NORDEA SHIPPING CONFERENCE INVESTOR PRESENTATION

Transcription

1 NORDEA SHIPPING CONFERENCE INVESTOR PRESENTATION DECEMBER 218

2 EURONAV WHO WE ARE The world s largest, independent quoted crude tanker platform 75 VESSELS* International company internationally connected 2 FSO 3 million barrels Stripped water capacity 2 V-Plus 3 million barrels Only 2 in world fleet Fleet summary o Leading provider of transportation and storage of crude oil 43 VLCC 2 million barrels 26 Suezmax 1 million barrels Fixed 21% Spot 79% o Hybrid operating platform with mix of integrated & outsourced ship managers 19% 15% 15% o Strong relationships to oil majors and leading energy firms 35% Av Age 6.1 Yrs 47% 35% Av Age 9.7 Yrs 35% 3,9 EMPLOYEES o Market capitalization of USD ~1.9 billion Approx. 3, 72 seafarers of many different nationalities Approx. 18 shore employees *including 2 panamax vessels 2

3 Actively managed high quality fleet EURONAV STRATEGY LIQUIDITY FOCUS Liquidity in the Euronav share Balance sheet liquidity end Sept 218 $677m Free Float $ Market Cap () Daily Value traded $m per day last 12 months $m $152m Cash $525m Undrawn Secured Revolver $m Undrawn Unecured Credit Line $m FSO Financing $677m Total Strong balance sheet hedge against cyclicality o Tanker business is cyclical, towards which the only cure is to have a strong balance sheet and liquidity pool + no outstanding capex Euronav DHT Frontline INSW o Policy to retain at least two years of operational liquidity at all times and maintain strong banking relationships Source: Bloomberg

4 TANKER MARKET STRUCTURE Seasonal Cyclical Few customers, lots of suppliers 55, 1, 5, Average monthly VLCC rate ,777 9, 8, Monthly TCE rate Traders 45, 43,198 44,969 7, 6, Oil Companies Refiners 4, 35, 39,614 37,161 36,82 34,942 35,12 35,783 5, 4, 3, Ship Broker 3, 32,318 28,823 3,293 2, 1, Pool owner 25, owner owner owner owner Source: Clarksons 4

5 FSO 5 year contract to 222 OPERATIONALLY GEARED Each $5, uplift in both VLCC and Suezmax rates improves net revenue and EBITDA by $112mm $1,232 Long term TC 7 year contract to 224 $336 $56 + BASE $112 +$5, per day +$15, per day +$25, per day +$55, per day Commercial TC relationships VLCC TCE rates $25, $3, $4, $5, $8, Suezmax TCE rates $2, $25, $35, $45, $75, 5

6 EURONAV DISCLIPLINED CAPITAL MANAGEMENT 1 MAINTAIN STRONG BALANCE SHEET LEVERAGE AROUND 5% & LIQUIDITY RUNWAY FOR TWO YEARS 2 NON- DISCRETIONARY MAINTENANCE CAPEX $3M MAINTENANCE CAPEX ON DRY DOCK + REGULATORY CAPEX eg ballast water systems DIVIDEND FIXED DIVIDEND USD 12c PER YEAR COVERED BY FIXED INCOME PAID 5% IN MAY & SEPT 3 DISCRETIONARY GROWTH CAPEX ACQUISITIONS CASH RETURNS MUST MEET THREE KEY CRITERIA 1 PRO FORMA LEVERAGE <5% 2 MAINTAIN 2 YEAR LIQUIDITY RUNWAY 3 MAINTAIN/ADD PRO-FORMA BREAK EVEN ADDITIONAL DIVIDEND OR SHARE BUY BACKS 6

7 COUNTER CYCLICAL INVESTING 12, Maersk Gener8 19 1, 14 8, 99 VLCC rates $ per day 6, 94 New build VLCC $m 4, 89 2, VLCC rates New Build VLCC $m Source: Clarksons 7

8 STRONG PRO FORMA FINANCIALS Repayment schedule and RCF reductions Highlights Leverage Millions Bond Maturity Undrawn balloon to be refinanced Balloon to be refinanced Repayments o Credit margins between 1.225% and 2.25% (Bond 7.5%) o Most of the secured bank debt is revolving o Strong relationships with the leading international shipping banks o No material debt maturities until 22 o Revolving credit facilities reduce by $138m/year o Cash debt amortizations on term loans: $55m/year Strong & supporting banking relations Reductions (noncash) 8

9 INDUSTRY AND MARKET OVERVIEW

10 OUTLOOK FOR 219 IMPROVING BUT WITH SOME HEADWINDS Oil Demand Robust for Winter 218/19 IEA forecast 1.4 mbpd Supply of Oil OPEC cuts offset by: Iranian sanctions biting Q1 19 Increased US output/export Ton Miles USA export growth is sustainable New routes from IMO disruption to start in 19 Vessel Supply Recycling taken 48 VLCC equivalents from fleet Sustained delivery in 19 is a headown Financing & Regulation Finance remains restricted Interest rates rising a barrier to new orders 1

11 IEA m bpd global oil demand DEMAND FOR OIL ROBUST AND STEADY Y/Y Change in global demand for oil consistently growing Average 1.1 million barrels per day Annual demand growth (mbpd) VLCC Equivalents IEA Source IEA 11

12 OIL PRICE IMPACT ON DEMAND Oil price outlook 12 Oil supply increase coming 219+ USD per barrel Price is too high/demand is impacted Demand Destructive Neutral Demand Stimulating < 1.1m bpd = 1.1m bpd > 1.1m bpd 2 Price is too low/long-term supply impacted/capex cuts in E&P jan-21 jul-21 jan-211 jul-211 jan-212 jul-212 jan-213 jul-213 jan-214 jul-214 jan-215 jul-215 jan-216 jul-216 jan-217 jul-217 jan-218 jul-218 jan-219 jul-219 jan-22 jul-22 jan-221 jul-221 jan-222 jul-222 jan-223 jul-223 jan-224 jul-224 jan-225 jul-225 jan-226 jul-226 Demand Disruptive Source: Bloomberg 12

13 DEMAND FOR OIL ENCOUNTERING SOME HEADWINDS Demand forecasts for 18/19 slipping Purchasing power of EM nations reduced 1.8 India China Brazil Brent Price M bpd consensus demand growth Brent price rebased in local currency Jan 21 = Source: IEA, EIA, OPEC Source: Bloomberg 13

14 SUPPLY OF OIL TO REMAIN ROBUST KEY 4 > THE FRAGILE FIVE USA Canada Brazil Russia Iraq Iran Libya Nigeria Venezuela M bpd crude oil supply N bpd crude oil supply Source: Citi 14

15 TON MILES - INCREASING Demand growth all from Far East key for tankers is where supply is sourced from Atlantic Basin Far East route Middle East - Asia Pacific route Annual demand growth VLCC equivalents 1.4 mbpd x 365 days = 511m barrels 511m barrels / 2m capacity per VLCC = 256 cargoes 256 cargoes / 4.5 annual journeys for VLCC Atlantic F East = 57 VLCCs 1.4 mbpd x 365 days = 511m barrels 511m barrels / 2m capacity per VLCC = 256 cargoes 256 cargoes / 9 annual journeys for VLCC MEG F East = 28 VLCCs (mbpd) US/LatAm / Caribs West Africa 57 VLCCs Middle East 28 VLCCs China Asia Pacific Exporter Demand Supply Importer Demand Supply Source Euronav, Morgan Stanley, Fearnley West of Suez will provide 81% of new oil production to 223 East of Suez will provide 81% of new oil consumption & 74% new refinery capacity to

16 TON MILES GROWTH UNDERPINNED BY US EXPORTS DESPITE S/T BOTTLENECKS US crude export capacity growing US refiners sophisticated no need for US shale 8 7 CC Brownsville Greater Houston St James NO LOOP Nederland 12 1 The Nelson Complexity Index is a measure of the sophistication of an oil refinery, where more complex refineries are able to produce lighter, more heavily refined and valuable products from a barrel of oil. US crude export capacity mbpd Nelson Complexity of refiners Source: ABG Sundal Source: ABG Sundal 16

17 VESSEL SUPPLY - CONTRACTING DRIVEN BY INDUSTRIAL REPLACEMENT/ CHEAP PRICES VLCC below $8m attracted buyers Expansion Replacement Speculative/Scrubber New build VLCC No of VLCC contracted Price of new build VLCC 2 8 Sep 16 Mar 17 Sep 17 Mar 18 Sep Source: Clarksons 17

18 VESSEL SUPPLY IS A SUPPLY HEADWIND FOR VLCC No of VLCC deliveries per quarter Source Clarksons 18

19 VESSEL SUPPLY - EXTRA SUPPLY OF SHIPS POST BACKWARDATION Logistical Iran Market contango No of VLCCs in floating storage Contango/Backwardation $/pbbl/mth Contango /Backwardation -4 Source Clarksons 19

20 RECYCLING REFLECTS STEEL PRICE AND REGULATORY PRESSURE Older tonnage comes under increasing pressure Owners dilemma Increased opex from IMO22 Volatile steel/scrap price Lower cash earnings for older vessels Ballast water capex $1.5m from Sept 19 Source Euronav 2

21 RECYCLING REFLECTS MORE MATURE VLCC FLEET Average age recycling at 2.6 years of age av age demolition average average age vlcc fleet Recycling driven by steel prices in the main VLCC Demolition VLCC Scrap Value VLCC 15 year old 5 1 Average age of VLCC recycled Average Age of VLCC in global fleet Value of VLCC $m No of VLCC recycled Source: Clarksons Source: Clarksons 21

22 PIPELINE FOR MORE RECYCLING IS BUILDING Average fleet age suggests 2-3% recycling rate Recycling pipeline for 219 corroborates rate VLCC Fleet - Average Age % of VLCC fleet recycled % 8 74 Average age of VLCC fleet % 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% % of VLCC fleet recycled No of VLCC facing survey before end of % = 8 VLCC 5% = 7 VLCC 3% = 7 VLCC VLCC Source: Clarksons Source: Clarksons 22

23 FINANCIALS & REGULATION STRUCTURAL CHANGE $m lending to shipping by banks Global end of the year loan shipping portfolio Around USD 14bn withdrawn from shipping sector since Europe US Far East & Australasia Source Petrofin o Banks under increasing commercial & regulatory pressure o Regulations starting to bite Basel 4 in particular Ballast Water Treatment systems o From Sept 219, to be installed upon the next Dry Dock (5 yr) Euronav Fleet: 21 VLCC BWTS ready 8 Suezmax BWTS ready 23

24 HEADWINDS TO TAILWINDS FOR TANKER SECTOR

25 STRONG FLEET GROWTH FROM 215 NOW SLOWING/NEGATIVE No of VLCC in global fleet No of Suezmax tankers in global fleet (inc shuttle) VLCC Fleet Development Suezmax Tanker Fleet Development Source Clarksons 25

26 HEADWINDS TO TAILWINDS INVENTORY DRAWDOWN NEAR END 1, 2.5 Average VLCC earnings 9, 8, 7, 6, 5, 4, 3, 2, 1, Global implied oil stock change Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q Global implied oil stock change VLCC average earnings by Quarter Source Clarksons Fearnley 26

27 HEADWINDS TO TAILWINDS CORRELATION BETWEEN OPEC & FREIGHT RATES 12, 3, 2,5 VLCC freight rates per day $ 1, 8, 6, 4, 2, 2, 1,5 1, , -1,5 Change in OPEC production ( bpd) , y/y growth in OPEC production Average VLCC earnings Source Clarksons, Bloomberg 27

28 HISTORY DOESN T REPEAT BUT OFTEN RHYMES 6, 5, VLCC earnings per day 4, 3, 2, 1, Jan Jan Feb Feb Mar Mar Mar Apr Apr May May June June July July Aug Aug Aug Sept Sept Oct Oct Nov Nov Dec Dec 213 VLCC earnings 218 VLCC earnings Source Fearnleys, Bloomberg 28

29 CURRENT ISSUES

30 ISSUE #1 US CHINA TRADE TENSIONS US crude flows to China and other Asian states Aug-17 m barrels Aug-18 m barrels m barrels China Japan India Taiwan S Korea Source US census bureau 3

31 ISSUE #2 219 VESSEL SUPPLY HEADWIND PLUS OPEC PRODUCTION CUTS 3 VLCC equivalent delivery schedule VLCC due for delivery Suezmax due for delivery* 5 Q1 219 Q2 219 Q3 219 Q4 219 * Expressed as VLCC equivalent Source Clarksons 31

32 ISSUE #2 CAN TANKER MARKET ABSORB INCREASED VESSEL SUPPLY + OPEC CUTS? Potentially yes given Iran, US export growth and impact IMO No of VLCC equivalent for VLCC equivalent to be delivered 21 PLUS OPEC 1.2m bpd cut takes out 37 VLCC Demand from 1.4m bpd Iranian VLCC taken out of market US exports additional 5k bpd IMO 22 Retrofitting and tank cleaning Recycling 32

33 ISSUE #3 IRAN = POSITIVE BOOST FOR TANKER MARKET Iran Crude and Condensate Exports 35 3 ROW NW Europe Euro Med South Korea Japan India China 25 bpd 2 15 Change in demand equal to 25 VLCCs Source Woodmac, Euronav 33

34 OUTLOOK FOR 219 IMPROVING BUT WITH SOME HEADWINDS Oil Demand Robust for Winter 218/19 IEA forecast 1.4 mbpd Supply of Oil OPEC cuts offset by: Iranian sanctions biting Q1 19 Increased US output/export Ton Miles USA export growth is sustainable New routes from IMO disruption to start in 19 Vessel Supply Recycling taken 48 VLCC equivalents from fleet Sustained delivery in 19 is a headown Financing & Regulation Finance remains restricted Interest rates rising a barrier to new orders 34

35 EURONAV IMO 22 FRAMEWORK

36 MORE CRUDE RUNS & TRADING ROUTES More throughput to make compliant fuel New trading routes driven by sulphur content Crude throughput with IMO Without IMO m bpd Potential additional VLCC required Source HSBC Crude Quality (API) x < 25 HEAVY 25.1 < x x < x < < x LIGHT Potential additional trade mbpd 36 Source Braemar, Euronav

37 STORAGE OPPORTUNITIES & LOGISTICS Volumes Bear Case Bull Case MARKET SIZE IMO 22 HSFO Conversion Volumes MITIGATING FACTORS Estimated Non Compliance/Scrubber Penetration HSFO Volumes to be replaced HSFO REPLACEMENT Higher coking capacity, higher light sweet crude runs etc Remaining non compliant volumes.1.8 Mid Point.5 STORAGE Estimated Global HSFO storage 94. AVAILABILITY Current HSFO Inventory 64. Remaining Land based HSFO Storage 3. Time it would take to fill land based storage 62days VLCCs Absorbed per Quarter until market clears 23 Source: Wells Fargo, IMO, UNCTAD, Company Filings o Logistics at Port should not be overlooked will be more artificial employment o Segregation of the barrel will need to be replicated through infrastructure o Likely congestion & delays thus reducing tanker fleet capacity 37

38 1. UPFRONT CAPITAL OUTLAY WITH LIMITED VISIBILITY OF RETURN Scrubber framework 38

39 2. ECONOMICS FOR SCRUBBERS NOT CERTAIN AT THIS STAGE Scrubber framework Port ban uncertainty growing Fuel spread Sulphur content MGO.1% Angola Libya WTI #2 #1+ Full capture of fuel spread challenging Traders, Oil Co, Refiners Tanker owners Compliant fuel.5% HFO 3.5% Compliant fuel pool High sulphur fuel pool>3.5% post 22 North Sea Mexico Brazil Saudi Kuwait Venezuela 39 Uncertainty over fuel price spread

40 3. OTHER ECONOMIC FACTORS DRIVE AGAINST ANALYSIS SO FAR Scrubber framework Scrubber rational focus on one chart Analysis ignores refinery incentive to reduce HSFO IMO 22 shakes up the barrel by sulphur content Source: Citi, Bernstein Source: RBC Crude Quality (API) x < 25 HEAVY 25.1 < x x < x < < x LIGHT 4

41 4. ENVIRONMENTAL, TECHNICAL & REGULATORY RISKS FROM SCRUBBERS Scrubber framework Impact on Environment Operational - More shipping CO2 emissions from higher power required - Reduced buffering capacity of sea from increased sulphur - Cumulative sulphur impact in sea unclear eg congested areas - Unknown safety risks but known corrosion risk - Retrofit installation complexity & unproven use on VLCC/Suez - 3, m 3 daily wastewater from a VLCC = 12 Olympic pools Scrutiny - Wastewater never properly assessed - Lack of performance standards for scrubber technology at sea - Post retrofit of scrubber liability shifts to ship-owner Regulatory & Enforcement - Risk of future port or flag state action eg Singapore - No guidelines on technology failure or enforcement regime - Uncertain CSR application by investors, banks of customers 41

42 APPENDIX

43 APPENDIX - ORDERBOOK MANAGEABLE IN SIZE TERMS. 6 5 Orderbook as % of fleet % 9% VLCC Orderbook % Fleet Suezmax Orderbook % Fleet VLCC long term average Suezmax long term average Source Clarksons 43

44 APPENDIX - VLCC & SUEZMAX FLEETS BALANCED Number of VLCCs Number of Suezmax Age VLCC Age of Suezmax Source Clarksons 44

45 PRIMARY VALUE OF EURONAV IS ITS STOCK OF THIS COMMODITY FLEET DAYS Remaining fixing days at Euronav Thousands Pre merger Thousands Post merger o Pre merger Euronav had 735 shares per fleet day o Post merger it has 649 shares per fleet day o Accretion of % 5 5 VLCC Suezmax VLCC Suezmax 45

46 THANK YOU