking at the second half, most likely. We have a bit of flexibility. So definitely not in Q1, but we can push it around a bit. We'll try to time it when the market is a bit weaker.

Climent Molins, Analyst

Perfect. That's helpful. And congratulations for the quarter.

Iraklis Sbarounis, CFO

Thank you. Thanks, everyone, for joining. We look forward to touching base again with a new year presenting our Q4 results. We're pretty excited for that. So looking forward to that in a few months. Thank you.

Aristidis Alafouzos, CEO

Thank you, guys. We really appreciate your time.

Operator, Operator

This concludes today's call. Thank you for attending. You may now disconnect.