Euronav N.V.

Thank you. Good morning and afternoon to everyone, and thanks for joining Euronav's Q1 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 6th of May, 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 are critical to the company or to persons acting on its behalf are expressly qualified in their entirety by reference to the risks, uncertainties and other factors discussed in the company's filings with the SEC, which are available free of charge on the SEC's website at www.sec.gov and on our own company'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 statement on Page 2 of the slide presentation.

I will now pass on to Chief Executive, Hugo De Stoop, to start with the agenda slide on Slide 3. Hugo?

Thank you, Brian. Welcome to our call today.

As usual, I will firstly run through the Q1 highlights and some comments on our active capital allocation during the cycle before passing on to Lieve, our CFO, who will provide a review of the financial statements. Brian, our Head of Investor Relations, will then look at the current themes in the market before I return again to discuss our outlook and traffic lights before we take questions.

So turning to Slide 4 and the highlights page. Q1 was admittedly one of the toughest freight market we have had in recent years.

Market recovery is yet to gain traction as either barrels were repeatedly kept out of the market, or demand rises failed to materialize as COVID related restrictions were applied again. As we say in our press release today, available tonnage is abundant.

There are simply too many ships and not enough cargoes. There are, however, encouraging signs with the tapering of OPEC plus production, which we hope will translate into more [indiscernible] barrels.

This is encouraging but our visibility on this recovery remain slow. Our sector is cyclical.

And when it is bad times to be an operator you need to think about the future. Hence, we have taken the opportunity to invest counter-cyclically, what we believe is a low point in terms of value.

And having invested in the latest VLCC and Suezmax vessels, and are closely cooperating with the shipyards to ensure they can maximize their potential role in the energy transition and emissions reductions. I will now pass over to our CFO, Lieve, to walk through the financial highlights.

Lieve, over to you.

Thank you, Hugo. On Slide 5, I wanted to cover a number of points when looking at our financials for Q1.

Our P&L was clearly challenging with sustained freight rate pressure that Hugo spoke of earlier. This slide gives the details on how challenging it has been.

Whilst our leverage has risen to just under 42%, that remains well below our self imposed limit of 50%. Liquidity remains the strongest in the sector with over $1 billion available for our funding facilities and cash.

Finally, we have been very active during this quarter and will be during 2021 in utilizing a challenging freight rate market to undertake and even accelerate our dry docking program. This will ensure when the cycle returns, the profitability Euronav will be optimally placed.

Looking now in more detail at the underlying cash generation on Slide 6. Euronav remains focused on cash generation.

We have driven further improvements in our working capital to the tune of $36 million as Slide 6 illustrates. This was improved further from the sale and leaseback of VLCC Newton during Q1, releasing further cash, thus allowing the payment of our fixed cash dividend commitments of $6 million for Q1.

This underlying cash generation has assisted in [indiscernible] fleet renewal program which our balance sheet has the capability to manage. Our funding sources remain key to driving our business forward.

And Slide 7 looks at how we continue to diversify our funding sources. We increased during the quarter our activity on our sustainability financing.

We signed an extension and upsized an unsecured facility to include a number of other banks. As the slide shows, it has a number of features including reduced interest rates, if emission targets are beaten.

An additional feature specific to us, if the facility is priced in Euros, no dollars, which is helpful as 80 million of our costs are euro denominated. A third of our funding sources are now sustainability links, an important milestone for Euronav.

I will now hand over to Brian Gallagher, our Head of Investor Relations to run through a couple of current market themes.

Thank you, Lieve. Capital allocation has remained active with our counter cyclical investments, continuing with two Suezmax and two VLCC contracts that we announced during Q1.

This complements the four VLCCs we took delivery of during this quarter and as part of a coordinated approach to fleet renewal. In the past 18 months or so, we have sold a range of older tonnage, either directly into rising steel values or forward selling by sale and leaseback structures.

Recycling this capital into a more operationally efficient vessels will significantly improve our emissions profile in terms of CO2 emissions. We remain on trajectory with our commitments to the Poseidon Principles, an additional recycling as we have just executed during this cyclical load in our freight market will allow Euronav to remain on course to simultaneously improve the earnings power of our fleet whilst maintaining a strong balance sheet and meet our emissions goals and targets.

Turning now to Slide 9, and ensuring our capital allocation that Euronav meets those strategic goals. Slide 9 shows the AER or the annual efficiency ratio record of the global VLCC fleet in a very simplistic way, but also shows the trajectory that Euronav is on target to meet its 40% reduction obligation as part of the CO2 emissions targets set by the IMO 2030.

In our view, this is a realistic and achievable target. Our recycling of capital and selling nine older vessels in the past 20 months or so, and recycling that capital into seven new vessels is a key part of our compliance, which we are looking to accelerate.

Now turning to two key themes we expect to remain in place for the rest of the year. On Slide 10, firstly, Iran.

The Iranian situation in terms of tankers remains fast moving. Commentary earlier this week suggested that some timetable have returned to around to the oil markets, could be agreed very soon.

This will be a positive we believe for our markets overall, as it should bring some much needed barrels back into the commercial fleet, and at the same time, reduce the need for the so-called illicit trade of largely older tankers, which have taken up sanction trades over the last 12 to 18 months. If that were to happen, we believe as many commentators agree, that we will then start see this older tonnage move to the recycle yards.

Finally, for me, we return to a theme of the OPEC barrels which have been missing in the marketplace in the last several years or so. We believe this will continue to be a key feature on Slide 11 for the rest of this calendar year.

As the slide shows, OPEC plus production cuts are scheduled to start tapering later this month, and continue well into July, bringing potentially 2.1 million barrels per day back into crew transit. Clearly the very difficult circumstances with COVID in key markets like India, make it difficult to predict how much of this tapering will actually impact crude export markets.

As a rule of thumb, every 1 million barrels per day of production turning into exports requires a need of around about 30 VLCCs on an annualized basis, but we leave with a tangible and encouraging signs and signal to finish with. And I'll now pass on to Hugo to sum up where our traffic lights are currently sitting at the end of Q1.

Hugo, back to you.

Thank you, Brian. So as Brian just alluded to, the scheduled tapering of OPEC plus production cuts is sufficient for us to push through a mile upgrading our traffic lights.

Provided additional prolonged COVID restrictions do not differ or delay these rising output, then this move by OPEC could start to reduce surplus amount of tonnage in the large crew tanker fleet. This is our first positive change in our traffic lights since Q2 last year, but it does reflect the start of our recovery process in our markets.

This is likely to take some time, but we continue to remain confident in the medium term prospects for the tanker market. And that is reflected in the fleet renewal we've engaged in not just during Q1, but also over the past 12 to 18 months.

With that, I will pass it back to the operator to receive questions. Thank you very much for your attention.

How are you team Euronav? How's it going?

Yes, very well. And you Randy?

Well, hanging strong. Hanging strong.

All right. So I guess first question around the acquisitions, right.

So you bought some of the Suezmaxes a couple of new building, VLCCs, LNG ready, maybe ammonia ready. I guess, why kind of go with that route instead of participating in some of the longer term LNG fueled VLCCs that some of the oil majors had put out there.

And then when it comes to expanding the fleet from here, is it further new builds or modern second hands more attractive?

Yes. Thank you for your question.

First of all, let's be very accurate. The Suezmax were resale, so you can consider them as second hand.

Okay.

The fact that we grabbed that -- the fact that we grabbed them before they even build is probably better, because then we can slightly change the specification, which we hope are very unique to Euronav and can bring further advantages to us. As far as the VLCC, you're right.

It's a new building. But those were the sort of abandoned slots when the 10 VLCC were cancelled earlier this year.

So I think if you go to the [indiscernible] today, the timing may be very well be different, it may be already in 2024. So we see that also as some sort of an advantage.

The resale, we had no option but to take what had been ordered by the previous buyer. And the VLCC that was obviously a little bit more [indiscernible] even though the yard had a sort of a preconceived idea of what they wanted to build and building an LNG, dual fuel -- dual fuel LNG vessel will take more time.

And so that’s not what’s s probably not available because they are busy as you know with many of the other sectors. Having said that, we're very happy with what we have because it gives us maximum flexibility.

And in previous call, we've said that we were ready to build with dual LNG vessel provided that we get a contract against it, because as you know the LNG is a transition fuel. And so you better make your return on the LNG part during the duration of the contract and have a vessel that is for that part, fully amortized.

We have participated to the tender or the exercise that were put out there by respectively Total and Shell. And the reason why we are not part of the ones, I would say, won that tender [ph] because our IDs of return were different.

And so we didn't meet our expectation, and we thought it was -- we were better off doing what we're doing today. As far as the future is concerned, I think at Euronav we will continue to scrutinize what is available secondhand and in order not to add to the order book.

But it's also true that when you are in transition, and we're very much in a propulsion of fuel transition, whatever you want to call it, the flexibility may be the best choice that you have and decide later, when you have the opportunity to charter those ships out. And if it's to play them on the spot market, decide later when the infrastructure will be in place and what will be the best return for your investments.

Yes, that all makes sense. Thanks for the color there.

And then I guess one more question just on fleet management, right. In terms of the numerous dry dockings you have this year, are you willing and able to maybe pull those forward to today, right, [indiscernible] June, the sooner the better right before the market turns?

And then with that market strength, likely later this year, how do you look at time charters at kind of current levels?

Well, our program of 27 dry dock, that's almost 1/3 of the fleet. So we did already quite a lot of management around the timeframe that you can do in dry dock, which is roughly speaking 18 months a year and a half.

We've pulled many of those early because we didn't have very high expectation in '21. We've done already a number of vessels.

We have indicated how many vessels remains to be done. And let's not forget that it's a full optimization that you need to do.

What I guess what I mean by that is, you need to find the voyage that will take you near the dry dock at the time where you have a slot. And that will play a big role in the economics because if you have to take your ship with, let's say, no cargos on a [indiscernible] just to go to the dry dock you're also leaving a lot of money on the side, even if it's in a low market because obviously, any contribution is better than nothing.

So you can rest assured that this is an analysis that we do permanently. When we lock a slot in a dry dock, there is a degree of flexibility.

And we will always accommodate that with all the circumstances that are around that dry dock including the positioning [indiscernible], and potentially the prospect that we have when the ship is leaving the dry dock and does not have a vetting, which is another consideration that we need to take into account.

Got it. And then quickly on time charter appetite.

Time charter, they are interesting and maybe we don't advertise it too much. But we have a number of ships that are on time charter at the moment.

Some of them are long-term time charter 2, 3, 4 years. Some of them are much shorter time charter or policies that we always look at what the best employment for the vessels are.

So [indiscernible] charter with a forward start date, our concern and we've seen a number of those being done in the market. I think when you look at those levels, against the type of vessel either most modern, most equal type of vessels, these are levels that are compared to historical levels not very interesting, starting in '23 for the delivery of a modern ship, and then having a fixed time charter in the low 30s.

Compared to what we hope we can do in the market, that's not specifically or that's not particularly attractive to us. I think on the short-term, it's a very different picture.

As I said, I mean, we don't consider '21 will be a great year. So we have taken some of those and we continue to look at in the market, what is available, you may have seen in the press that for instance, or new building deliveries, that we have taken four ships.

We acquire as a resale last year. Those are particularly attractive to some people.

And at the moment, they are all on the short-term time charter, which are paying more than the spot market. So we're doing your first year.

Perfect. Thanks so much for the time.

You’re welcome.

Thank you. Hi, Hugo.

Just maybe wanted to follow-up on the new buildings. Can you maybe just give us a sense of what the process would entail for those VLs to have the LNG and ammonia ready, structural notation.

It sounds like these will deliver with conventional fuel and then afterwards go back for installation depending on how things are playing out. Is there any sort of estimate you can give on what the cost or the timeline is for the installation of such a system?

On the LNG, it's probably better known because those ships exists and you can retrofit ships already today. If they are level one ready, and there are three levels.

And the higher the level, the more sort of specifications are there until the louder the modification will be. But if we take the most important one, which is level one, we're talking here about structural readiness.

What do we mean by that? The tankers, the VLCCs Max will need to be equipped with tanks that can hold either the LNG or the ammonia.

Those tanks have a certain weight, and they will be put on the deck. If you need to touch the structure of a ship in order to accommodate those heavy equipment, then you are opening the ship and as you can understand, that's never a very good idea.

So the priority is really to make sure that from a structural point of view, the ship is ready. And the second thing that you can do is already prepare for some of the piping that will lead the fuel to the engine space.

And then of course, here you need to think about what type of gas, I mean, it will be liquid, but what type of molecule you're going to drive to the engine. And some of them are more corrosive than others.

And that will define the type of piping that you will do. Last but not least, you will need to prepare the engine and that's probably way too early because as far as ammonia is concerned, that doesn't exist yet for our segment.

As far as the LNG is concerned, we know what it is. But it's probably today too early to make those modifications for the ship.

And if you were to go to level three, then you're better off doing a full dual fuel LNG today. But that will preclude you from converting into ammonia because then the amount of modifications, the retrofit will be far more expensive.

And you would have wasted quite a lot of capital that you're not sure you will use. So if I can translate in numbers, the readiness is probably something that is in the region of 500 to a million.

If you want to ready for both LNG and ammonia, then that's probably a little bit no so that so it's not excessive. And the advantages you get are quite enormous, especially when you look at the next 20 years, which is the normal life of a ship.

From that level, today if you need to modify that into LNG, you will probably spend another 12 million to 14 million and that will depend on the size of your tanks and some other bits and pieces that you may choose from. On ammonia, I cannot tell you what it will be.

I believe what we believe that it's going to be in the same region, but the classification society will come up with the notification and the notification will tell you exactly what you need to foresee. And of course, on ammonia because it's more toxic than the LNG, you also need to do a full study on the [indiscernible] (), which is basically the safety around manipulating that fuel.

And of course, people get a little bit skeptical about it. But let's not forget that ammonia has been transported as a cargo for more than 4 years.

And so a lot of that is known. And it's more a question of how can we make sure that if we use that other fuel, the safety concern are fully measured and fully expected and therefore prepared for.

But -- so again, we're talking 10 million to 15 million modification after the event. When that will happen, it really depends when the market will be ready.

As you know, LNG infrastructure is there for the most part in the Americas. Certainly in the U.S., they're still building it, but we expect it to be in place in '23.

Ammonia is more of a long-term project. But you will also need to analyze what is the demand that you have from your customers.

So some customers will want to have a zero emission fuel like ammonia, some customer will prefer to use LNG because that's what they produce. And so the demand and the interest from our customer base will determine when -- and I would say, if and when we convert those vessels into dual fuel, conventional fuel plus ammonia or conventional fuel plus LNG.

I don't think that you're going to see ever in the market a tri fuel ship that can burn ammonia, LNG and conventional fuel. So you will have to make up your mind when you decide that it's the right time to convert it into something else.

But in terms of future pool, that's very important because even if it costs relatively high amount of capital, it's not going to be a stranded asset. And that's very, very important.

Thanks, Hugo. That's quite clear there.

So just to summarize my understanding, it sounds like it's basically $0.5 million to a $1 million, just to have the structural flexibility. And then post delivery going back to install say an LNG system, it's 12 to -- $10 million to $15 million, which is effectively kind of what it is now at a shipyard to be done during construction.

And so really, the only difference is time at the yard post delivered.

So your understanding is absolutely correct, with maybe a caveat, which is that if you build a dual fuel LNG VLCC vessel today, it's probably south of $14 million. So $14 million was the number we were given, I would say last year, then Shell together with some owners, including us have done a fantastic job working with the shipyard and trying to minimize those costs.

And when you see what the guys who have sort of won the tender with Shell are paying, you're probably more in a region of $10 million to $11 million as a surplus to your conventional vessel. So a little bit cheaper, but not that much.

Yes. Got it.

And just one -- one just quick follow-up on. Obviously, the ships and you mentioned that they're going to be significantly more advantageous, eco and carbon friendly than the ships that are going to replace.

Just wondering, I think you made that comment in the release announcing the order regarding in comparison to the ships that they'll replace. Just wanted to ask you, are you saying that these vessels as they deliver, you will be scrapping some of your older ships?

I would say, a one-to-one basis, or you just making a general comment that they're going to force out some of the older tonnage in general.

I would say both in a certain way. As you know, we tend to sell our vessels before they reach their end of life and so that will depend on each vessel, but it's true that when you look at the sale and leaseback that we have done over the years and in total we have eight vessels on sale and leaseback, when you look at their time of redelivery and those are very special sale and leaseback because there is no purchase obligation on the part of Euronav, which means that at the end of the contract, the owner takes the vessel back and then does whatever you wants with it.

For us, it's no longer a liability and it's the sort of way of protecting the residual value that we may call residual value risk, they will come at the same time as new vessels arrive. So, I was more talking about fleet management, not so much about scrapping because those vessels when they are redelivered to their owner, they will be 15 years old, but they will be of age category and sort of consumption categories will definitely [indiscernible] echo but also part of the feed that used to consume a lot more.

So from our perspective, it's definitely fleet management. From a global fleet perspective, I cannot assure you that those ships will be scrapped at exactly the same time, they probably won't be scrapped at the same time.

Understood. Thanks, Hugo.

I will turn it over.

Thank you very much.

Thank you. Good afternoon.

Brian, on Slide 9, it was -- you said, you're trying to accelerate your move down to the bottom right of this graph. In addition to just ordering these new ships with better emissions, is there any other strategic play that you're thinking about to move Euronav closer to that blue dot in a quicker manner?

It's a good question. And we want to try and sort of highlight that the capability with the slide that shipping is dropped generally, but also in the progress it's made already.

But to stylize, the direction [indiscernible]. Yes, there are a number of strategic things.

For instance, Hugo talked about a third of our fleet undergoing driver of this year. We spent a lot of money on research and development last year.

That sounds a very simple thing, but it just don't paint. And we had a selection process, which is identify that which we think it's going to save an investment between $300,000 and $400,000.

We'll say this, a multiple of that with regard to CO2 emissions. So there are some things that we can do in terms of self help.

But of course, it is also largely as you identified about the structure of the fleet and the age. So it's just to try and get everybody sort of understanding that shipping can deliver on its 2030 objectives.

But that does, again, dovetailing with what Omar and now you’ve just been discussing, an awful lot of emission pressure on the older tonnage. And of course, they will -- if we get the IMO vote to put through [indiscernible] next month, because that's going to be some regulation with some real teeth [ph] that will kick in '23.

So a simple answer to this question, Jonathan, is that, yes, there are some things that we can do. But it is all about largely the age of the fleet and the focus on the most efficient fleet which obviously are going to be lower emission.

And I don’t think …

Jon, if I can just add a compliment for what Brian said. I mean, obviously, when we take ships on dry dock, we do a lot of things that goes beyond the specific survey that that we are doing the dry dock for.

For the last 2 years, we have developed softwares and hardware, we have equipped a lot of our vessels already two-third of the feet with the sensors, those sensors are sending a lot of data. We have co-developed with our people, and systems that can crunch those data and the collaboration between the operation onshore and the people on deck has never been better than today, because everybody has the same focus, which is to reduce consumption and therefore reduce the emissions.

So there's a number of things that will save you 1% here, 2% there, etcetera, etcetera. But the collection of those percentage is quite significant at the end of the day.

So, yes, there are a number of things that you can go strategic, we call them just part of the business. But when you're running a large fleet, all of those things get better returns on investment than when you're running a very small field and you have to spend the exact same amount of money on those software or even Brian was talking about paint, well obviously if you're going to paint 27 vessels, the discount that you can get from the supplier is quite significant.

Understood. I don't -- for my follow-up, I don't want to get too in the weeds here.

So bear with me for one second, but when you do a sale and leaseback how does that reflect in -- into your emissions as well. You don't own the ship, technically, but you are operating it still and the reason I ask is, I know the Newton is only one ship, but sale and leaseback tend to be transactions that companies do when they're starved for liquidity, which you are most certainly not.

So raises [ph] your breakeven just kind of an odd transaction when you’re sitting with over a $1 billion of liquidity. And I'm wondering if that has a dual purpose of giving you a little bit of money on the front end, but also helping with the emissions as well.

No, it doesn't help on emissions. And so when you have to report your emissions, people treat sale and leaseback as a way of financing your fleet, so it's still an integral part of your feet.

But as I said, we are redelivering those ships upon their 15-year anniversary. So you’re saving on that dry dock.

You make sure that this -- these vessels are leaving your fleet and when you measure the emissions or the consumption of those vessels compared to the most modern one, it's really something that you want to see out of your fleet by the time they get redelivered. So we have some that will redeliver at the end of the year, some next year and then the last four, probably in '23.

So that's very much the reason why we do sale and leaseback. You never know, what holds in the future.

The values, which we sold them were pretty good. I think that the rate we got taking them back, knowing that there is no purchase obligation, so there is a little bit more risk on the counterparty side means that it's still good value for us taking into account everything that I just mentioned.

Got it. All right.

Thank you, Hugo. Thanks, Brian.

Yes. Thank you and good morning, good afternoon, everybody.

Hugo, I had a couple. Wanted to dig in a little bit around ton miles and volumes.

It seems like at least it was reported in late April, that U.S crude exports really accelerated. I mean, realizing the markets pretty, pretty loose -- was there any impact in that increase in U.S crude volumes in terms of activity around the Gulf of Mexico?

So yes, we saw acceleration of U.S crude exports. From that we have -- we see that there's really no stability, those exports.

So one month can be up, next month can be down. So it's difficult to see a trend there.

As you may very well understand there's quite a large geopolitical events driving the export of one country versus another country now. Here I'm alluding to going to China, which is a -- the longest voyage, the better ton miles.

But of course, if our Chinese friends decided to buy more of Venezuelan or Iranian crude, because they found a way to do that, that precludes you from transporting the U.S barrels to China. So I think that it's going to be very interesting, in next few months, what happens and what the Biden administration does, in terms of sanctions.

And I think from there on, we should hope to see not only some tonnage disappearing, because they would really have no reason to exist. But on top of that, getting back some of the barrels that are longer ton life versus the shorter ton life [indiscernible] never forget that there is a quality difference in our lighter barrels or heavier barrels.

And what is happening right now may not be optimal for the refineries that are buying those barrels.

Okay. And that kind of -- and you kind of just touched on it, but kind of curious, definitely everyone's hearing a lot about vessel discrimination, the vessels that are moving in the Iranian volumes or vessels that are moving the Venezuelan [indiscernible].

I imagine at least we -- the companies look at the types of vessels that are doing that whether they're owned by the National Oil Company of Iran. Is there any way to think about on a percentage basis of the types of vessels that are doing these trades?

And it sounds like you almost expect some of those vessels to just leave the market. Is that kind -- any kind of more detail or color you can give around that?

I think I will kick that one to Brian, because we do have specific numbers on the age profile of those vessels.

Yes, I mean, Greg, we touched it on Slide 10, the numbers there from [indiscernible] telling us that as up to 54 VLCCs in the Iranian trade that they've monitored over the last 13 months and 20 from the Suezmax fleet. You're looking at, including the Venezuela trade about 8% of the VLCCs and 5% of Suezmax.

Some of the excellent [Indiscernible] list as well, which is the analysis and monitoring of ships that are engaged in that sort of behavior of turning signals off and monitoring those ships, they all have a very common element that they all tend to be over 17 or 18 years of age at least. And they've recently traded and been sold to private owners.

So it's not immaterial because these are relatively large numbers. And our view would be if you're going to legitimize the trade and bring Iran around back into the [indiscernible] fold, then the ships don't have any natural advantage.

Most of them it's -- all of them have very little insurance coverage or class society ratings [indiscernible]. So I think it's a natural assumption, giving [indiscernible] as well that clearly engage in a lucrative trade today, which will disappear tomorrow if [indiscernible] back into the fold.

And we would expect them, I think, as most commentators would receive and disappear, but they're not technically working, if you like them on a like-for-like basis against [indiscernible] at the moment. So that would be lack of face.

But it is something surprising to us as well that the sanctions that have been in place for a long time have not really been policed or effectively controlled, as we would have expected. So it is disappointing that this is [indiscernible] developed.

And just to be -- just to clarify, these are not Iranian NITC owned vessels, these are …

No, no.

… okay. Okay [multiple speakers]

It was [multiple speakers] huge amount of ships which are going to private hands over the -- since the start of 2019 and these are largely those. I mean, there's some reputable owners who've sold them to owners expecting them to go to the scrap yard themselves, maybe after a couple of trades, and they've popped up in this.

So I can take it offline. But this is independent accredited work on a ship-by-ship basis.

So we feel it's pretty solid, intellectual backing.

Super helpful. Thank you very much, everybody.

Thank you.

Thank you, Greg.

Hey, this is Kevin on from Amit. I just had two questions.

The first question was, Hugo, when do you think the market will be fairly balanced in rates and kind of get back to that 25k to 30k level? And there's obviously like a recovery occurring in demand supply also improved, but when do you think the market will really come into balance?

I was going to ask you the same question. I was hoping you were going to give me the answer.

I think that -- I think that at Euronav we have built all the reputation for not being foolish. I think that this market is extremely difficult to call.

You have a number of pieces that you need to fall into place before you see an improvement in market. We certainly hopeful that if the 2.1 million barrels coming from OPEC, releasing some of the cuts will have a positive impact on our market.

It's not going to be enough, it's unlikely to be enough to go to positive territories 25,000 plus. But then you have the winter with more demands, you have the COVID restrictions being lifted in many parts of the world.

All of that needs to have an impact. I cannot predict exactly when international travel will completely resume.

I cannot predict when Europe will lift their restrictions, like the U.S is doing at the moment. So if you give me those dates, and I can probably give you a more accurate picture.

But absent of that, I think we need to be patient, we know that it's going to happen, that's for sure. But when exactly is going to happen, it's very difficult to tell you.

Okay, great. And my second question was, what are you seeing in the market in terms of being able to accelerate the fleet renewal efforts.

Euronav's in the fortunate position to have capital deploy. Are you seeing more sellers in this market given the more difficult operating environment?

We're not seeing distress situation, that's for sure. I mean, let's not forget that we are just a few months after one of the best years shipping or banker shipping has ever gone through.

So you cannot go from that situation to distress situation. Over a few months, I think we have picked up some assets for which the value was still in what we call the low part of the cycle.

We know how high it can go. We continue to be interested in all sorts of deals, be it second hand, resale of contracts, etcetera.

And we together with other people have picked up pretty much everything that was there to pick up in the market. So you've seen those transaction or market being relatively transparent.

Some people were not distressed are interested in selling their vessels simply because when they look at the time they bought them, what they've [indiscernible] operating them and what the prospects are. And this unknown factor of when is going to turn better or return to better territory, they just don't want to guess and they prefer to take their profit and leave the market.

The problem there is that the values are going up way ahead of the earnings. And so it's difficult to meet the bit of a spread on many of those assets.

Right. Great.

Thanks for the color.

Hey, good morning, guys. How are you?

Hey, very well. You?

Good. Thanks.

Good. Good.

Actually, Hugo, that last question was a good segue. I wanted to loop back to some of the economics around the dual fuel ships and the general economic case.

You mentioned, I think, even in your deck, and just in your previous answer that we we've obviously seen some asset inflation ahead of what would be supported by cash flow, and certainly seems like the market has turned a corner into a different paradigm when it comes to commodity inflation in general. So just curious, as you think about that economic decisions, either order or step into secondhand dual fuel ships.

How does that -- there's varying degrees of inflation as it stands today, does it help or hurt the economic case for stepping into that kind of tonnage. Obviously, the asset itself is going to be more expensive at the yard, because you've got a pretty steady ramp in pricing there.

But the higher degree of vol I guess, associated with the underlying fuel. So just curious what from a dynamic perspective, I guess, is it helping or hurting the economic case for those dual fuel ships as it stands today?

Well, there are many elements as you point out. So the steel is more expensive today than it was 2 months ago, 3 months ago, or 5 months ago, I mean, seeing that there is no limit on the increase, that's why you see also on scrap values.

But definitely when we speak to the yard, they're saying that we're selling them, the steel is increased the price month on month. When is it going to stop to [indiscernible] the floor to leave because he's coming from the steel industry.

And I think your sources are telling you that at some point capacity is coming back.

Yes, indeed, [indiscernible] the steel market is mainly now affected by indeed capacity, increasing, but not [indiscernible] enough for fulfilling the demands, and hence this description and this high pricing environment for steel, we see no [indiscernible] of high as 2008. So very, very high.

Normally, the turning point should come …

Because more capacity is going to come online.

Absolutely.

But the problem is that in order to bring the capacity online, you take several months. I mean, it's not like a tap that you open and close and it's even slower than the oil for instance.

Sure.

For the other elements, I think the other elements are more fuel oriented and people get a little bit carried away with the fact that LNG is cheaper than the fuel at the moment. But that's I mean, they're not taking into account the price of the delivered LNG onboard vessel.

Because LNG is a gas and when it's a liquid, it needs to be refrigerated and obviously those bunker barge are far more expensive. The price we see very much the same as the fuel today, so you don't have any economic advantage if you switch to LNG, which is something that some people said in -- I mean, a few months ago, few -- maybe years ago, that it was an advantage.

But when we look at really what you have to pay, that's not the case. And who knows what it -- what it's going to be later on.

The other element is we know many carbon tax, carbon levy ETS system are going to come or are already in place. Europe is definitely thinking about it.

We probably going to be affected by it in '23. What it will be limited to Europe or what it will be for [indiscernible] Europe is still a question.

I think the Biden administration is thinking about a scheme, the Chinese have a scheme in place. So all of that will affect the price of the fuel as it relates to their emissions, the CO2 emissions.

And then the next question is, is it going to be CO2 emission, carbon levy? Or is it going to be CO2 equivalent, and in that case, then it's all the greenhouse gas including methane.

And as we all know, LNG is far better on CO2, but they suffer from methane [indiscernible] and methane is far more damaging to the environment on a per gram or per kilo or per ton basis than what the CO2 is. So there's a lot of uncertainty, which means that I can't really ask the question, but those are all the elements that you have to take into account.

And so again, the flexibility that we bought into those ships, and making sure that they can be prepared for any type of fuel that we can choose from in the future is for me a big advantage.

Yes, I guess the premise is that you get the immediate visceral reaction and inflation and in the ship price, but the forward curves a little bit slower to react. So near-term, there's a bit of a headwind on those economics.

But to your point, you've got the opportunity. You got to build in the optionality for yourself to pick and choose your timing for that.

At a curiosity, do you have a sense, you had a [indiscernible] the kit required in that conversion process, or I could better term it. Do you mean it's more or less commodity driven, more sensitive than the underlying ship itself?

This is a more service oriented or commodity oriented in terms of how you think about that price fluctuating, say, if you didn't make that call a year or two from now, relative to a ship?

No, I mean, and quite frankly, that's more a question of, are you going to put your ship on time charter? Or are you going to play it on the spot, because if you think about the future, let's say, that we project ourselves 10 years down the road, and there are still some conventional ship, eco ship, obviously, but still conventional using [indiscernible] then you have LNG and probably ammonia at the same time, the market will probably still be a world scale market, and so you will get a certain amount of freight.

And then the price of the fuel will be different. And your return will therefore be very different.

Your TC will be different. So it's very complex.

And that's also why not many people there to dip their toes into the new building market because they don't know what to buy.

Yes, now, it's definitely can't be a tourist in that market for sure. Okay, that does that.

I appreciate the time, guys. Thanks.

Thank you.

Hi, this is Frank Galanti on for Ben, I wanted to follow-up on our reaching lower emission targets. How much can a vessel failing speed affect the absolute level of emissions?

And I guess more importantly, the efficiency ratio, it feels like renewing the fleet is going to be a big strategy to keep up with these ever lowering emission targets. But for older tonnage, [indiscernible] vessel simply go slower to meet IMO 2030?

So, yes. I mean, speed is definitely a role to play.

But in fact, in our industry, we prefer to speak about the load that you put on the engine. So it's a little bit like the round per minute of your car rather than the speed you do.

And of course, if you're in the descent with your car, you don't need to push so much on the accelerator to arrive to a certain speed. When you are uphill, you will need to push far more on the accelerator to maintain your speed.

So it's a little bit the same in the shipping space. It depends on the currency and depends on the weather, the wind and many other factors.

And in fact, that's where the digitalization and the efforts we're doing on the software, hardware front is going to pay off more and more going forward because you will adapt your speed according to those elements but also according to what you expect to have in the next couple of days. So you can go slower, because you know that the current is with you or you know that the current will be with you in a couple of days and still meet the [indiscernible] is the time at which you need to arrive at the port.

I mean, to be precise on your question. Yes.

If they put less load on the engine, they will save fuel. But they will become relatively inefficient.

And also, let's not forget that when you take a cargo, you sign a contract. And that contract tells you the speed that you're supposed to as well as the date upon which you have to arrive.

So if you're -- put yourself in the shoes of a client, and he needs to transport a cargo, and most of the industry is a little bit or is very close to what I would call a just in time in industry. So he wants that cargo to arrive within a certain window, he cannot afford to take the older ship that will go so much slower that it will arrive a week later.

Otherwise, it's going to be too complex for them to juggle between shifts that go out to normal speed and all the sheets that go the slower speed. Because the just in time doesn't work like that.

I hope it was clear.

Yes, definitely. That's a good perspective.

And I guess my second question, I wanted to ask about the FSOS. There's news out yesterday, international seaways was potentially interested in the best thing at stake.

In the JV, is that other half of the contract something you're an avid be interested in buying? And then I guess longer term on the FSO business?

Are there other opportunities to grow that those two vessels?

Yes. Before I answer those two questions, I will first tell you and God knows that I'm not going to line on SW business.

But when you are in a merger, I guarantee you, because we've been there with January. I guarantee you that there will be a lot of conversation around the true value of those episodes.

And I think that the market under estimate those value zero, cash flow basis, they underestimate the value. So if you can't reach a value, then what you do is, well, if I realize that value, and it's higher than what you believe it is, then let's make sure that my shoulders get that benefit.

And obviously that windows stops when the merger is completed. And so we had exactly the same mechanism when we did the merger with Generate, if we had sold those vessels to any party at that time, we would have realized, again, that is far in excess of the book value than we would have disputed a special dividend.

And we would have been authorized [indiscernible]. So I think the market is picking up a little bit too much speculation on what is, to my mind likely to happen, certainly before they complete the merger.

But that's my opinion. And it's maybe not INSW opinion.

Now talking about that, are we interested in buying your partner out? If they give us a discount, we're always interested in good deals.

But frankly speaking, I think we're very happy with the partner. And I think both of us have very, very similar ideas around values, so there's not really much we can gain from buying them out.

And if we do, something's probably going to do something that we do together. But it's a stable stream of cash flow.

So before we sell that, we really need to see a full value. We also need to make sure that our customer is happy with whoever would be interested in buying those units.

So it's very different than a vessel. I mean, it's not a decision that you take overnight, and you ask a broker to just market them.

Yes, that makes a lot of sense. Thanks very much for the time.

Appreciate it.

Thank you.

Hey, thanks for taking the question. I guess I want to ask a conceptual question around the financing capacity.

For yourself specifically, you're an app that may be more industry wide as we think about sort of the need to rejuvenate the fleet kind of broadly, at a point where rates are obviously quite low and leverage is arguably running quite high, even for yourself and Euronav, your net debt to EBITDA, along the elevated side as it stands right now. So, I know you have liquidity here.

I'm kind of curious how you think that the sort of financing market is available and open and how much liquidity there really is in the market to be able to help support some of these, pretty important financing needs that will be occurring over the course of this year, next year and beyond.

Yeah. I may not answer a questionnaire.

I will say this. Your net debt to EBITDA is not something that we use in our sector because the EBITDA is too volatile.

So if you look at the net debt to EBITDA base on last quarter. Then it's ridiculously high.

If you base your net debt to EBITDA last year, then it's ridiculously low. And so, we cannot change the leverage of the company every time we go to cycle.

And that's really, really obvious. The more important question that you're asking is, are we going to be able to continue to finance the company going forward?

Not so much because of the volatility, because volatility has been there for quite a long period of time, if not forever, but more because the providers of capital are more and more scrutinizing the oil industry and the oil service industry of which we bought off. And I think that that's a little bit of a challenge.

And what we're seeing now and as Lisa said in her comments, prior to the questions, it's obvious that at least you need to have to proceed and principle as a clause in your own agreement, which means that you can demonstrate to the banks that you're going to continue to follow the trajectory, and you're going to meet the requirements of the IMO 2030. But many other requirements.

And believe me, that jargon is becoming very complex, because so many people that are sort of trying to translate the Paris Agreement into a different set of KPIs. I think that Euronav is relatively well-positioned, if not very well-positioned.

To continue to meet those targets, we are ahead of the curve. We are very conscious that we need to renew the fleet.

And we do that. And you've seen that we were doing that from a basis of already having a very modern fleet because the majority or vessels are equal type.

And the ones that are not are going to leave the fleet and probably lead the world fleet before we reach 2030. We also think about beyond 2030 years, as we commented earlier and we bind type of assets that can be retrofit can be transformed into something that does not anything.

I think that part, together with the rest of the ESG, i.e. the social part, and the governance part is going to play a key role in your ability to finance your company.

And that's why we've been relatively focused on that. But not because it's a trend, simply because it's in our DNA.

And we were always very aware that those three elements were very important even before the terminology was created, like ESG terminology was created. So we feel relatively comfortable where we are.

And when we look at the future, we feel that this represent a competitive advantage that we certainly are going to play out in our efforts to grow the company, and consolidate the market.

Okay, okay. That -- that's a really good answer.

I appreciate that. That insight.

And I guess when you think just taking that a step further and thinking about the potential competitive advantage for you. Do you think that if we play this out over the course of the next couple of years, that there would be a material shortfall in capital available to finance a fleet for players who are not in the same position as you are from an ego perspective and sort of progressing from an emissions perspective.

And just sort of generally an ESG perspective, do you think that will become -- we talked for years and years about sort of the availability or lack thereof of financing, and it hasn't necessarily sort of really changed the industry in terms of the ability to kind of add vessels and ultimately add to the order book over time? Maybe on the margins, but do you think it becomes a bigger story as we move forward?

Well, first of all, I certainly hope so. And it's true that we've been talking about it in the past decade, and we've seen it, but on the margin, you're absolutely right, I think that there will be a flight to quality.

And that flight to quality will mean that the relatively cheap capital that is available, will be taken by the big companies who can demonstrate that they are doing an effort and that it's not superficial, it's really deep, and you can measure it. And as I said earlier, I think it's a lot easier for big companies to go into programs over multiple years to decrease the emissions of the fleet.

So I don't believe that we will have so many problems. I don't believe either that people will not find the capital.

But I think that the price of that capital, the spread between what we pay and what they pay is going to increase. And it's going to materially increase compared to what we've seen in the past, simply because the providers of capital depends themselves on their investors.

And I think that their investors are demanding more and more to see where that capital is going and what is it funding. So if you have scarcity on that end, then it will be reflected in the pricing.

And I have no doubt and a lot of hope, that spread will increase and therefore will drive people out of the market because let's not forget that coupled with the volatility that we have, the pricing of capital is very important in a capital intensive industries such as the tanker shipping.

Okay. That -- that's very helpful.

I appreciate the insight. Thank you.

Thank you.

Yes, good afternoon. Question for either Hugo or Brian.

Going back to Slide 9, I mean, the industry has set out some pretty aggressive carbon emission goals by 2030. But in order to get there, I mean, there needs to start replacing some of these older VLCC [indiscernible].

I guess, since there's about 400 VLCCs built before 2010. When you're talking to the old companies, and we've seen both Shell and Total award some contracts, but what's the appetite or urgency to start securing some of these non-eco ship or award more contracts for dual fuel vessels.

I think that the trend is on. And this year [indiscernible] started the middle of last year.

You've seen those companies moving into awarding contracts for which the term i.e., 6, 7, ages is quite impressive, because we hadn't seen that those type of contract for a very long time in what we used to call, long-term contract was maybe 3 years. So certainly on the longevity of those contracts, it's what was required in order to motivate the owners to build those ships.

You will see more, and let's not forget that those all majors are certainly have a vested interest into pushing the LNG story as a transition fuel because they are themselves the producers of LNG, and they invest quite a lot of capital into that. So it will be natural.

Then next to them you have a number of clients may represent in fact, majority, who are much more focused on the emissions themselves, and are sort of fuel neutral from their perspective idea, not producer of LNG, and are really awaiting what the potential level of ammonia can give. And I think once the first ships that are dual fuel ammonia, we will hit the water, we will really be able to assess whether there is an interest into taking those ships on time charter and for which periods of time.

That will obviously depend on the pricing or the pricing difference between ammonia and LNG, ammonia and [indiscernible], LNG and fuel [indiscernible]. So absent of carbon tax, I don't think that ammonia will be a big success.

But as I said, there's more and more talks about different types of carbon tax and different types of mechanisms to equalize the price of those different fuels.

Thank you. I mean, I guess the longer the conversation is going on, the longer we wait to build these ships, the better it is for the industry.

I mean, you have a couple of new builds on order. As far as yard capacity, what do you see now as far as ordering new ships, with delivery times, slots filling up with other -- from other from the container industry.

On the VLCCs prompt just a handful of yard that can build those ships, and are to a certain extent interested in building those ships. And they are also the same yard that can build container vessels and gas carrier.

We've seen that all the other shipping segments have seen the profitability surge in recent long-term in, particularly the container segment where more than 10% of the world fleet has been ordered in the last 5 months. That's very, very impressive.

And that means that the yards we are going to order our VLCC, Hyundai, Samsung, Daewoo, they are extremely busy. The order book is relatively low now On those vessels.

There's been a first wave of LNG carrier. The second wave is coming especially the Qataris are going ahead with the idea of building 50 option, 50 carriers, I repeat that 50 option 50, and you can understand what it does to the order book of the yard.

Let's never forget that the yard they need to retain capability of building different types of ships. If you have nothing in your order book in terms of tankers, then you're losing your knowhow and some of the workers will leave.

And so they always keep some slots available for building tankers, for building different -- the different types of ships that they're building. So saying that the order book is full for containers until 25, and therefore it's full for everybody until 25 is wrong.

But the amount of ships that you can build from, let's say, a 50, vessel capacity per year, you're probably down to 15 vessels per year kind of 50. So, I'm not saying that you're not going to see orders being placed for very late '23 and certainly '24.

But I'm saying the capacity to overbuilt the order book is very much impaired by the fact that they have received so many orders and are likely to receive many more orders from the container and the energy sector.

Right. And I guess that takes the question on the inflation of the new build cost.

I mean, at $92 million for basic deals to see. I mean, what's the profit margin now with steel prices going up?

So I would think, what's your view on pricing there?

Well, I think a 92, is gone to be honest. We are always in the yards.

We're always asking those questions. For similar spec of ships that we have announced.

Today, the price is the last one that we receive, in fact this week is 99.7. I cannot tell you what the level of profitability is at the yard.

I mean, that's probably a very well kept secret. But you're right.

I mean, the steel represents 35% of the building cost of the ship. So you can make the math that, when those 35% is going up by 20%.

Well, guess what? It's a couple more millions.

And that gets translated into the price that they can offer you.

Great. Well, thanks for answering my questions.

Thank you.

Closing remark will be thank you very much for your interest and it's always a pleasure to be on those earnings call.