Earnings Call Transcript - ECO Q2 2025

Operator, Operator

Welcome to OET's Second Quarter 2025 Financial Results Presentation. We will begin shortly. Aristidis Alafouzos, CEO; and Iraklis Sbarounis, CFO of Okeanis Eco Tankers will take you through the presentation. We're pleased to address any questions raised at the end of the call. I would like to advise you that this session is being recorded. Iraklis, begin the presentation now.

Iraklis Sbarounis, CFO

Thank you. Welcome, everyone, to the presentation of Okeanis Eco Tankers results for the second 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. Starting on Slide 4 and the executive summary. I'm pleased to present the highlights of the second quarter of 2025. We achieved fleet-wide time charter equivalent of about $50,500 per vessel per day. Our VLCCs were almost at $50,000 and our Suezmaxes at $51,500. We report adjusted EBITDA of $47.3 million, adjusted net profit of $26.7 million and adjusted EPS of $0.83. Continuing to deliver on our commitment to distribute value to our shareholders, our Board declared the 13th consecutive distribution in the form of a dividend of $0.70 per share. Total distributions over the last 4 quarters stand at $1.82 per share or approximately 9% of our earnings for the period. On Slide 5, I will show the detail of our income statement for the quarter and the first half of 2025. TCE revenue for the 6-month period stood at $113 million. EBITDA was almost $80 million and reported net income was over $39 million or $1.23 per share. Moving on to Slide 6 and our balance sheet. We ended the quarter with $65 million of cash. Balance sheet debt was $631 million. Book leverage stands at 57%, while our market adjusted net LTV based on the most recent broker values is around 40%. On Slide 7, we go over our main driver behind our operational and commercial performance. That's our fleet. We have a total of 14 vessels, 6 Suezmaxes and 8 VLCCs with an average age of only 5.9 years. That's the youngest fleet amongst listed crude tanker peers. All vessels are built in South Korea and Japan and are scrubber-fitted and eco-designed. From a capital expenditure perspective, we're in a very good spot with only our two 2020-built Suezmaxes scheduled to undergo their 5-year dry dock at the end of the third and beginning of the fourth quarter later this year. In 2026, we only have one Suezmax for the entire year. On Slide 8, moving on to our capital structure. In May, we announced that we declared the option to purchase back our three Chinese leased vessels, the Nissos Nikouria, Nissos Kea and Nissos Anafi. The Nissos Nikouria and Nissos Anafi have been refinanced with a Greek Bank at very attractive terms, priced at 140 basis points over SOFR, 7 years maturity and a competitive amortization profile. The Nissos Kea has been refinanced with a syndicate of Taiwanese banks led by E.SUN at similarly attractive terms, priced at 135 basis points over SOFR, with 7 years maturity and also a competitive amortization profile. The Nissos Nikouria and Nissos Kea transactions closed in June within the second quarter, while Nissos Anafi closed last week at the beginning of August. With respect to the Nissos Nikouria and Nissos Kea, we recorded in our second quarter P&L a noncash, nonrecurring write-off of the unamortized portion of the previously recorded modification gain of approximately $1.1 million. This relates to a noncash modification gain recorded in 2024 under our IFRS accounting policies due to the amendment of the then applicable terms and reduction of margin negotiated with our financiers. No such modification gain was recorded for the Nissos Anafi. As such, we do not expect a similar write-off in the third quarter. These recent refinancing transactions underscore the strong confidence our financiers have in Okeanis and the resilient, well-balanced capital structure we have built. They have lowered financing margins by 55 to 60 basis points, extended average maturities by roughly 1.5 years per vessel and further strengthened our cost efficiency. We expect to realize annual interest savings of around $1 million in the first year alone, while reducing our daily cash break-even by more than $1,000 per vessel per day. Our loan maturities are now staggered between 2028 and 2032, and we are set to soon turn our attention to declaring and refinancing the last of our legacy leases on the Nissos Rhenia and Nissos Despotiko in the first half of next year. If our last transactions are indicative of what we can achieve, buying back these two vessels will present a compelling opportunity to deliver another meaningful improvement in our capital structure and drive breakeven costs even lower. Before passing it on to Aristidis, taking the opportunity and as we have been going through the highlights of the quarter, since our last call in May, I'm pleased with the further expansion of the universe of equity leases coverage on our name. In the spring, the DNB merger with Carnegie closed, effectively getting us coverage by the combined team. And recently, we had our second U.S. analyst, Jefferies, initiating coverage. As we continue our work to expand our investor base and sell the story of our vision of becoming the public platform of choice within the crude oil tanker space for investors and other stakeholders, these are important milestones within our still young journey in the public capital markets. So thank you to the teams of the new and older analysts and the work that they put. I will now pass the presentation to Aristidis for the commercial and market update.

Aristidis Alafouzos, CEO

Thank you, Iraklis. In the second quarter, we saw significant improvements compared to the first quarter, with a fleet-wide time charter equivalent exceeding $12,000 per day sequentially. We achieved full utilization in both the VLCC and Suezmax segments we operate. This quarter, our fleet’s flexibility allowed us to effectively respond to evolving market conditions. On the VLCC side, we maintained a strategic balance of East and West positions while taking advantage of profitable front-haul voyages from West to East. We fixed two vessels for these long-haul journeys, which yielded strong earnings, and subsequently arranged for their return from the East on profitable backhaul journeys. Additionally, we secured a VLCC from Guyana to the Far East at favorable rates and successfully cleared another VLCC that loaded diesel from the Arabian Gulf for discharge in Europe, enhancing our earnings while preparing for the upcoming quarter. We emphasized fixing vessels to travel from West to East to secure those lucrative front-haul earnings while also ensuring the return of ships from East to West whenever attractive opportunities arose. This strategy included backhauls from West Africa to Europe as well as cleanup voyages that have been systematically effective over the past year. For the Suezmaxes, we once again surpassed our VLCC performance on a dollar-per-day basis, focusing on trading in Western markets like Europe and West Africa, utilizing triangulation and vessel substitutions to keep operations fluid and efficient. These strategies allowed us to maximize earnings and fully employ our fleet during the quarter. Overall, we achieved a fleet-wide time charter equivalent of $50,500 per day, with $49,800 on our VLCCs and $51,400 on Suezmaxes. As we enter the third quarter, the market has softened compared to Q2, although we experienced some temporary spikes, notably during the brief conflict with Iran. This quarter is typically slower seasonally, but the long-term outlook remains very positive as we approach Q4. Currently, we have fixed 77% of our VLCCs in the spot market, averaging $44,200 per day, and 60% of our Suezmax days at $34,200, leading to an overall fleet average of $40,800. The Suezmax market remains robust, and we are in the process of fixing voyages at rates significantly higher than our Q3 projections. Looking ahead to Q3, our strategy is focused on maximizing earnings during the summer months while maintaining our preferred geographic balance. For the VLCCs, this involved staying in the East when local runs proved to be more profitable, while being ready to pivot on a triangulated basis. We successfully secured multiple voyages from the Arabian Gulf to the East. When backhaul opportunities arose for vessels available in the East that matched the earnings potential of TD3 round trips, we acted swiftly. This approach allows for the possibility of fixing another vessel moving from the West to the East, enhancing overall earnings. Longer voyages provide the advantage of opening vessels for Q4, something we hope will be significantly better than last year's disappointing quarter. Two of our Suezmaxes, Nissos Sikinos and Nissos Sifnos, are scheduled for dry docking in September and October while also benefiting from picking up long-haul voyages en route with minimal ballast. Meanwhile, we took advantage of seasonal softening in the market by executing shorter voyages in the West with our Suezmaxes, optimizing ballast and wait times through vessel swaps. This practice significantly enhances earnings on shorter voyages. As we approach September, with OPEC starting to unwind production cuts, we anticipate additional supply entering the market. We’ll address this topic further, but our outlook for the next quarter is quite encouraging. We continue to outperform the market and our peers thanks to our modern fleet and strong chartering team. We previously highlighted that the competitive advantage expands when the market shifts, as we utilize our agile fleet to quickly seize short-term opportunities, a benefit larger fleets cannot replicate. Our fleet is consistently delivering results that exceed our competitors. The supply side remains structurally tight, especially for larger vessels, and while the age of the fleet is a factor, much of it is engaged in shadow trade, making it unlikely for these vessels to return to competitive operation. Many of the sanctioned vessels are aging and will eventually need replacement, which can only come from the conventional fleet, which favors modern, compliant vessels like ours. By 2028, a significant portion of the VLCC and Suezmax fleets will be over 15 years old, and many will belong to the non-eco generation, which are less efficient and increasingly uncompetitive compared to our modern designs. With only a limited number of new builds scheduled, this market environment positions our vessels favorably as charters’ preferred choice. The pace of new orders remains controlled, further reinforcing the supply dynamics that we believe will support tanker earnings in the future. Regarding overall demand and market trends, the conditions for tankers remain supportive, with September expected to bring new Middle East cargoes. OPEC plans to fully restore the 2.2 million barrel voluntary cuts by September, which will add approximately 1.1 million barrels in August and September. Transporting this crude will require roughly 20 VLCCs, or about 1.5% of the global tanker fleet, which should bolster VLCC spot rates. In Guyana, Exxon recently announced production at Yellowtail, which will increase natural output capacity substantially. Brazil is also performing well with peak exports contributing positively to regional flows, even though a significant amount of this traffic utilizes Aframax and Suezmax for shorter distances. As we look towards Q4, OPEC is considering partially reversing the 1.66 million barrel production cut, which could increase supply, translating to greater demand for VLCCs. Geopolitically, there have been discussions of tougher measures on Russia, which may shift trade flows. With countries like India beginning to diversify their crude purchases away from Russia towards U.S. compliant crudes, we see this as beneficial for ton-mile structure. In conclusion, all these factors enhance our positive outlook for the remainder of the year and beyond. I'm handing it back to you, operator.

Operator, Operator

First question comes from Omar Nokta with Jefferies.

Omar Mostafa Nokta, Analyst

Thanks for the detailed update. As usual, very helpful color. I do have maybe just a couple of market-related questions and maybe just perhaps on the cleanup, you referenced the VLCC that you cleaned up to trade diesel. Just, in general, could you give maybe an overview of what you think this vessel will do after this voyage? Will it continue in the diesel trade or the clean trade? And is it possible to maybe just give a sense of what the economics look like in terms of the cost of cleaning it and then what you captured in terms of earnings relative to what you could have gotten had it stayed dirty?

Aristidis Alafouzos, CEO

First of all, thank you, Omar, for taking up coverage. It's great to hear your voice on our calls. Regarding your first question about the cleanups, we've been doing this for over a year, fixing on a spot basis with two counterparties. We have built a strong relationship with them, allowing us to clean the vessels ourselves and load the cargoes without involving the charters. This gives us a unique advantage as one of the few spot owners capable of offering their ships for these types of voyages, which is not common practice. Typically, it’s a time charter arrangement where the charter is responsible for cleaning the vessels. We've attempted to fix vessels after discharging in Europe for clean business, such as from the U.S. Gulf to Europe, but have not succeeded. I can confidently say that the ship will likely end up loading a crude cargo, whether from the U.S. Gulf, North Sea, or Malta, and head East. Regarding your second question about the economics, we consider two factors. If the clean market is strong—for instance, if TD3 earns $40,000 for a trip from China to the AG and back, and we can also earn $40,000 by cleaning in the AG, loading diesel, and heading West, that’s a sensible option. The subsequent voyages could earn $60,000 to $70,000 when loading from the U.S. Gulf, which would average out to much higher than what we could earn in the AG. If the backhaul voyage doesn't generate as much as TD3, we compare the averages of the backhaul and front-haul voyages against the potential earnings from TD3 runs and the market expectations. If we believe that triangulated trading offers a better return, we will pursue that path. Overall, triangulation has proven to be effective for us over the past three years, and we’ve built strong relationships with players on both the backhaul and front-haul sides. However, we remain open to other options. Thus, in Q2 and Q3, we secured three to five voyages for local AG East runs when they appeared more profitable.

Omar Mostafa Nokta, Analyst

Again, very detailed. I appreciate you giving that overview. Okay. And then maybe just one follow-up, just in terms of OPEC. And you mentioned Suezmaxes have obviously done better than what you are guiding, and we're seeing rates doing decently here recently. And I guess maybe just big picture as we think about these OPEC barrels, there's been a lot of talk and a lot of expectations of this production increase. And it looks like what's being produced now sort of outpaces the typical summer cooling consumption in the region. And so it seems that we should be seeing some of these barrels actually hit the export markets fairly soon. And just from your vantage point, are you seeing any of that? Are you seeing any incremental cargoes coming out of the Middle East as a result of these OPEC boost? Or is it still some weeks away before we start to see that?

Aristidis Alafouzos, CEO

About two and a half to three weeks ago, TD3 was around WS44, WS45. Recently, we increased it to 57.5%. There’s been over a 20% rise in VLCC rates. While there are short-term cycles that explain these changes due to the position list fluctuating, the broader perspective indicates that these cargoes are returning to the market, alongside India altering their supply acquisitions. Several factors contribute to this situation. This week, we anticipated a slight softening in VLCCs, which our team observed. Yesterday was indeed quieter than the previous day, but today saw increased activity in the VLCC sector. We reached 57.5%, then saw a slight decline. Internally, there’s a belief that the rates have bottomed out, likely due to more cargoes being available, compelling charters to act rather than wait for positions to improve. This could lead to an interesting September with potential for further growth. The paper market reflects this outlook as well; although it doesn’t foresee the future, it’s influenced by key players in the shipping market, including oil majors and traders.

Operator, Operator

We now turn to Petter Haugen with ABG.

Petter Haugen, Analyst

The first question I have written was partly at least answered now after Omar's questions. But in terms of cleaning up, as you said, not many companies do that. But is it possible to say something about the levels, call it, the spread between either the VLCCs or the Suezmaxes versus the MR rates that will put that trade into profits? Do you sort of need MR rates in sort of the high 20s, 30s? Or is it an inflection point prior to that? So the economics as specific as you can be, please, in terms of switching?

Aristidis Alafouzos, CEO

Thank you for your question. It really depends on each charter. If the vessel can load directly from the terminal and take on the full or most of the cargo while minimizing further FTS operations, it significantly lowers the loading costs, which are borne by the charter. Charters that control the terminals and can accommodate VLCCs are naturally more competitive than traders who may need to purchase multiple cargoes and load them individually by STS, which incurs additional ship and operational costs. Therefore, it’s a considerable advantage. Typically, the deal makes sense when the clean market is high and the VLCC market is low to create the necessary arbitrage. However, if the VLCC market is very strong, our alternative options may seem more appealing. Hence, a stable clean market is essential, along with a relatively weaker VLCC market, while the charter must control the loading to minimize expenses, ideally by discharging and loading at terminals to avoid costly multiple SPS operations.

Petter Haugen, Analyst

Okay. And a follow-up on that topic. How much of your fleet is currently engaged in clean trade? And how has that evolved over the past year, approximately? I recall there were six ships participating in clean trade last summer at one time.

Aristidis Alafouzos, CEO

Yes. I mean, right now, we had one ship in Q2 and one ship in Q3. So it's not a big amount of the fleet. At times this year, we've had no vessels being on clean. So it really has to do, like you said, there's an inflection point between diesel pricing east to west, MR, LR2 rates and VLCC rates.

Petter Haugen, Analyst

Okay. It's very interesting to see someone capable of doing this on a spot basis. My second question, which I know is quite challenging, is about your thoughts on what might occur regarding any agreements between the U.S. and/or Europe and Russia. The main question is how many Russian barrels, both crude and products, will return to Europe. I'd like to hear your thoughts on that and the upcoming meeting.

Aristidis Alafouzos, CEO

Well, I mean, the only thing that we know how to do well is fix ships or hopefully buy ships cheap. But from what our view is, I think that the bid-ask between Ukraine and Russia is still very wide. There's clearly a very big interest from Trump to come to a deal, but I don't know if what Russia would currently offer would satisfy Ukraine and the Europeans. So I mean, I think that if there's a ceasefire, perhaps we could see something from the United States softening a bit on the sanctions. But I think that I don't see that Europe changing its policy anytime soon on importing Russian crude into the European markets or any removal of sanctions on the shadow fleet. I also don't think that there's any material risk of U.S. removal of independently owned tankers in the shadow fleet. Maybe there will be pressure for the Sovcomflot, which is the Russian state-owned company. But that's a relatively small percentage of the shadow fleet, but I do not see the U.S. rewarding independent owners who trade in the shadow fleet with sanctions removals. So I think that the ton-mile effect of Europe not importing will remain. Perhaps we see some fuel or VGO going to the United States. But I think my base case is that Trump and the U.S. remain frustrated in the medium term, and we don't see very much progress and potentially more strict sanctions coming.

Petter Haugen, Analyst

Okay. Just a final very sort of other softer question in the end here. Looking into the second half and also 2026, G&A is now running at approximately $4 million. It's been, well, up and down a few times over the past quarters. But is this now the level that we should pencil in for second half and onwards?

Iraklis Sbarounis, CFO

Let me clarify that a rate of $4 million a quarter should not be considered the standard expectation. Over the past few quarters, particularly in Q2, we've seen increases due to the exchange rate fluctuations between the euro and USD, as much of our General and Administrative (G&A) and Operating Expenses (OpEx) are incurred in euros. This increase is somewhat mitigated by an exchange rate swap we have implemented, although it affects our financials below the EBITDA line, resulting in a noticeable gain through our interest rate hedge. Excluding the exchange rate impacts, there is a seasonal aspect to our G&A. I anticipate that the second half of the year will see a lower rate than the first half, although many factors, including the ongoing rise in listing expenses, will influence this outcome.

Petter Haugen, Analyst

Understand and for 2026?

Iraklis Sbarounis, CFO

I think it's a little too early to have visibility. My base case assumption would be consistent with both in terms of seasonality and overall level as we have this year, assuming that nothing crazy happens with the exchange rate that would skew the figures. Again, we are significantly hedged, but you just don't see those numbers above the EBITDA line; you see them below.

Operator, Operator

We now turn to Liam Burke with B. Riley Securities.

Liam Dalton Burke, Analyst

We discussed the unlikely event of sanctions being lifted, but the lifting of sanctions is always highlighted as a risk to the crude tanker sector. But even if sanctions were lifted, wouldn't that shift traffic away from the shadow fleet to the more conventional vessels and still put you in a win-win situation?

Aristidis Alafouzos, CEO

Thank you for your question. There are many complex factors at play. One potential positive scenario I see is if the United States lifts the price cap, allowing trade to resume on conventional vessels, while the shadow fleet remains under sanctions. When it comes to buyers from China and India and the use of ships, OFAC sanctions have proven to be the most effective at limiting usage, particularly for the shadow trade. However, for compliant trade, being sanctioned by the U.S., U.K., or Europe does not make a difference. For instance, the insurance market is dominated by U.S. and European companies, meaning that owners of sanctioned vessels in these jurisdictions cannot obtain insurance, classification, or a top-tier flag as long as sanctions are in place. There is minimal overlap between the sanctions of the U.S., the U.K., and the EU, and they have not been coordinated. This lack of alignment complicates the situation for these vessels; even if the U.S. removes sanctions, they could still face sanctions from the other authorities. Therefore, there are numerous ways the situation could unfold, and various scenarios related to sanctions reduction could remain very positive for tankers.

Liam Dalton Burke, Analyst

And your operating cost per vessel ticked up again this quarter. Is there anything unusual? Or is it just your normal quarter-to-quarter variability?

Aristidis Alafouzos, CEO

I'll let Iraklis answer because that focuses on bringing in the money.

Iraklis Sbarounis, CFO

I say this is focusing on running the vessels as best as possible and bringing in the revenue. So that obviously has a bit of an impact on OpEx. But I think the larger impact has to do with what I explained to Petter earlier because a significant part of our OpEx, more so than other peers, I expect due to our crew composition, is based on euros. The exchange rate does play a bit of an impact. So I think partially, it's explained by that. The rest is just, again, seasonality. Overall, I think compared to last year, setting aside the exchange rate difference, we expect that the cost should be relatively flat, maybe slightly above, but nothing significant.

Operator, Operator

We now turn to Climent Molins with Value Investor's Edge.

Climent Molins, Analyst

My first question is also on the geopolitical side. You mentioned you're seeing a large shift in India's import preferences. Should this continue or even accelerate, where do you think the Russian volumes will end up? Do you think China would be willing to further increase its imports of Russian crude?

Aristidis Alafouzos, CEO

Thank you for your question. I believe Trump can leverage his influence over certain countries to compel them to reroute their crude oil, often in the context of tariffs or sanctions. These countries are generally allies. I think Turkey and India are particularly vulnerable to Trump's pressure. As a result, the Russian crude that is no longer purchased by Turkey and India will likely need to be sold to China, which is the only other significant buyer. I anticipate that the Indians will be sensitive to pricing. If we observe a significant drop in Russian crude prices, leading to larger discounts compared to other sources, they may increase their purchases again. Therefore, while Turkey and India reduce their imports, China will likely ramp up its buying, causing a notable impact on the transportation distances for that trade. We've already seen that this situation has stretched the capacity of the shadow fleet. With the positions in the northern regions reduced, it seems the rates in that market have increased substantially. As winter approaches, I expect to see more inquiries for older vessels to supplement that fleet and facilitate this trade.

Climent Molins, Analyst

And this one is more on the product side, but Europe is set to crack down on its imports of refined Russian crude, which was previously allowed. To what extent do you believe that's enforceable? And do you envision any impact on the overall market?

Aristidis Alafouzos, CEO

The imports of Indian and Turkish products represent a significant portion of Europe's clean product consumption, but they are not the majority; rather, they are a relatively small segment. I believe trade flows will adapt, although the situation is complex. My understanding of refinery operations is limited, but I assume they utilize multiple storage tanks and blend various types of crude to achieve optimal output for different clean products. This process may involve Russian crude, and managing the certification of crude that contains or does not contain Russian crude can be complicated. This scenario has not been seen in the industry to date, so it will be interesting to observe how it is managed going forward.

Climent Molins, Analyst

Definitely, only time will tell. And congratulations for the quarter.

Aristidis Alafouzos, CEO

Thank you. Hopefully, next quarter, we're able to do the same.

Operator, Operator

This concludes our Q&A. I'll now hand back to Iraklis Sbarounis for any final remarks.

Iraklis Sbarounis, CFO

Thanks, everyone, for dialing in and participating. It's been a long call for the middle of the summer. We look forward to touching base again in November. Thank you very much. Bye-bye.

Operator, Operator

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.