Euronav NV reported its non-audited financial results for the third quarter ended 30 September 2023.

Lieve Logghe, CFO and CEO ad interim of Euronav said: “The third quarter exhibited a relatively typical trading pattern as the tanker markets adapted to the extra OPEC production and export reductions, along with indications of a slight decline in crude oil demand. The Euronav platform was expanded with a key time charter and two more VLCC new build contracts. After many months of uncertainty, a transaction between our two reference shareholders was agreed. We believe this will leverage the value that Euronav and its people have created through many years of hard work. It represents a balanced outcome for shareholders, who now have the choice between realizing that value in cash or following Euronav in a new strategic direction under a new controlling shareholder.”

For the third quarter of 2023, the Company realized a net gain of USD 114.6 million or USD 0.57 per share (third quarter 2022: a net gain of 16.4 USD million or USD 0.08 per share). Proportionate EBITDA (a non-IFRS measure) for the same period was USD 209.6 million (third quarter 2022: USD 99.6 million).

TCE
The average daily time charter equivalent rates (TCE, a non IFRS-measure) can be summarized as follows:

EURONAV TANKER FLEET DEVELOPMENTS

Two-year time charter with blue chip partner
On 7 September 2023 – Euronav announced it had signed a two-year time charter with a blue-chip partner for the VLCC Donoussa (2016 dwt – 299.999). This contract will generate approximately USD 24 million in cash for Euronav over the duration of the contract.

Purchase option VLCC Nectar lifted
Euronav NV has decided to lift its purchase option on VLCC Nectar (2008 – 307,284 dwt), crystallizing a potential capital gain by taking back full ownership of the vessel and creating as such additional capacity for the ongoing tanker cycle. The vessel was returned to Euronav ownership as of 27 September 2023.

Fleet expansion – one new VLCC ordered and option for additional VLCC exercised

On 16 August 2023, Euronav revealed an agreement to purchase one new build VLCC. The purchase will cost USD 112.2 million with highly favorable payment terms and schedule. The vessel is expected to be delivered in Q3 2026.

On 9 October 2023, Euronav lifted an option at the same Chinese shipyard for another new build VLCC for the same purchase price, with delivery anticipated also in Q3 2026.

Update – Newbuilding delivery schedule
The outstanding capital expenditure for the four Suezmaxes and two VLCC’s currently under construction at the end of Q3 2023 was USD 394.2 million, of which USD 55.6 million is still due in 2023 (2024: USD 136.6 million; 2025: USD 67.2 million; 2026: USD 134.6 million).

OTHER CORPORATE DEVELOPMENTS
On 19 October 2023, the UK Supreme court refused to grant Unicredit permission to appeal against a judgement in favour of Euronav over an alleged misdelivery claim concerning MT Sienna (2007 – 150,205 dwt). The claim is now concluded in full.

TANKER MARKET & OUTLOOK
Seasonal factors that have often been absent in large crude tanker markets re-asserted their influence during Q3 2023, with freight rates falling modestly throughout the quarter. VLCC rates moved from low USD 40k per day to low/mid USD 30k per day by quarter end, while Suezmax rates followed a steeper trajectory from high USD 30k per day to P&L breakeven levels in low/mid USD 20k per day.

Four factors drove this trading pattern (1) reduced activity as quarter progressed from refinery sector as maintenance programmes kicked in (2) inventory drawdown continued as oil prices rose in response to (3) additional OPEC+ production/export cuts augmented by Saudi Arabia and (4) some demand softening as global GDP growth succumbs to global interest rate rises over the past 18 months.

The first three factors above are likely to reverse at some point in the coming quarters with demand concerns assuaged by agencies such as IEA still forecasting more than 1m bpd consumption growth for 2024.

Crude oil demand & supply
Saudi Arabia’s surprise commitment to firstly extend on a monthly basis their 1m bpd production/export cut, and then increase this to calendar year-end, helped to push oil prices toward USD 100 per barrel toward the end of Q3 which was likely a factor in curbing demand forecasts. The IEA reduced its 2023 global demand forecast growth from 2.3 million bpd to 2 million bpd during Q3.

Vessel Supply
During Q2, commentary focused on the uptick in Suezmax contracting with 15 orders in total moving the orderbook-to-fleet ratio higher. This trend continued during Q3 with a further 12 Suezmax contracts and the VLCC sector joining the trend with 12 new build contracts of its own. This brings the orderbook-to-fleet ratio to 8.3% for Suezmax vessels and 2.3% for the VLCC sector.

VLCC market has improved due to increased frequency of loadings from higher USA crude production leading to increased utilisation and ton miles for VLCC segment over others. Greater berth availability, lower ticket price and higher optionality for Suezmax vessels (post Russia-Ukraine dislocation on trade lanes) are key factors driving higher sector contracting. However, ordering has continued to originate from highly reputable and disciplined owners with large established fleets as part of fleet renewal programmes. Delivery dates remain long (over 30 months) and orderbook-to-fleet ratios remain low by historical standards with VLCC at 2.3% and Suezmax at 8.3% (versus a 19.2% average for VLCCs and 21.3% for Suezmaxes since 1990 – according to Clarksons).

Unsurprisingly, there was no recycling of Suezmax or VLCC vessels for a third consecutive quarter given such buoyant freight rates, low orderbook and limited vessel supply over the next 12-18 months.

Some evidence is emerging of softer prices in more mature VLCC assets based on Clarksons data. Whilst new build VLCC prices rose to USD 128 million from June to October 2023 (USD 126 million) 5-, 10- and 15- year prices were down 2.0%, 1.3% and 3.4% respectively over the same period. Suezmax asset prices held firm over the same period and were unchanged across all vintages.

Freight rates – reverting to the mean but remaining profitable
Freight rates reverted to their traditional seasonal patterns during Q3, buffeted by initial OPEC+ production and export cuts being increased unilaterally in size and duration by Saudi Arabia. Along with concerns over underlying demand for crude and further global inventory drawdowns, these factors provided sustained headwinds the large crude tanker market during Q3.

Freight rates for both VLCC and Suezmax consequently drifted lower through the quarter but some context is needed. The quarterly spot rates of USD 42.2k per day for VLCC and USD 42.8k per day for Suezmax delivered compare favourably with the averages since 1990. VLCC rates for Q3 2023 were in the 26th percentile since 1990 and Suezmax in the 23rd percentile for the period. VLCC spot rates since 1990 averaged USD 30.5k per day for Q3 with Suezmax at USD 23.6k per day for Q3.

So far in the fourth quarter, Euronav VLCCs in the Tankers International Pool have earned USD 34k per day with 49% of the available days fixed. Euronav’s Suezmax fleet trading on the spot market has earned USD 34k per day on average with 52% of the available days fixed. However, since last week both Suezmax as well as VLCC’s are enjoying a strong rally as charterers rush to secure supply head of any widening MEG conflict.

Source: EURONAV