• 2020: Best financial performance ever, especially in the first half.
• COVID-19 restrictions on economic activity & OPEC+ cuts drove freight market pressure for second half of 2020
• Total cash dividends of USD 1.40 per share over the year 2020
• USD 118.5 million share buybacks (USD 0.59 per share)
• Extension of current FSO contracts for further 10 years to 2032
Euronav NV reported its final financial results today for the full year to 31 December 2020.
Hugo De Stoop, CEO of Euronav said: “2020 will be recorded as one of the most tumultuous in tanker market history. Euronav’s positioning ensured shareholders were able to benefit from record freight rate performance over the first half of 2020, with USD 371 million returned via cash dividends and share repurchases. Whilst the second half rapidly gave way to a highly challenging tanker market, Euronav’s balance sheet strength and strategy of modern fleet allow the company to navigate such volatile periods. Current market conditions are amongst the most challenging in recent memory for crude tanker operators. COVID-19 consequences continue to impact operations and more importantly the demand for crude oil. This has led OPEC+ to extend production cuts.
As a result, the market remains unbalanced with too many ships chasing too few cargoes. Whilst some encouraging signs are emerging, like the price of scrap steel, a driver of ship recycling activity, traction with crude consumption returning to more normalized pre-COVID-19 levels is required to drive a return to the sector profitability. Despite these headwinds Euronav remains focused through cycle on long term value generation which may validate vessel acquisitions whilst retaining balance sheet strength”.
2020 was perhaps the most volatile and unpredictable year for crude oil and tanker markets in history. At the start of the year, geopolitical risk had driven both tanker freight rates and oil prices to higher levels during with a robust winter underpinning crude demand until the end of the first quarter.
Tensions amongst the OPEC+ countries, and in particular Russia, ended with a Saudi led move to simultaneously cut oil prices and rapidly increase production and exports onto the global markets turning the tanker and crude markets upside down in early March.
This escalation into direct action or a ‘price war’ proved to be the catalyst for a rapid 60% reduction in the oil price from USD 55 per barrel in January, to below USD 20 per barrel in April. Whilst challenging for the global oil markets, freight rates for the tanker market rose to over USD 100,000 per day, reflecting a shortage of vessel capacity to manage the increase in number of cargoes being shipped.
At the same time, the spread of COVID-19 and the accompanying restrictions were having an onerous impact on economic activity. In effect, a disconnect grew from late March until early May, with global crude production largely unchanged at approximately 100 mbpd, but underlying consumption falling to around 80 mbpd. Crude production was in surplus, further driving demand for tankers providing a flexible solution for storing this excess oil supply. Tanker freight rates continued to rise to very elevated levels into June, driven by a requirement for storage.
Then OPEC+ participants agreed large scale crude production and export cuts, effective from early May, of 9.7m barrels per day. Such measures substantially reduced the requirement for storage of crude and the economic incentive for storage.
The floating storage demand grew to occupy 10% of the VLCC fleet and 15% of the Suezmax fleet, and supported freight rates at elevated levels, despite an underlying reduction in demand for and consumption of oil.
The second half of 2020 was negatively impacted by the tankers returning from such storage activity, increasing the supply side whilst the demand for transportation was rather flat. The number of vessels being used as floating storage had largely unwound by the end of 2020 to return to normalized levels.
Tanker freight rates tumbled below break-even territory from September 2020 onwards as the anticipated economic recovery was postponed due to continued COVID lockdown restrictions. However, old vessel supply has begun to respond to higher steel prices, and to increased scheduled environmental regulations prompting an increase in vessel recycling albeit from very low levels.
Tanker markets should return to profitability when oil inventory normalizes and the economic recovery brings oil demand to pre-covid levels. This should happen at some point in the next 12 months. At that time, the return of restricted supply cargoes primarily from OPEC+ will be an additional benefit for tanker markets.
Difference between the preliminary results and final results
The final result of USD 473,238,000 reported today is USD 467,000 higher than the preliminary results reported on 30 January of USD 472,771,000. This difference is related to the final positive settlement of the TI Pool.
Procedures of the independent auditor
The statutory auditor, KPMG Bedrijfsrevisoren - Réviseurs d’Entreprises, represented by Herwig Carmans, has confirmed that the audit procedures, which have been substantially completed, have not revealed any material misstatement in the accounting information included in the Company’s annual announcement.