Q4 2021 Euronav NV Earnings Call

[music].

Good day and welcome to the Euro.

Fourth quarter 2021 earnings conference call, all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Brian Gallagher has an investor relations. Please.

Please go ahead.

Thank you good morning, and afternoon to everyone and thanks for joining <unk> Q4, 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 August 30.

February 2022, and making sure that contain forward looking statements studies, all risks and uncertainties.

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 fact.

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 SEC, which are available free of charge on the SEC's website at Www Dot FCC.

And on a run companies website at Www <unk> com.

You should not place undue reliance on forward looking statements. Each forward looking statements speaks only as 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.

Can you just take a moment to read our safe Harbor statement on page two of the slide presentation.

I will now pass over to <unk>, Chief Executive Hugo Stoop to start with agenda slide on slide three.

Thank you.

Thank you Brian welcome to our call today wherever you are.

Rest of the agenda I will first run through the Q4 highlights and some comments on what it was.

Indiana, another challenging quarter after an encouraging start.

I will then turn over to Brian Gallagher, our head of IR to run through some market slides before needed lager, our CFO highlight some important accounting changes we are announcing today.

I will then return to outline how the <unk> platform is positioned for the coming cycle not only on a standalone basis, but how we compare with our peers before finishing off with our traffic lights and a Q&A session.

So turning on to the next slides the highlight slide.

We stress Q3 call that we felt we had reached a trough in the cycle during the late summer months of 2021.

Stand by that view.

The recovery we saw from late August into when we reported in early November was tangible and reflected in better freight rates.

However, with the rapid spread of the omicron foreign from late November the associated rapid restrictions in economic activity and the lack of confidence in the business cycle, we sold it to recover in a store.

In what seasonally is the most important period of the year.

This was very frustrating and overall tanker activity has yet to really recover.

However, freight rates, while under pressure have not revisited the low levels of late summer and we remain with the conviction that a recovery is all <unk>.

<unk>.

Unlike the situation 12 months ago, we faced the coming year with strong oil supply growth forecast by the leading agencies have further rebound in demand and a pressing requirement to address low crude inventories level at some point in the future.

Our low cash breakeven coupled with our strong balance sheet enable us to manage through the current market and we are positioning for the next structural phase of the cycle. As we recently took delivery of two new Super Eco Suezmax said are under Cypress at the same time as re delivering for non Ecu older.

Vlccs.

Don't get me wrong.

We along with all of our stakeholders remain extremely frustrated with dispose the tanker market has taken on our recovery journey a.

But we continue to expect the freight market to improve to healthy levels. Even though this is no more likely focused on the second half of 2022.

I will return to this later and now we'll pass it onto Brian . Thank you.

Thank you Hugo.

The demand background remains very important for our markets and the setup for 2022 looks far more encouraging than it did last year with disciplined and more numerous factors at play.

Thank you.

Firstly it does appear that demand is expected to revisit or even exceed 2019 levels. This year.

<unk> for instance is forecasting a further demand snapback of $3 3 million barrels per day in 2022, employing over 100 million barrels per day of consumption for the first time since 2019 at the top left on slide seven shows.

Top right, we show the growth, which.

Which is leverage for all tanker companies and ourselves in particular as every 1 million barrels per day of annualized expansion of demand. Historically is required between 30 and 40 Vlccs and we believe this correlation will hold going forward.

The bottom left chart looks at demand, which may also be further increase with the requirement to restock.

If we remember that spilled into 2021, which you signed bottom right.

Demand rebounded very very strongly.

But most of this demand with satisfied with inventory drawdowns from local supplies. So therefore, there was no need for shipping.

The picture for 2022, that's very different.

<unk> is currently at levels globally that we have not seen since 2011.

So at some point and compensates us such as the EIA.

Vacate strongly that we'll see a big snap back in inventory rebuilds will move from the stocking phase so a restocking phase sometime this year.

This should be a further boost to tankers.

Over and above the underlying demand snapback, we would anticipate.

We now turn to slide eight.

We looked at vessel supply.

Vessel supply remains an issue and we will clearly provide some headwinds, especially in the first half of this year.

Top right slide illustrates how supply is largely stay one step ahead of the recovering demand ever since we went into COVID-19 related restrictions early in 2020.

The fleet has grown by around 60 Vlccs in that time and there are another 40 expected to hit the water this year.

Most of this will happen before September .

Recovering demand will absorb some of this tonnage increase but clearly not all however.

However, there are two factors that could redress this balanced during the rest of this year.

Slide nine shows that.

2022 is a big year for special service.

Nearly 10% of the sector will go into the yard this year age between 17, and a half years in 'twenty, two and half years of age.

Clearly not all of these ships will exit the market, but it illustrates soft underbelly of the tanker market with 25% of the fleet already aged over 15 years of age and an average fleet age at 20 year highs.

Taking the decision whether to exit or not.

Fold steel price, which is the driver of scrap missiles and the cost of the survey, which at that age is considerable somewhere between three and $4 million for each survey.

In other words owners are faced with a choice of why that spending a lot of dollars to remain in the market today.

Keep an old ship, which will only serve and have low utilization following 30 months.

We'll receive a hefty capital injection.

In terms of exchange for recycling that ship.

This decision was skewed last year, because a lot of these older ships to be sold to before the so called illicit trade.

Lucky business, allowing those emboldening to pay a premium logo recycling brand news.

We don't believe this will play a very big role going forward as they solicit trace.

<unk> has stabilized and size.

As shown by the slide on the bottom left which will make it difficult for new entrants to enter this illegal trade.

This illicit trade it must be stated remains a wildcard.

The markets, where there was a pressing need for the IMO and others to apply the sanctions that are in place as this trade represents a huge risk for human life.

Also the environment because of the way. These trade has operated in the age of the vessels that are engaged in the strike.

The bottom right chart illustrates how dynamic tanker market can be.

Foreign exchange, the 2020 , two and half year old vessels.

This year was to exit the trading fleet and the fleet would actually shrink in terms of overall size.

While it's very unlikely it does illustrate the age profile of the <unk>.

The OCC the current state.

Dynamic this would be if recycling what's your maintain the trend that we started in Q3 2021.

With that I'll now pass over to our CFO leave a lager.

And the important changes in our accounting approach legal over to you.

Thank you Brian .

Today, we are announcing a number of important changes in our accounting policies and the way we report our figures in our P&L.

We are reviewing on a regular basis or judgments and assessments made.

With the objective to continue to present, a fair exhaustive and thorough view.

Next to the fact that it is equally important for your roadmap to be directly comparable to its peers.

The key change is the adjustments, we are making to our residual value accounting.

After a thorough internal review and with our auditors. We believe now is an appropriate time to update our assessment and to transparently shared this with our stakeholders.

Historically, our approach has been very simple thing.

20 years straight line depreciation to Seattle.

However, there have been significant change in shipping and steel markets in the past five years, which we believe necessitate a change in policy.

Steel is one of the most recoverable commodities and recycling and into sustainable circular economy, hence the recycling of ships will become more important.

With this in mind, we have decided to move to the following approach.

We keep our depreciation policy over 20 years.

Residual value basis as opposed to what we had until now which was zero residual value.

The residual value, we will adopt there'll be an average of the key recycling market prices, which presently is around $500 per tonne.

So going forward as slide 12 shows.

This will reduce our depreciation charge annually by around 100 million dollar.

From the current run rate of around $380 million and places ourselves more in line with quoted peer group.

On this slide you can also look at how recycled steel prices have performed in the past decade.

And the reasoning behind choosing $390 per ton, which is equivalent to the four year moving average.

Other important changes in our P&L or some re reclassifications, we are making between revenues and cost lines in order to make us more market going forward.

Ti pool administration fee has been reclassified out of G&A to revenues.

Flat compensation is now directly integrated in our cost as an offset.

Chip management overhead there's no part of Opex as we recognize that the majority of market takes the ship management fee.

Especially when this is all sourced directly into the Opex.

Well those changes have no impact on EBITDA or the bottom line. It clearly shows that our system platform enables us to deliver top quality service at.

Very reasonable cost.

Rich can only be achieved with scale.

We illustrate this point by showing how we compare to one of the most reputable benchmarks produced by BCG in the tanker shipping industry.

Another important feature built worth mentioning is that euro portion of depth hedged against interest rate hikes is now 60%.

In an inflationary environment, we cannot just do nothing about it.

I will now pass back to Hugo for the rest of the presentation and its conclusions.

Thank you Lisa.

I would like to finish up on a few slides outlining exactly where <unk> is positioned.

Slide 15 illustrates the comprehensive platform we offer investors.

Firstly, our operational performance is at the leading edge market.

<unk> performance compare with the best in class and is backed by a strong balance sheet, where we have the highest liquidity both in absolute and relative terms accompanied by one of the lower leverage ratio amongst the peer group.

Finally in terms of capital market investors looking to gain exposure to the tanker market at this stage should focus on two elements there.

Business of the company, the investing as well as the operational leverage they acquire for when the cycle will turn.

It should be clear to investors that you are now offers the lowest entry point and therefore, the highest upside.

In summary on slide on slide 14.

We are a key focus and strong platform our operational structure is extremely competitive in cost terms and it's fully integrated.

Our large fleet is appropriately age we have a balance sheet that retains two years liquidity runway.

All of this supported by increasing sustainability credentials and proven record in terms of return to shareholder.

Do we wish the freight market was more encouraging than and better health, yes of course.

But as no one can accurately predict the markets, we're always prepared for challenging market, even when we expect the cycle to improve which is clearly the case for 2022.

Let's move onto our traffic light another upgrade.

We have created our own supply outlook driven by three factors.

OPEC.

Continues to deliver on its monthly prediction increase as confirmed yesterday.

Non OPEC is beginning to show signs of life with pockets of exports increasing from areas like Nab, Brazil, or even the U S, which are long ton buys and finally inventory at our level, where people will look more into replenishment then further drawdown.

Elsewhere, the key traffic lights remained the same.

So in conclusion Euro now remains constructive on the prospect for a market recovery.

Setback that we saw in the second half of Q4 is just that.

Setback it will take time, but we remain confident for the recovery.

That concludes our remarks, thank you for your attention and I know passed back to the operator and look forward to your questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

To withdraw from the question queue. Please press Star then two.

The first question is from Randy <unk>.

Please go ahead.

How do you <unk> how has it gone.

Hi, Randy.

Doing well doing well.

I guess first on the accounting changes, knowing you're going now to a scrap value residual value depreciation makes sense any impact to the potential payout ratio.

If and when we get back to some pretty meaningful profitability here.

At the moment, we keep our policy, it's very clearly set out on the web side very similar to what we had in the past you know that we are very shareholder focused.

And we have tend to be very generous towards in between dividend and buyback.

Continue to be frustrated with the share price continues to trade below NAV.

And so clearly we will we will need to make a choice between dividend and buyback.

When we get to positive territory, and we have something to return to shareholders.

Got it okay.

And then in terms of your comments on inventories I think Brian going back to 2011 levels.

Nearly with brand Ted I don't know $88 today.

There is.

Continuing to be some downward pressure on inventories do you see any kind of inflection point in the near term for that restocking that you mentioned or is it all just kind of supply driven.

It's a good question Randy.

We would say it is would be the business cycle getting confidence we were beginning to see that that confluence return before when we.

We can supply to November .

And we're just not getting sort of any longevity in these recovery periods over the last two years. So I think it's a question of one of the business cycle getting back to some form of globalization.

And therefore, having the confidence to order, but also the cost structure of oil itself.

<unk> been very activation of amendment, which.

It moves against that inventory rebuild but look I think it's just a question of time.

Getting through and then as we get through.

Better improved confidence than we would expect that that rebuilt to stop but we all we are talking about very low levels and thats. The way we wanted to highlight that we take the EIA.

Full costing.

<unk>.

If we could start as soon as this quarter.

Wait and see but I think it's more a question of the business.

Inference and soccer with something to something with the organization and then we will expect so we spoken to happen then.

I just would like to add maybe one color on this which is stability.

Stability, we all know why those inventories exist in.

And it's because there is always a risk that the supply of oil is being disrupted by an event on another which is clearly the keys at the moment too.

It's very good to be able to grow in your inventories, but there is a limit to what you can do and that limit is reached when your confidence that your supply chain is going to be interrupted.

Yes.

Thats fair.

And then if you don't mind I'm going to sneak in one last question here, obviously, you're frustrated with spot rates.

I think the sentiments are shared pretty widely in terms of time charter rates those have held in decently relative so any appetite for Jess.

Locking in some cash flows there while we continue to wait for the uplift in spot rates.

Well as far as we are concerned we haven't seen anything short term that was that was.

Really attractive I mean, yes, you can lock in sort of the low twenty's for four year whenever you are crossing.

Of the <unk> and Youre talking about three years unusually.

One or two years option on the back of that at maybe $1000 more so we've seen structure like 33000 for three years and 34 for the fourth one is an option 35 of the 51.

When you when you read or <unk>, which is obviously shared by a lot of people.

We believe that when the market returned to positive territory, it's going to be probably a longer cycle than what we have seen recently is probably going to be like 2004 to 2008 type of cycle relatively high rates and relatively turnaround. So I think that we should be prudent when we are looking at those.

Rich, which today looks attractive.

But quite frankly at the backend of those five years, you, maybe a little bit.

Grateful to have done it.

Yeah that makes sense and with your balance sheet liquidity.

The ability to wait so all good thank you again.

Thank you Erinn thanks, Randy.

The next question is from Jon Chappell of Evercore. Please go ahead.

Thank you and good afternoon everybody.

Brian if I could start with you.

Found that theres been a pretty strong consensus from public.

Public companies and most of the Alice looking for a recovery just any day now.

But some of the brokers maybe you don't have any skin in the public game are quite more bearish.

Feels like a lot of their negativity is focused on the supply side. So if I can go to page eight and looking at that upper right hand graph, where you say it implies 60 to 80 excess vlccs based on 19 demand.

What gives us confidence that at $60 <unk> spread closes I know theres, some hope for scrapping, but scrapping as always.

A bit of a wildcard.

Is it a demand driven.

Reversion.

Anything you can point to that would maybe.

Debunk that bearish thesis.

So it's a very fair point, Jonathan I think what we tried to say it might be.

First of all before that was trying to show that there are multiple elements to this point.

Appointment, we give three sort of pushback on that.

One would be on the supply side.

Yes supply has been patchy.

Recognize that we haven't seen the supply growth, we would have anticipated, but if we take again the forecast which are independent commentators giving plasma.

For instance, we're talking about $1 5 billion barrels would that increase from the U S. Although that is second half weighted.

So looking at your 7 million barrels per day from <unk>.

Was it all kind of doing the north Sea again second half weighted but also I think we have things like the.

Stencil agreement that will come in to place.

The OPEC plus nations, which could see once you potentially will see Russia, Saudi UAE, Kuwait have one 5 million barrels per day between them. So they can increase their production now that's important because obviously those nations.

The key drivers of the production growth that we've seen we've seen another in particular West African nations struggle to even grow their production. So I think there's some really good ground will be second half weighted for the supply side. The second would be as Hugo said in his prepared remarks. The demand. We do believe is going to again continue to gain traction.

Some seasonality to that so we shouldnt be surprised again.

That's going to be more second half second quarter onwards.

And then lastly would just be the fact that we have started to see.

Some of that recycling.

11, Vlccs in the second half of last year, and I think a similar number of Suezmax.

We've got a very big survey cycle, Yeah, I'd love to give you a magic bullet John and everyone else is the guidance you guys said in this call that we're not happy with where we are but we do believe we've seen the worst in the rearview mirror, but we do all we can point to is some of these practices that we see in front of US we wish they were gaining traction more quickly than they all are we going to.

Have to be patient and I think that's the message we try to give in the commentary in the press release.

But we do see.

One factor that with.

I'm, hoping that will come through we see multiple factors, which will be supported and we believe those will combine.

To give a truck to get traction as the year progresses, but its certainly probably give me more in the in the Q2 Q3, when you start to see that getting traction.

Moving into the key winter period.

We're comfortable with comprehensive that will come through.

I cant give you accounts you could talk to that as well.

Any degree that we've got some sort of a hit.

Hidden numbers that Wednesday.

The pushback on that would be well.

The worse it gets the more it continues to be very very challenging.

Then you want to be.

With those folks that have got the best balance sheet in the best cash flows.

Can withstand that marketplace and the tougher it gets them. We think the more we'll start to see we still have to come into play. So I do believe we're getting.

Until the end of this particular phase, but I wonder if you could because I think it's worth of that.

No I think you sum it up I mean, there are so many moving parts and the.

Obviously, John I know that's on the recycling side, it's very.

Very difficult to predict but I think what we've tried to put in the presentation is the opportunity that is there I mean, if no one had to do a special survey, especially atone in half of 'twenty or 'twenty, two and a half years.

I think that the hope to see a lot of scrapping would be gone, but this year is particularly interesting from that point of view and if you're faced with $3 4 million dollar Bill and when you returned to the market doesn't give you anything because for this age profile. The return is literally zero at the moment.

Then I wonder what people are going to do and last year, there was setting the vessels through the illicit trade.

But that part of the market seem to be well covered and we haven't seen any shifts going into this.

Horrible business.

Recently, so we don't see any reason why it will continue I think there is an existing feed.

And it service this part of the market.

I think Brian's point about just making sure your lines.

With the best balance sheets and liquidity is.

A very important one if we can let them just a bit past the short term ism I know, we have a tendency to focus on the here and now.

If we get past 'twenty two.

Order book drops precipitously and I know that ship owners have a long history of saying Oh, you can't get a ship for three years and then magically we signed 30 slots in 18 months, but it does seem that given the strength of the containership ordering the LNG ordering even the LPG.

That there is less availability in calendar 'twenty three 'twenty four timeline can you just speak to in a very realistic manner at a commercial scale when would you realistically get like a 10 plus four order of Vlccs.

Suezmax is could you do you have a great relationship with creating yard where you can sneak one in first half of 'twenty four or even the best place to ship owners Youre looking at late 'twenty, four and maybe into 'twenty five and beyond.

If you're talking about one slot to think that you can reasonably expect to squeeze.

Maybe one or two slots as I've said and at the back end of 'twenty four but it's certainly not a.

Then sort of ship slots and that's in Korea.

In China, it's a little bit more of a peak and saw one never know with quite frankly, if you look at what has been ordered in the past it's very much much full Chinese owners.

And then Japan seems to be completely out of the Q4 vlccs.

At the moment.

And quite frankly, if and when they return. It is also probably going to be for Japanese owners will not typically spot operators and thats, probably what we are looking.

Looking at when we see new orders so.

Frankly, I think thats a lot of the characteristic of the market and we see now are very much the same as what we were seeing in 2003 and 2004.

It simply because every bit of shipping and this time around not us, but every bit of shipping is doing very very well and is pleased.

Enormous amount of.

Orders and I think people don't realize that.

Ships are being built in the same docs I mean literally the same docs. So if the doctor is busy building a containership aura gas carrier.

Or any other time that has been awarded.

Slot is busy and yes, you can gain some efficiencies.

But the Koreans they are pretty efficient people who.

Already already efficient what you can get maybe 5%, maybe 10% and then of course.

In the other segments certainly the container we don't expect reading the entities coming that this sector will abate in the cycle will turn anytime soon so you continue to see to see orders.

Which means that even if there was a willingness of some owned some thinking on those two please.

Orders in those yards, they would be competing with those ships and given that those yards, earning.

<unk> been a margin on container and certainly on the gas carrier.

We don't believe that the price that you would be offering us would be attractive for one was too.

The large quantity of water today, you can probably get.

Youll see four one or six and that would be a very busy one so not not even one that could potentially be retrofitted later into one of the two or three technologies or fuel that we will use in the future. So.

I'm ready I'm very positive in fact on that part of the market and quite frankly, it's the most important part of market because the only reason why all of our markets are cyclical.

Is it simply because of the supply side.

Okay I.

I appreciate the thoughts thanks, guys. Thanks, Brian .

Thanks, Joe.

The next question is from Greg Lewis of <unk>. Please go ahead.

Yes, hi, Thank you and good afternoon everybody.

Hi, Greg.

Even though or Brian I was hoping to get a little bit more color.

A typical question that we get a lot.

As people look at kind of headline rates are those negative.

Are there is it like a negative PD III clearly clearly your company has been able to.

Generate profits over generate positive cash generate a return over operating cash costs.

Really what I think people are trying to understand is there's been a lot of vessels that have scrubbers installed and so we have a scrubber fleet.

Non scrubber fleet.

As you look at the market and track what you are seeing do you get a sense that the utilization.

It's almost a two tiered market, where the utilization of the scrubber fleet is significantly higher than the non scrubber fleet and if that and this is obviously beyond ti, but maybe broadly speaking and if that's the case how much utilization bump do we need in the.

Non scrubber fleet.

Kind of.

Get utilization to a point where.

Maybe those are the vessels that are setting the prices and we can actually see upward momentum in rates.

Well, it's a very good question and certainly one that we're asking ourselves all the time, we do have a little bit of visibility because ti operates both scrubber ships non scrubber ship old non scrubber ships all scrubber cheap.

Eco scrubber non so you have four categories up to in fact.

What tends to happen in the market that you would put the most economical vessel.

The longest street they choose.

You want the ships that are non eco non scrubber to do short voyages and then spend a lot of time into terminals, because they're they're not consuming a lot of energy a lot of fuel for obvious reasons. So that's a little bit how the market is.

Developing at the moment.

Very clearly when you have an old vessel, which is known as carbon I'm talking here about.

Something which is.

11, 12 years old and older.

Even with the scrubber economics looks horrible because you will consume 70 <unk>.

770 879 tons.

<unk>.

Compared to $4 40 to 45, four eco vessels. So that's already one element. So we'll discover Wilhelm will not compensate for the excess consumption.

And then of course.

Just touched on that but I'm going to repeat what I said.

Completely different utilization for the guys, who are doing daily citrate, and we're talking about 55 potentially 60 vessels. So there's quite a lot of vessels.

Where nobody talks about utilization because what they need to do is constantly change registration flag they do.

Trans shipment two or three times before the delivery beyond that it's a game of hide and seek.

Which is.

Which seems to work for them, obviously, but which means that digitization is not really the element that you are looking at and 55% to 60 vessels on a market that is.

830 vessels in operation.

Trading.

Not insignificant.

It's very difficult to give you a straight answer to that.

I think that the market always tries to adapt to what is given every operator looks at.

Its capabilities efficiency, and then decide to do one or the other when Brian is talking well when we all but Brian specifically in this slide is talking about the access a number of ships.

I think that we are very much talking about the older part of the fleet.

And if we would see that.

Disappearing, one way or another being scrap are being used.

And if you saw or what have you I think the market quickly rebalance and thats. The issue. So that we have today is because the market is so patchy with.

For sub segment as I said.

The list of ships that can potentially.

The cargo is very long.

Whereas we along with other big operators can really made the difference of okay, but is that cheap really the right one to do this.

The skagen are not a lot.

One of the owners with a very small exposure, but use the only operate 2345 vessels. They don't have that kind of information and they are.

Clearly being blurred by that leased and say Oh, My God I'm facing 678 ships that will compete with me so I need to drop my pants and I need to set a rate that is very low and then set the rates very low they don't get the business, but guess what the guys who was probably the only one or amongst the two ships.

The business has too much debt rate.

So thats really whats happening in the market on top of a lot of private cargos.

Not being shown to the market and only being revealed once they are being done to the regrets of many people, saying Oh I thought it was far fewer cargoes, but in fact that on the cargo side. We are not very far from 2019. So there isn't a lot of things that needs to be correct.

But it's no different than other cycle, sorry for the long explanation, but the question was complicated complex.

Yes, no absolutely. Thank you for that that was Super helpful. And then just as we think about Iran.

Clearly in the in the U S. We here.

What's in the newspapers it seems like the U S is really going to drive that.

Maybe not the decision, but the event path of how Iran plays out.

In the event that the eyrie in the event that the shadow trade kind of.

Sure.

Rips away over time, how should we think about that kind of impacting impacting the market and is this something that just is could be a 2022 event and it's part of the reason that you're not as optimistic or is it something that is probably the way. It plays out it's more of a a nice bump in the 2002.

'twenty three which is why I think you mentioned earlier that you are pretty bullish.

Maybe not on today's rates, but in the next few years.

We don't have a crystal ball than we've been there near an agreement and then it disappears I think the last time was just before the withdrawal of Afghanistan and I guess that you have.

This administration could or could not afford.

That kind of news right after that.

So no clue when it's going to happen we are reading the same.

Sort of the headlines.

Headlines.

So it's a wildcard in that is not part of the thesis, but when we are looking at it if it happens.

We believe that the story has been very very simple you have one 3 million barrels that are being treated today in those three.

Capacity of Iran is probably around 2 million barrels who even more than what is being treated to the illicit and all of that would return to the regulated legal market.

The ships that are currently doing it.

Immediately become commercially obsolete because nobody would touch them.

So you would have a double impact which is more cargoes available for us to transport for us and the rest of the regulated market.

At the same time, all those ships, which by then it would it would be very where Loren turn because they are.

2021 'twenty two years, they are not being properly maintained they don't have certificates.

And the scrap price off pretty high so they would take the scrap yards in no time in our opinion, so its a double whammy, but again, it's a wildcard and certainly not part of this is that we have shown to you today.

Okay perfect Super helpful. Thank you everybody have a great day.

You too.

The next question is from Chris Wetherbee of Citigroup. Please go ahead.

Yeah, Hey, thanks for taking the question excuse me I just wanted to follow up going back a couple of calls callers ago too.

Comment about a cycle like afford it away.

In tankers I, just wanted to get a sense of.

What do you think sort of the key of driving that degree of duration of strength is it really the sort of supply side that you had talked about earlier I just want to make sure I understand it feels like demand has the potential to be a significant wildcard relative to what.

So I guess I just want to make sure I understand how you guys are thinking about that.

Primarily because of the supply side very low order book very little space in the slots in the yard, but also age profile of the fleet.

25%.

Being already in the sort of each profile, where potentially people are thinking about scrapping.

Hi, very high scrap price.

And.

Yeah, that's that's.

I would say, 70%, 75% of the reason why we believe it could be.

A prolonged cycle like all four or eight now don't get me wrong. All four eight was not only long, but it was.

Always between 70 and $100000 a day.

That's not really what we're saying what we're saying is that it's going to be very good rates and it should be very good rates for three or four four potentially five years.

But lets not be too excited and too carried away I mean, when you get $100000 you indeed need both elements, which is super strong demand growth.

And very limited capacity on the supply side.

Okay. Okay. That's helpful. I appreciate that clarification.

I just wanted to ask a sort of detailed question about the accounting changes if I could I know, we're going now to a residual value versus zero residual value I guess, maybe two questions. Here are you moving from 20 years to 24 years to match peers.

Number one and then number two when youre thinking about the residual value are you taking the four year average is that what you're suggesting to us or are you just taking a mix of multiple destination residual values at the current point I guess I just want to make sure I understand a couple of moving parts there.

Yes, Chris Thank you for raising or asking the question. So indeed to answer your first question.

So we keep our 20 years depreciation.

Yeah.

So we are not moving back to 25 years, so we keep it.

The duration.

And indeed, we changed from mill to residual value of $390 per ton and how did we defined as $390 per ton. So we use their vertical before year moving average so each year, we will update but can you at least and theyre using a basket of scrap.

We see I think Bangladesh there are tweaks.

Yeah, India, Pakistan. So there are three countries in which we take as you referenced.

So based on this this is how we will update on a yearly basis all of our assessment.

Okay. That's very helpful. Thanks for the clarification, there and I guess the last question just when we're thinking about the debt profile you got <unk>.

50% fixed at this point is there any ability to move that higher or do you I mean, obviously, that's a nice step up from where we were earlier in the year or is there ability to move that higher what are your expectations there.

So for the moment, indeed, we have fixed 46.

We continue to look at what's left what needs to be concluded in terms of new loans and then.

Use our liquidity so from that perspective, and will follow closely what needs to be fixed at the 60% is currently the best we can do based on the loan portfolio and the loan diversification deal currently having.

Okay. That's helpful.

I appreciate it.

Thank you.

The next question is from Chris Tsung Weber Research and advisory. Please go ahead.

Hi, good afternoon, how are you.

Thank you.

Okay.

To ask about depreciation as well just looking at the chart that you guys have on slide 10.

I understand it's a four year moving average, but I guess is there a floor or ceiling, what you guys would determine.

The scrap values to be at because they can just see looking at this chart.

In <unk>.

2016 for instance.

Before year moving average has dropped 400 versus the current scrap which is like $2 50, or so and I guess just in that scenario.

You would be depreciating at a higher valued in current markets. So I just wanted to understand what goes into that process.

So indeed, its a good question Chris.

So a question that you discussed that thoroughly.

All of these are C and indeed, when we look over a 10 year cycle. This $400 average is there so we had somehow to define.

Richard It's made sense and I'm, hoping indeed to the last years of high prices of scrap steel youll see that indeed, the $600 per phone.

Know that this is a bit too high and then you will not keep probably over the lifetime of the vessel.

We have to monitor and see compared to the same tier average movie compared to the four year cycle and then indeed to see how we can cut this equals in detail I agree with you that we have to look to the tendency in this tendency is based on the last 20 years and you have to keep this as a as a cap moving forward.

This is how we think about it EBIT and needs to be <unk> to two.

To test and to see how it works in reality, if you didn't know our first step and we think that you are still conservative.

<unk>.

<unk>, which we have to explore and see how it works, but indeed, we are funding to keep the gap over the.

Lifetime of the vessel as a moving average based on that principle.

By the way this is very much the same for the other tech companies.

In the past zero with zero, you don't need to.

If you look at it on a yearly basis, because thats your policy, but once you go to a scrap value. Then obviously you need to look at the market.

The extent, we didn't want to bring more volatility to the P&L I'm far from it on to the balance sheet.

So you need to look at it with a number of years of average that's what we are doing but also taking into account.

The last 20 years simply because he is the lifetime.

The vessel, but everybody is facing the same issue and I don't think that.

The market sees the leases volatility when there is a small correction in the depreciation rate.

And it's because of the last year.

Crop prices so high that this topic came up.

And might be changed because of this high pricing of $600. This is why we have to change and move towards our peers in that direction.

So has this changed no at this moment.

Okay. Thank you for the color on that and I just wanted to move onto another type that you guys had in the press release, you guys were able to successfully tried the b 50, biofuel and I wanted to just understand.

What you think the 50 allowed <unk> to generally be <unk>.

<unk> compliance or.

Will you guys be looking to trial, a higher biofuel point.

Well I think I'd.

Behind it is really too to be helpful. In the energy transition.

Quite frankly, we don't believe that it's a long term solution a biofuel.

Certainly not given the.

Entities that will be produced and the competition that we will face with other industries, but nevertheless, it is helpful too.

To see how it reacts in the engine.

We didn't pay a premium to get that fuels. So that's also very important there is.

Centralization scheme that is present in Rotterdam.

You mean that the seat is indeed, giving subsidies to the guy who will produce it.

So the only thing that we did there is try something else and then obviously you need to pay attention to the chief engineer on board, making sure that everything is running smoothly and then you deliver the data and whenever you have this confidence.

To the people who are making that Hugh.

I think that.

Whilst it's not a long term solution every little helps in the short term. So to answer your question first of all happy to lower carbon emissions whenever we can especially when we don't we don't increase the cost.

Secondly.

As far as the regulators are concerned.

This fuel is produced in Europe .

In the Netherlands.

And it remains to be seen whether it is going to be acceptable or not.

There are three regulations.

That are coming I'm pleased from the <unk> perspective.

So it's a little bit too early to tell you whether it can play a role or not but the fact that we have tried it means that if it would be accepted then obviously.

We would know how to handle it and if there is an issue we would know how to.

How to mitigate them.

Perfect. Thank you. Thank you Hugo and just one last one I will just squeeze in just on the cadence of dry dockings in 'twenty two I know there are 16.

Is this going to be kind of front loaded.

Or maybe tell me.

Hi.

Yes, we are trying to frontload as much as we can because we are very optimistic about the second half of the year. So obviously youre always trying to see.

To take advantage of the low rate if I may use that expression.

It very much depends on the voyages, but.

Ambition is to try to front load as much as possible.

Great. Thank you guys.

Yes, we will update on a quarterly basis, where we are on that program.

Great. Thank you Hugo.

The next question is from Magnus <unk> of <unk>.

H C. Wainwright. Please go ahead.

Yes, good afternoon.

Just one question related to the.

Supply of oil you upgraded.

Your outlook, there and I was just curious with $90 oil OPEC has all the incentives to increase production, but January production was only 50000 barrels compared to the 400000 barrels announced and I would be somewhat concerned that OPEC is struggling to increase production and the IAA.

It's looking at 3 million barrels plus in 2022, but.

What gives you confidence now.

On your upgrade there.

The supply of oil is going to increase.

Maybe if I can jump in.

Go ahead.

The science is a similar sort of answer from before.

Right Yeah. We're obviously this is it.

Appointed as well and it's been a very patchy level of production growth as you say.

The numbers for January looks to be.

December seem to be a little bit lower than we would've expected in particular in areas like West Africa, but again as I mentioned before there are areas, where we have seen sort of decent growth in Saudi and Kuwait and UAE and that agreement changes under the OPEC plus terms and May that's a potential $1 5 million barrels per day with Russia as well.

We'd love to see if the situation with not only the production growth coming through.

So it's coming through are spread around the world. So that that would have to move even further.

Milk right. It is because we see this pressure in particular in the second half.

Rising as you said because the world.

Hollywood oil price.

And then secondly, obviously, we've got the return that we believe along with people at the EIA.

Suggesting that we'll see more growth coming through from the U S. So flat since since we're talking about one 5 million barrels per day.

Coming from the U S again second half weighted so I think it's more a question of what we see.

In terms of some of the particular production growth areas.

A little bit specific.

We see that growth continuing and youre absolutely right to highlight it again, it's been if you like the stop start nature of this recovery has been reflected in the fact that the production growth has been.

So sporadic can so stop stop but we.

We certainly get a sense not only from the official commentary, but it looks like from some of the conversations we're having with the client base that supply growth.

The Ginza transit transit into into more sustainable levels of increase going forward.

Alright, thank you.

We've been talking about omicron virus is having an impact on the market here, but don't you think it's more related to that OPEC has been.

That's been unsuccessful at an increasing production I mean, if we could see another 500000 barrels to 1 million barrels I mean, I think the tanker market look a little different.

I think I think that's very fair comment.

I think the two go hand in hand, a little bit and that we're not really seeing the refinery participation in terms of order flows of cargoes that we would anticipate and that goes back because of that stop start nature on the chrome, which you've seen that demand and that business cycle. If you like.

Duration and confidence so I think you're right I think it's a combination of the two.

There's a lot of stuff that you can sit on the on the departure of the box.

So don't get us wrong, we're not happy with where we are.

Striking the all of these different factors and the moving parts that we always see in a market that we're not getting the full value from all of them but.

We do anticipate that that will come through.

We're certainly hopeful as we now seem to be.

Sites.

With regards to Covid and particularly in Europe .

We come out of restrictions, but that should start to get some traction. So the whole process is clearly going up because of the lack of equalization equalization between the supply and the demand.

But we do anticipate that we're going to start to see some benefits coming through from that but we have to be patient.

Alright. Thank you Bryan just one more question.

On the depreciation policy will that'd be effective as of second quarter. When we will start seeing those changes.

It will be a separate first quarter.

Yes, it's probably first quarter.

First quarter, yes.

Alright, very good thank you.

Thanks, Mike Thank you.

Welcome.

This concludes our question and answer session and today's conference. Thank you for attending today's presentation. You may now disconnect.

Yeah.