Supply Chain Council of European Union | Scceu.org
Freight

Euronav announces final year results 2019

(Image Courtesy: Euronav)

2019 HIGHLIGHTS

  • Challenging summer freight market in 2019 ahead
    of IMO 2020 implementation
  • Strong Q4 tanker dynamics – highest quarterly
    rate performance since 2008
  • 2019 second half dividend set at USD 0.29 per
    share
  • Returns to shareholder policy guidance to target
    80% of net income and move to quarterly dividends going forward from Q1 2020
  • Balance sheet strength retained with substantial
    liquidity to navigate the cycle and unprecedented situation created by Covid-19
  • Underlying crude tanker market fundamentals
    remain constructive

Euronav NV (NYSE: EURN & Euronext: EURN) (Euronav) reported
its final financial results for the full year to 31 December 2019 on Tuesday.

Hugo De Stoop, CEO of
Euronav said:
“Tanker market recovery gained traction in 2019 with Q4
delivering some of the strongest freight rates in recent years. Euronav is
ideally positioned to benefit from strong freight rates thanks to its
operational leverage to the upside and at the same time is perfectly positioned
to seize opportunities when the markets are less attractive.

Our strong balance sheet and disciplined approach to fleet
renewal and growth are critical in times of high volatility and uncertainty.
With the adoption of the new Belgian corporate code we now have the capability
to align the performance of Euronav more closely with expectations from
shareholders with quarterly returns via dividends. Euronav looks forward to
navigating the large tanker cycle and the Covid-19 situation with confidence
during 2020 and beyond.”

The year of 2019 began with a strong baseline on the back of
increased OPEC oil production towards the end of 2018, combined with a fairly
balanced fleet profile following robust 2018 recycling activity. This all came
to an abrupt end as OPEC and its allies began implementing agreed production
cuts in January 2019, which saw OPEC production reduced by 1.4 mbpd in the
first quarter of the year. OPEC production continued to decline through 2019 to
an average of 29.9 mbpd across the year. This was 2 million barrels per day
less than the average production in 2018.

The official self-imposed supply constraints explain the
majority of the OPEC production decline but it was also impacted by involuntary
disruptions emanating from sanctions against Venezuela and Iran cutting close
to 2.5 mbpd from global markets. This decline in OPEC supplied barrels was made
up for by production increases primarily from the US. Infrastructure upgrades
in the Gulf of Mexico have allowed increased access for US barrels to the Far
East and Europe. Towards the end of the year, non-OPEC production received a
further boost from new fields in Brazil and Norway.

The price of oil was relatively stable through 2019 with
Brent fluctuating between USD 52 and USD 75 to average USD 64 per barrel. The
price of WTI traded at a discount to Brent through the year and averaged USD 57
per barrel. The average price of the OPEC basket was in line with Brent at USD
64. Oil demand growth weakened during Q2 & Q3 of 2019 and is currently
estimated at between 0.7-1.0 mbpd below the long-term growth average of 1.1
mbpd (since 1990). The first half of the year was particularly hard hit by weak
oil demand, mainly due to a slowdown in the global economy and concerns around
a US-China trade war, but rebounded in the second half as refineries across the
world started ramping up their throughput in preparation for the IMO 2020
deadline for ships to burn bunker fuels with a maximum sulphur content of 0.5%.

The vessel supply side of the equation also experienced
tightening in the second half of the year driven by three factors. Firstly,
sanctions on Iranian tonnage continued to remove capacity from the trading
fleet. Secondly, leading up to the implementation of the IMO 2020 regulation
the market saw a significant number of large tankers moved into storage
positions holding compliant fuel oil. A third temporary cause of fleet removal
was vessels undergoing counter cyclical drydocking to retrofit scrubbers. These
drydocking proved to take longer in many cases than originally
anticipated. 

The catalyst that eventually sent freight rates surging was
when the US imposed sanctions on two subsidiaries of COSCO Shipping at the end
of September.

2019 closed out with a very strong freight market supported
by a perfect storm of tight fundamentals, geopolitical events and IMO related
market disruptions. The anticipated recovery in the crude tanker markets meant
we could end the year on a high, and again enjoy the upward volatility and
premium earnings that a more balanced tanker market has to offer.

In a short space of time 2020 has already experienced
considerable volatility with geopolitical risk factors helping to drive freight
rates to elevated levels, before the economic dislocation and uncertainty from
Covid-19 gained traction from mid-January onwards. The large tanker market has
been boosted by the move from Saudi Arabia to unilaterally increase oil supply
which will underpin freight rates for much of Q2 2020. However, the duration
and scale of the impact from economic dislocation from Covid-19 will be a key
driver of tanker markets for the remainder of 2020. Euronav retains a very
strong balance sheet and sufficient access to liquidity to manage such an
environment. 

Covid-19 update and
impact on oil demand

The wellbeing and health of our staff, seafarers, their
families and the broader community is Euronav’s priority. We have applied a
number of precautionary measures across our offices and fleet in order to
protect our employees and seafarers in response to Covid-19. To date, Euronav’s
operations have not been materially impacted.

A combination of rapidly increasing crude supply and a
buoyant market for crude storage is underpinning a very robust tanker freight
market and strong cash generation presently. Management is however cognisant
that there is currently a substantial reduction in crude demand due to the
worldwide impact of the Covid-19 outbreak and more specifically to the policies
to restrict the movement of people. As a consequence, a significant portion of
the oil currently produced and transported is destined to crude inventories.
The build-up of these inventories could in the future impact the demand for the
oil transportation sector and in particular the tanker markets.  At the same time, a lower crude price
environment is beneficial for the shipping companies in general as it leads to
lower fuel costs.

The LSFO (low sulphur fuel oil) purchased by Euronav last
year in anticipation of IMO 2020 price volatility and which has not been
consumed yet will be subject to a mark to market valuation at the end of the
first quarter and will lead to a write down 
as the current market is significantly below the acquisition cost. The
purchase of this compliant fuel provided protection for Euronav in Q4 2019 and
Q1 2020 during periods of very high fuel spreads and Euronav is currently using
cheaper feedstock from buying LSFO in the open market. Euronav will provide
more detail with the publication of the Q1 results in May.

Overall and at this stage it is still too early to quantify
the impact due to the Covid-19 outbreak on our future results and any
forward-looking statements should be regarded with caution because of the
inherent uncertainties in economic trends and business risks related to the
current Covid-19 outbreak.  

Euronav does not only maintain a strong balance sheet with
which to navigate tanker market cycles but also a very strong liquidity with
more than 1 billion USD available in the form of cash and of undrawn  revolving credit facilities. Thanks to this
strong balance sheet combined with the current high freight market, we are
confident about the future and will continue to monitor the situation carefully
and remain fully committed to adapt our actions in the best interest of our
stakeholders.

Sea News, April 1

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