Euronav NV

XBRU:EURN

Earnings Call Transcript 2021-Q1

[Operator]

Good morning, and welcome to the Euronav First Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Brian Gallagher, Head of Investor Relations. Please go ahead.

[Brian Gallagher]

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, May 6, 2021, and may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements reflect current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events, performance, underlying assumptions and other statements, which are not statements of historical facts.All forward-looking statements attributable to the company or to persons acting on its behalf are expressly qualified in their entirety by reference to the risks, uncertainties and other factors discussed in the company's filings with the SEC, which are available free of charge on 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 these 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?

[Hugo De Stoop, CEO & Member of the Management Board]

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 has 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+ production, which we hope will translate into more exuberance. This is encouraging, but our visibility on this recovery remains low.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 countercyclically at what we believe is a low point in terms of value and have 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.

[Lieve Logghe, CFO & Member of the Management Board]

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 of 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 EUR 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 commitment of $6 million for Q1. This underlying cash generation has assisted in our wider 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 source. 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, is the facility is priced in euros, not dollars, which is helpful as EUR 80 million of our costs are euro denominated. 1/3 of our funding sources are now sustainability linked, 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.

[Brian Gallagher]

Thank you, Lieve. Capital allocation has remained active with our countercyclical investments continuing with 2 Suezmax and 2 VLCC contracts that we announced during Q1. This complements the 4 VLCCs we took delivery of during this quarter and is 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 via sale and leaseback structures. Recycling this capital into 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 and additional recycling, as we have just executed during this cyclical low 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 to meet our emissions goals and targets.Turning now to Slide 9 and ensuring our capital allocation at 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 target set by the IMO for 2030. In our view, this is a realistic and achievable target. Our recycling of capital in selling 9 older vessels in the past 20 months or so and recycling that capital into 7 new vessels is a key part of our compliance, which we are looking to accelerate.Now turning to 2 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 of return to Iran 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 to see this older tonnage move to the recycle yards.Finally, from me, we returned to a theme of the OPEC barrels, which have been missing from the marketplace the last 2 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+ 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. So we leave with a tangible and encouraging sign 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.

[Hugo De Stoop, CEO & Member of the Management Board]

Thank you, Brian. So as Brian just alluded to, the scheduled tapering of OPEC+ production cuts is sufficient for us to push through a mild upgrade in our traffic lights. Provided additional prolonged COVID restrictions do not defer or delay this rise in output, then will, by OPEC, could start to reduce the surplus amount of tonnage in the large group tanker fleet. This is our first positive change in our traffic lights since Q2 last year, but it does reflect the start of a recovery process in our markets.This is likely to take some time, but we continue to remain confident in the medium-term prospect for the tanker market. And that is reflected in the fleet renewal we have engaged in not just during Q1, but also over the past 12 to 18 months.With that, I will pass back to the operator to receive questions. Thank you very much for your attention.

[Operator]

[Operator Instructions] Our first question today will come from Randy Giveans with Jefferies.

[Randall Giveans]

All right. So I guess first question around the acquisitions, right? So you bought some of the Suezmaxes, a couple of new buildings, VLCCs, LNG-ready, maybe ammonia-ready. I guess why kind of go with that route instead of participate 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 newbuilds? Or are modern second-hands more attractive?

[Brian Gallagher]

Yes. Thank you for your question. First of all, let's be very accurate. The Suezmax were resales, so you can consider them as second-hand. The fact that we grab them before they are even built 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 canceled earlier this year. So I think if you go to the yard today, the timing maybe 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 our specced, even though the yard had sort of a preconceived idea of what they wanted to build and building an LNG dual-fuel -- well, sort of dual-fuel LNG vessel will take more time. And so that's not what's probably not available, because they are busy, as you know, with many of the other sectors.Having said that, we are very happy with what we have, because it gives us maximum flexibility. And in previous calls, we have said that we were ready to build dual-fuel 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 was put out there by, respectively, Total and Shell. And the reason why we are not part of the ones -- I would say, we won that tender, because our ideas of return were different. And so it didn't meet our expectation, and we thought it was -- we were better off doing what we are doing today.As far as the future is concerned, I think Euronav 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 investors.

[Randall Giveans]

Well, yes. No, that all makes sense. 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, or 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?

[Hugo De Stoop, CEO & Member of the Management Board]

Our program of 27 dry-docks, that's almost 1/3 of the fleet, so we did already quite a lot of management around the time frame that you can do a dry-dock, which is roughly speaking, 18 months or 1.5 years. We have pulled many of those early, because we didn't have a very high expectation in '21. We have 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 -- I guess what I mean by that is you need to find the voyage that will take [indiscernible] 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 cargoes 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 circumstance around that dry-dock, including the positioning voyage, 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.

[Randall Giveans]

Got it. And then quickly on time charter appetite?

[Hugo De Stoop, CEO & Member of the Management Board]

Time charter, they are interesting, and maybe we don't advertise that too much, but we have a number of ships that are on time charter at the moment. And some of them are long-term time charter, 2, 3, 4 years. Some of them are much shorter time charter. Our policy is that we always look at what the best employment for the vessels are. The first time charter with a forward start data are concerned, 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 eco-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 in the market of what is available. You may have seen in the press that, for instance,our new building deliveries. You know that we have taken 4 ships that we acquired 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 are doing our fair share.

[Operator]

Our next question will come from Omar Nokta with Clarksons.

[Omar Mostafa Nokta, Head of Shipping Research & Analyst]

Just maybe wanted to follow-up on the newbuildings. Can you maybe just give us a sense of what the process would entail for those VLs that have the LNG- and ammonia-ready structural notation. And 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 estimates you can give on what the cost or the time line is for installation of such a system?

[Hugo De Stoop, CEO & Member of the Management Board]

On the LNG, it's probably better known, because those ships exist and you can retrofit ships already today. If they are level 1-ready, and there are 3 levels, and the higher the level the more sort of specification rather and so the low the modification would be. But if we take the most important one, which is the level 1, we're talking here about structural readiness. What do we mean by that? The tankers, the VLCC or Suezmax 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 would 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 a level 3, 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 modification, 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 that in numbers, the readiness is probably something that is in the region of $500,000 to $1 million. If you want to be ready for both LNG and ammonia, then that's probably a little bit north of 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 it 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 or 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 hazard, 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 concerns are fully measured and fully expected and therefore prepared for.But -- so again, we're talking $10 million, $15 million modification after the events. 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 are 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 0-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 a 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 the tri-fuel ship that can burn ammonia, LNG and conventional fuel. So you 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-proof, that's very important, because even if it costs a relatively high amount of capital, it's not going to be a stranded asset, and that's very, very important.

[Omar Mostafa Nokta, Head of Shipping Research & Analyst]

That's quite clear there. So just to summarize, my understanding, it sounds like it's basically $0.5 million to $1 million just to have the structural flexibility. And then post-delivery going back to install, say, an LNG system, it's $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-delivery.

[Hugo De Stoop, CEO & Member of the Management Board]

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 shipyards 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 the region of $10 million to $11 million as a surplus to your conventional vessels. So a little bit cheaper, but not that much.

[Omar Mostafa Nokta, Head of Shipping Research & Analyst]

Yes. Got it. And then just one just quick follow-up. Obviously, the ships -- and you mentioned that they're going to be significantly more advantageous eco- and carbon-friendly than the ships that they're going to replace. And just wondering, I think you made that comment in the release announcing the order regarding the -- in comparison to the ships that they'll replace. And just wanted to ask you, are you saying that these vessels as they deliver, you will be scrapping some of your older ships on, say, a one-to-one basis? Or are you just making a general comment that they're going to force out some of the older tonnage in general?

[Hugo De Stoop, CEO & Member of the Management Board]

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 8 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 he wants with it.But for us, it's no longer a liability, and it's sort of a way of protecting the residual value that we may call residual value risk. They will come at the same time as the new vessels arrive. So I was more talking about a 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 category. So definitely not eco, but also part of the fleet 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.

[Operator]

And our next question will come from Jon Chappell with Evercore.

[Jonathan B. Chappell, Senior Managing Director]

Thank you. 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?

[Brian Gallagher]

All right. It's a good question, and we want to try and sort of highlight that the capability you described that shipping has got generally, but also in the progress it's made already, but to stylize the direction we've got. Yes, there are a number of strategic things. For instance, Hugo talked about 1/3 of our fleet undergoing dry-dock this year. We spent a lot of money on research and development last year with -- it sounds a very simple thing, but just on paint. And we had a selection process, which has identified that, which we think is going to save an investment of between $300,000 and $400,000 we'll save as 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, and 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, dovetail into what Omar and Hugo had just been discussing, put an awful lot of emission pressure on the older tonnage. And of course, they'll -- if we get the IMO vote to put through EXI mix per month, and there's going to be some regulations with some royalty that will kick in '23. So a simple answer to your question, Jonathan, is yes. There are some things that we can do, but it is all about largely about the age of the fleet and the focus on the most efficient fleet, which is obviously going to be lower emitting?

[Hugo De Stoop, CEO & Member of the Management Board]

Jon, if I can just add or complement what Brian said, I mean, obviously, when we take those ships on dry-dock, we do a lot of things that goes beyond the specific survey that we are doing the dry-dock for. For the last 2 years, we have developed software and hardware. We have equipped a lot of our vessels already 2/3 of the fleet with the sensors. Those sensors are sending a lot of data. We have co-developed, with our people, 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 the consumption, and therefore, reduce the emissions.So there's a number of things that will save you 1% here, 2% there, et cetera, et cetera. 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 call 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 are running a very small fleet 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 are going to paint 27 vessels, the discount that you can get from the supplier is quite significant.

[Jonathan B. Chappell, Senior Managing Director]

Understood. I don't -- for my follow-up, I don't want to get too deep in the weeds here, so bear with me for 1 second. But when you do a sale and leaseback, how does that reflect 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 it raises your breakeven, just kind of an odd transaction when you're sitting with over $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.

[Hugo De Stoop, CEO & Member of the Management Board]

No, it doesn't help on emissions. 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 fleet. 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 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 4 probably in '23.So that's very much the reason why we do those sale and leasebacks. 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's no purchase obligation, so there is a little bit more risk on the counter-parties side means that it's still good value for us, taking into account everything that I just mentioned.

[Operator]

And our next question will come from Greg Lewis with BTIG.

[Gregory Robert Lewis, MD and Energy & Shipping Analyst]

I had a couple. I wanted to dig in a little bit around ton miles and then volumes. It seems like, at least it was reported last -- in late April that U.S. crude exports really accelerated. I mean realizing the market is pretty loose, did you -- was there any impact in that increase in U.S. crude volumes in terms of activity around the Gulf of Mexico?

[Hugo De Stoop, CEO & Member of the Management Board]

So yes, we saw an acceleration of U.S. crude exports. Problem that we have or what we see is that there's really no stability in 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, with quite a lot of geopolitical events driving the export of one country versus another country, and here, I'm alluding to going to China, which is the longest voyage, the better ton miles. But of course, if our Chinese friends decide 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 the 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 miles versus the shorter ton miles. Because let's never forget that there is a quality difference. There are lighter barrels. There are heavier barrels. And what is happening right now may not be optimal for the refineries that are buying those barrels.

[Gregory Robert Lewis, MD and Energy & Shipping Analyst]

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 the Iranian volumes, there are vessels that are moving the Venezuela mines. I imagine, at least 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?

[Hugo De Stoop, CEO & Member of the Management Board]

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

[Brian Gallagher]

Yes. I mean, Greg, we touched a bit on Slide 10 in the numbers from Gibson Shipbrokers rather telling us that there's up to 54 VLCCs in the Iranian trade that they've monitored over the last 13 months and 20 from the Suezmax fleet. So you're looking at, including the Venezuela trade, about 8% of the VLCCs and 5% of the Suezmax. Some of the excellent work we've seen from Lloyd's List as well in terms of the analysis and monitoring of ships and of engaging 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 a Iran back into the world fold, then these ships don't have any natural advantage. Most of them, if not all, have very little insurance coverage or Class Society ratings, [indiscernible]. So I think it's a natural assumption, given the high scrap price as well, that they're clearly engaged in the lucrative trade today, which will disappear tomorrow if Iran is pulled back into fold. And we would expect them, I think, as most commentators would, to see them disappear.But they're not technically working, if you like, on a like-for-like basis against us at the moment. So there would be -- going to be a lag of faith. But it is something that's surprising to us as well that the sanctions that have been in place for a long time have not really been [indiscernible] or effectively controlled as we would have expected. So it is disappointing that this is actually sort of developed.

[Gregory Robert Lewis, MD and Energy & Shipping Analyst]

Okay. And just to -- just to clarify, these are not Iranian NITC-owned vessels.

[Brian Gallagher]

No. No.

[Gregory Robert Lewis, MD and Energy & Shipping Analyst]

Okay. Okay. Do these...

[Brian Gallagher]

A huge amount of ships, which have gone into private hands over -- since the start of 2019, these are largely those. I mean there's some reputable owners who've sold them to owners expecting to go to the scrapyard themselves maybe after a couple of trades. And they 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.

[Operator]

And our next question will come from Amit Mehrotra with Deutsche Bank.

[Kevin Vladimir Uherek, Research Associate]

This is Kevin on for Amit. I just had 2 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 25,000 to 30,000 level? And there's obviously like a recovery occurring in demand. Supply will also improve. But when do you think the market will really come into balance?

[Hugo De Stoop, CEO & Member of the Management Board]

I was going to ask you the same question. I was hoping you were going to give me the answer. I think that -- at Euronav, we have built almost a reputation for not being foolish. I think that this market is extremely difficult to call. You have a number of pieces that need to fall into place before you see an improvement in market. We're 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 demand. 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, then 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 it going to happen, that's very difficult to tell you.

[Kevin Vladimir Uherek, Research Associate]

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

[Hugo De Stoop, CEO & Member of the Management Board]

We're not seeing distressed situation, that's for sure. I mean let's not forget that we are just a few months after one of the best year shipping or tanker shipping has ever gone through. So you cannot go from that situation to distressed situation over a few months. I think that 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, et cetera. And we, together with other people, have picked up pretty much everything that was there to pick up in the market. And so you've seen those transactions or market being relatively transparent.Some people who are not distressed are interested in selling their vessels, simply because when they look at the time they bought them, what they've earned in operating them and what the prospects are and this unknown factor of when is it 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 bid offer spreads on many of those assets.

[Operator]

And our next question will come from Mike Webber with Webber Research.

[Michael Webber, Managing Partner]

Actually if you go -- the last question was a good segue. I wanted to loop back to some of the economics around the dual-fuel ships in the general economic case. You mentioned, I think, even in your deck and just in your previous answer that we've obviously seen some asset inflation ahead of what would be supported by cash flow. And it certainly seems like the market has turned a corner into a different paradigm when it comes to commodity inflation in general.So I'm just curious, as you think about that economic decision to either order or step into second-hand, dual-fuel ships, how does that -- the 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 there's a higher degree of wall, I guess, associated with the underlying fuel. So just curious, from a dynamic perspective, I guess, is it helping or hurting the economic case for those dual-fuel ships as it stands today?

[Hugo De Stoop, CEO & Member of the Management Board]

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 it seems that there is no limit on the increase. And that's what you see also on scrap values. But definitely, when we speak to the yard, they are saying that the way we're selling them, the steel has increased the price month-on-month. When is it going to stop to a certain extent, I want to give the floor to leave Lieve, because she is coming from the steel industry. And I think all sources are telling you that at some point, capacity is coming back.

[Lieve Logghe, CFO & Member of the Management Board]

Yes, indeed. We see that indeed the steel market is mainly now affected by indeed capacity increasing, but not fast enough for filling the demand and has this friction in this high pricing environment for steel, we've seen our steel price as high as 2008. So very, very high. Normally, the turning point should come.

[Hugo De Stoop, CEO & Member of the Management Board]

Because more capacity is going to come online.

[Lieve Logghe, CFO & Member of the Management Board]

Absolutely.

[Hugo De Stoop, CEO & Member of the Management Board]

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. The other element -- 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 oil at the moment. But that's -- I mean, they're not taking into account the price of the delivered LNG on both the vessels. Because LNG is a gap and -- but it's a liquid, it needs to be refrigerated. And obviously, those bunker barge are far more expensive.The price that we see is 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, a 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'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're probably going to be affected by it in '23. Whether it will be limited to Europe or what it will be for all ships in 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 a 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 slips. 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 answer your 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.

[Michael Webber, Managing Partner]

Yes. I guess the premise is, is you get the immediate vessel reaction and inflation in the ship price, but the forward curves are a little bit slower to react. So near term, there's a bit of a headwind on those economics. But to your point -- and you've got the opportunity you kind of -- you've built in the optionality for yourself to pick and choose your timing for that. I had a curiosity, do you have a sense yet of that -- the kit required and that conversion process, for lack of a better term? You think it's more or less commodity-driven, more sensitive than the underlying ship itself? Is it 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 2 from now relative to a ship?

[Hugo De Stoop, CEO & Member of the Management Board]

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 fuel oil, then you have LNG and probably ammonia at the same time, the margin 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 TCE will be different. So it's very complex, and that's also why not paying people there to dip their tools into the newbuilding market, because they don't know what to buy.

[Operator]

Our next question will come from Ben Nolan with Stifel.

[Frank Galanti, Associate]

This is Frank Galanti on for Ben. I wanted to follow-up on our reaching lower emission targets. How much can a vessel's sailing 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, can those vessels simply go slower to meet IMO 2030?

[Hugo De Stoop, CEO & Member of the Management Board]

So yes, I mean, speed has 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 a 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 currents, it depends on the weather, the winds 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 at that -- 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 Laycan. The Laycan 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 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 it's very close to what I would call a just-in-time industry. So it wants that cargo to arrive within a certain window. It 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 ships that go at a normal speed and all the ships that go at a slower speed, because the just-in-time doesn't work like that. I hope it was clear.

[Frank Galanti, Associate]

Yes, definitely. That's a good perspective. And I guess my second question, I wanted to ask about the FSOs. There was news out yesterday, International Seaways was potentially interested in divesting its stake in the JV. Is that the other half of the contract something Euronav would be interested in buying? And then, I guess, longer term on the FSO business, are there other opportunities to grow outside those 2 vessels?

[Hugo De Stoop, CEO & Member of the Management Board]

Yes. Before I answer those 2 questions, I will first tell you [indiscernible] that I'm not going to mind INSW business. But when you are in a merger, I guarantee you, because we've been there with Gener8, I guarantee you that there will be a lot of conversation around the true value of those FSOs. And I think that the market underestimates those values. Even on a 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 shareholders get that benefit. And obviously, that window stops when the merger is completed.And so we had exactly the same mechanism when we did the merger with Gener8. If we had sold those vessels to any party at that time and we would have realized a gain that is far in excess of the book value, then we would have distributed a special dividend and we would have been authorized to that. So I think that 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 maybe not INSW opinion.Now talking about that, are we interested in buying our partner out, if they give us a discount, we are always interested in good deals. But frankly speaking, I think we are very happy with the partner. And I think both of us have very, very similar ideas around value. So there's not really much we can gain from buying them out. And if we do something, it'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. And 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.

[Frank Galanti, Associate]

And our next question will come from Chris Wetherbee with Citigroup.

[Christian F. Wetherbee, MD & Lead Analyst]

I guess I wanted to ask a conceptual question around the financing capacity for yourself specifically at Euronav, but maybe 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 at Euronav, your net debt-to-EBITDA is on the elevated side as it stands right now. So I know you have liquidity here. I'm kind of curious how you think 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.

[Hugo De Stoop, CEO & Member of the Management Board]

Yes. I may not answer your question already. I will say this. Your net debt to EBITDA is not something that we use in our sector, because the EBITDA is too volatile. And so if you look at the net debt-to-EBITDA based on one 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 through a cycle, and that's a little bit 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 the 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, which we're a part of. And I think that's a little bit the challenge.And what we're seeing now, and as Lieve said in her comments prior to the questions, it's obvious that at least you need to have the proceed on principle as close 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 there's so many people that are sort of trying to translate The Paris Agreement into a different set of KPI.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 of our vessels are eco-type and the ones that are not are going to leave the fleet and probably leave the world feed before we reach 2030.We're also thinking about beyond 2030, as we commented earlier. And we're buying type of assets that can be retrofit, can be transformed into something that does not emit anything. And I think that, 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 3 elements were very important, even before the terminology was created, like -- I mean the ESG technology was created.So we feel relatively comfortable where we are. And when we look at the future, we feel that this represents a competitive advantage that we're certainly going to play out in our efforts to grow the company and consolidate the market.

[Christian F. Wetherbee, MD & Lead Analyst]

Okay. Okay. That's a really good answer. I appreciate that insight. And I guess when you think -- just taking that a step further and think 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 the fleet for players who are not in the same position as you are from an eco perspective and sort of progressing an emissions perspective and just sort of generally an ESG perspective?Do you think that will become a -- 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?

[Hugo De Stoop, CEO & Member of the Management Board]

First of all, I certainly hope so. And it's true that we've been talking about it in the past decade, and we have seen it, but on the margin, you're absolutely right. I think that there would 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 their 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 have 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, 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 industry such as the tanker shipping.

[Operator]

And our next question will come from Magnus Fyhr here with H.C. Wainwright.

[Magnus Sven Fyhr, Managing Director]

A 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, they need to start replacing some of these older VLCCs. And I guess there are about 400 VLCCs built before 2010. When you're talking to the oil companies -- I mean 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?

[Hugo De Stoop, CEO & Member of the Management Board]

I think the trend is on. And this year, [ 270 ] started mid of last year. You have seen those companies moving into awarding contracts for which the term, i.e., 6, 7, 8 years is quite impressive, because we hadn't seen that -- those type of contracts for a very long time. And 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 oil majors are certainly -- 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, a majority who are much more focused on the emissions themselves and are sort of fuel-neutral from their perspective, i.e., they're not producer of LNG and are really awaiting what the potential of ammonia can give. And I think once the first ships that are dual-fuel ammonia 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 period of time.That will obviously depend on the pricing or the pricing difference between ammonia and LNG, ammonia and fuel oil, LNG and fuel oil. 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 type of carbon tax and different type of mechanism to equalize the price of those different fuels.

[Magnus Sven Fyhr, Managing Director]

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 newbuilds on order. As far as yard capacity, what do you see now as far as ordering new ships with delivery time slots filling up with other -- from other -- from the container industry?

[Hugo De Stoop, CEO & Member of the Management Board]

Yes. On the VLCC front, there are just a handful of yards that can build those ships and are to a certain extent interested in building those ships. And they are also the same yards that can build container vessels and gas carriers. We've seen that all the other shipping segments have seen their profitability surge in recent months, I mean, 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, to order our VLCC, Hyundai, Samsung, Daewoo, they are extremely busy. The order book is relatively long now on those vessels.There's been a first wave of LNG carrier. The second wave is coming, especially if the Qataris are going ahead with their 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 yards, they need to retain capability of building different type of ships. If you have nothing in your order book in terms of tankers, then you're losing your know-how and some of the workers will leave. And so they always keep some slots available for building tankers, for building the different type 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 instead 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 overbuild 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 LNG sector.

[Magnus Sven Fyhr, Managing Director]

Right. And I guess that takes the question on the inflation of newbuild cost. I mean at $92 million for a basic VLCC, I mean, what's the profit margin now with steel prices going up? So I would think what's your view on pricing there?

[Hugo De Stoop, CEO & Member of the Management Board]

Well, I think $92 million is gone, to be honest. We are always in the yards. We're always asking those questions. For a similar spec of ships that we have announced, today the price is -- the last one that we received, in fact, this week is $99.7 million. 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 a ship. So you can make the math that when those 35% is going up by 20%, well, guess what, it's a couple of more millions. And that gets translated into the price that they can offer you.

[Operator]

And this does conclude our question-and-answer session. I'd like to turn the conference back over to the management team for any closing remarks.

[Hugo De Stoop, CEO & Member of the Management Board]

Closing remark will be, thank you very much for your interest. I mean it's always a pleasure to be on those earnings calls.

[Operator]

And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.