Cmb.Tech N.V. (CMBT) Q1 2020 Earnings Report, Transcript and Summary

Good morning, and welcome to the Euronav Q1 2020 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the conference over to Brian Gallagher. Sir, please go ahead.

Thank you. Good morning and afternoon to everyone, and thanks for joining Euronav's Q1 2020 Earnings Call. Before I start, I'd like to say a few words. The information discussed on this call is based on information as of today, Thursday, the 7th of May 2020, 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 fact. 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 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 CEO, Hugo De Stoop, to start with agenda slide. Hugo, over to you.

Yes. Thank you, Brian. We're going to do something a little bit different and more in depth with today's quarterly call, given the number of factors which are impacting on tankers markets currently. So firstly, I will run through the Q1 highlights before passing on to Lieve, our CFO, to provide a full financial review of the income statement and balance sheet. Then we will look at the current themes in the tanker markets and Euronav's outlook before we take questions. So if we move to Slide 4, the highlights page. I think it's fair to say that the first quarter was an extraordinary quarter for many different reasons. Q1 was a very strong quarter building upon the solid foundations we experienced in Q4, but, of course, it was also a very volatile quarter with events such as the COVID-19 pandemic and the oil price war between the OPEC+ members, influencing dramatically the market freight rates as we have seen them. The TCE were as high as $200,000 per day, but also as low as $30,000 in the latter part of Q1. The average delivered VLCC rate was very robust. And on average, we managed to book $72,000 or a little bit more than $72,000 per day for VLCCs and nearly $60,000 per day for Suezmax. Quite a record. This outstanding rate environment has pushed so far into the second quarter to higher levels with our VLCC fleet reporting so far $95,000 per day for VLCCs, as I said, and for the Suezmax $65,000 per day. So this allows us to pay a very strong dividend related to the first quarter of $0.81 per share. As we mentioned many times in the past, we will, as of this quarter, pay quarterly dividends to Euronav shareholders. But the good news is that we will also pay our final dividend related to 2019 after our next AGM in May. So Euronav shareholders will receive $1.10 in June in cash dividends, which represents at the current share price more than 10% dividend yield, and this is within the first 6 months of the year. So quite extraordinary, you will admit. I will return later with more commentary on the key themes in our business, but now I would like to hand over to our CFO, Lieve, to run through the financials on Slide 5. Lieve, over to you.

Thank you, Hugo. Good morning, good afternoon all. Allow me indeed to present the key figures of the first quarter. So the revenues generated are $417 million, while EBITDA generated was $360 million. But if we add the gain on sale and the income from equity investees, this is $328 million. This resulted in the net income of $225 million. As the company has touched upon the strong freight market, this illustrates clearly the operational leverage that tanker companies possesses, namely every $5,000 a day revenue, Euronav generates over a quarter translates into $27 million net income, culminating in a dividend of about $0.10 per share for Q2. A key highlight that I want to mention is also for Q1 is related to our fuel procurement strategy, which generated gains of nearly $20 million, but which clearly came under pressure as the oil price and other related commodities fell as the COVID-19 virus and the related economic restrictions impacted. The company, we also assessed if a write-down should be accounted for the remaining compliant fuel inventory as the market value of the fuel that was not yet consumed was $56 million lower than its book value. The company concluded that no write-down was required at this time in view of the robust freight market for Q2 and possibly the rest of 2020, which will offset the higher weighted average consumption costs of the bunker oil consumed from that inventory. However, this assessment has to be performed each quarter. Moving on maybe to Slide 6 and the balance sheet. So the balance sheet at Euronav remains strong. We have increased the absolute level of cash at our disposal to over $300 million, even though we were active during the quarter in purchasing 4 VLCC's resales, requiring a downpayment of $100 million. Our leverage is now below 40%. Cash and revolving credit facility liquidity are at $1.1 billion in total. This contributes, for sure, in managing our 2-year liquidity runway, which remains a core philosophy at Euronav. I will now hand back to Hugo to expand further on developments in the tanker space. Hugo, over to you.

Thank you very much, Lieve. We can now move on Slide 7, capital allocation at Euronav. Capital allocation is very important, especially when markets are so strong. At Euronav, we always make sure to be balanced, but especially consistent in our allocation. We do have some mandatory debt repayment as well as some revolving credit facilities reductions, which, as far as they are concerned, are noncash. But as we target a leverage of 50% or less, we do not need to repay more debt for the time being. We have designed our return to shareholders' policy, taking all aspects of the business into account. And indeed, we are very pleased to be in a position to pay $0.81 dividend related to the first quarter, in addition to $0.29 related to the year 2019, as I mentioned earlier. During the quarter, we haven't bought back shares. When we do so, we will always try to create long-term shareholder value rather than giving support to a share price that has been very volatile during the quarter. We also bought a very, very small portion of our bond back during March selloff. We wish we could have done more, but the value of our bonds bounce back very quickly to par or even above par as they're trading today. We also took advantage of the S&P market volatility, as illustrated on the next slide. Slide 8. What seems a lifetime ago now, we picked up 4 VLCC resales of contract at -- on average, $93 million, a significant discount to the advertised sales price at that time or even when compared now. This expansion though, is part of an active fleet management strategy as we also sold 3 older vessels so far this year for prices well above the index for same vintage ships. This recycling of capital and the rejuvenation of our fleet is key to managing tanker fleet and a feature we keep up as part of our long-term strategy. We can now move to Slide 9. The progressive moves in the freight market since early March, when the Saudi volume increases and price cuts were announced, have allowed tanker operators some optionality to lock in high rates for the upcoming 6 months. We have fixed a number of ships, taking advantage of these opportunities and have now 19% of our fleet, which is on time charter for various durations. You will remember that at the end of last year, we only had 10% of our fleet under fixed contracts. It is important to know that when we take a decision to fix the ship for a 6-months time charter, we will always compare the rate offered to what we can do in the spot market for our next voyage. Often, the shorter spot voyage offers you more than a 6-month time charter fixed contract. Moving on to Slide 10. The fuel procurement strategy. When we look back at IMO 2020, our approach has been to purchase compliant fuel ahead of January 2020, primarily to reduce any potential risk on either the quality of the new compliant fuel or to avoid the big spread that was foreseen between LSFO and HSFO in the early stage of this new market regulation. This approach benefited our operations initially. And in the first quarter, as indeed upon the implementation of the regulation, the LSFO jumped to much higher levels than what we had procured over the course of 2019. We have consumed a little less than half of our stock of roughly 420,000 tonnes inventory that we purchased indeed in 2019. However, as Lieve mentioned, the market has not developed as anyone expected in terms of fuel pricing or in terms of stress between LSFO and HSFO during 2020 and certainly recently. And the prices as well as the spreads between those 2 products have now fallen to a level below our entry cost. We have not taken an impairment in the first quarter, as Lieve explained earlier, and we will continue to look at opportunities around the ULCC Oceania, where the fuel is being sold to create value around this operation. Let's all remember that if we had chosen a strategy of retrofitting scrubbers on our fleet, we would have had to deploy more than $350 million. I will now hand over to Brian Gallagher, our Head of Research and Investor Relations to talk about current market themes, and I will be back for the questions. Thank you. Brian, over to you.

Thank you, Hugo. Slide 11, as Hugo says, looks at a number of different features and illustrates, in particular, why the storage of crude in ships has come into play so quickly. With 90% of us on some form of lockdown over the past 45 days in March and April, the IEA forecasted demand for crude has fallen by around 25 million barrels per day during that period. Yet during that same period, we've seen production actually being maintained at similar levels. This disconnect, we believe, has produced somewhere around about 1.1 billion barrels of excess crude, the same level as the EIA and others estimate is the global onshore capacity for storage. Indeed, earlier today, Reuters reported that the storage facilities onshore in Europe are already full. This is reflected in the recent move to use ships to store oil, in particular, over the last 3 to 4 weeks. We believe then that despite the OPEC cuts, which has started to bite in the last week or so, and production shut-ins by commercial players, any additional excess production from here is likely to have to find some form of home in storage and most likely on ships. This will be a key driver for our market over the summer months, but we believe that Slide 12 shows that not all storage is created equal. On Slide 12, we believe it's important to take a step back and look that this process has only just begun. It's important to remember that we've got the Iranian fleet with around 38 VLCCs and a permanent number of around about 20 to 22 VLCCS, which are always storing oil and is part of the infrastructure chain. This has nothing to do with the current COVID-19-related issues. Therefore, around about 8% of the VLCC fleet in the world has always been otherwise employed before this disconnect between consumption and production started. What is also interesting from Slide 12 is that unlike other periods, when we've had storage requirement, this is not just a VLCC show. Traders, for instance, estimate that 61 Suezmax are currently used for what we would say market storage reasons. That's already 11% of that particular fleet. And that there are 65 VLCCs in market storage at the end of April. The true scale and impact of storage, we believe, therefore has not yet fully been revealed, given the speed and scale of the changes that are ongoing in the disconnect between production and consumption. So how do we see this developing? We look at this on Slide 13 with a very simple schematic. We look at the demand for storage that is not just driven by those [Indiscernible] who are out to derive profit via contango, but also increasingly by logistical players, who are forced either involuntary or voluntarily to use ships in order to transit oil or store oil. We believe that this phase will persist well into the second half of 2020. Clearly, and the market focus has been very acute on this, there will be a transition phase in the midterm, as we say, on Slide 13, into a different phase. As the inventory draw starts, if it's slow, then we believe the disruption to stripping will also be slow. If it is more rapid and accelerated, then past experience suggests that the contango price structure can remain in place for a prolonged period of time. In 2015, for instance, we still had 20-plus VLCCs used for storage even when the market went into backwardation in 2016. Many commentators believe that this midterm phase will kick in sooner rather than later, and then the inventory drawdown will be rapid and, therefore, will impact on shipping much quicker. We find it difficult to envisage a shipping sector that works in real time, however. Our voyages take off in days, months, and are often spill over quarter end periods, and often take longer than the simple calculation of how long those voyages will take. There is planning. There is congestion, and there are a lot of external factors that impact on our business. However, we are not complacent. Management at Euronav do recognize that this middle phase will provide challenges for the tanker sector. And when the inventory drawdown starts, that is likely to accelerate and bring pressure on our business in terms of freight rates. But it will also bring what we believe is the last phase in Slide 14 and 15, sustained pressure for a resizing of the global tanker fleet, which we look at in the last couple of slides. Slide 14 shows the large tanker fleet, we believe, is right for resizing. Financing is becoming ever harder. And with increased regulation from areas like Basel IV and environmental pressure from the EU and the IMO, this is only going to intensify. Contracting of new orders is prevented by the requirement for the new propulsion system in order to meet these new stringent environmental requirements. And with an 18- to 20-year life on average for a VLCC or a Suezmax, ordering a new vessel is also having the additional challenge that the likely medium-term trajectory will demand is also going to be a negative pressure. All of this is just really restricting the new supply of tankers reflected in the 23-year low that we see in the order book. On Slide 15 to sum up, we look at the continued grounds for optimism at the existing fleet in which the large end of the tanker space, in terms of VLCCs and Suezmax, has an awful lot of potential change coming. On average, for every quarter between now and the end of 2021, there were 27 VLCC equivalents due for special survey on vessels aged over 15 years of age. Why does this matter? The surveys will require several million dollars worth of investment to be spent in order to give your ship certification for the following 30 months. Owners will have to have confidence and visibility that they'll be able to make a return in this time frame, which, with low freight rates, is going to be harder to justify. One of a better phrase, this pinch point is critical and historically or often been so. This is usually a catalyst for ships leaving the fleet to an alternative lease or to the scrapyard. To put this into context, though, if 2/3 of the vessels that we see on this final slide were to leave the fleet on Slide 14, the global tanker fleet would resize almost instantly to an oil consumption level of 95 million barrels a day, which is where a lot of commentators believe that even on the barest scenario, that's where the consumption levels will move off. It's time now. We probably can move on to some questions. That concludes the end of the prepared remarks, and I'll now pass it back to the operator. Thank you.

[Operator Instructions] Our first question today comes from Amit Mehrotra from Deutsche Bank.

Congrats on a good quarter. I wanted to check your temperature on the commitment to the dividend. In the event that the public equity markets don't give the company full credit for what you guys are paying out, I mean, the strategy itself is quite clear. I believe it also gives you a little bit of wiggle room to reallocate or repurpose the funds for share repurchases. And then, obviously, you have that AGM meeting coming up on a vote on that aspect. So I just wanted to talk about under what circumstances the company will not pay at least 80% of its net earnings. I think that would just be helpful in trying to understand where your mind is at with respect to that specific item.

Yes, Amit, very good question. You're absolutely right. I mean, when we were thinking about our return to shareholders' policy initially, so more than 4 years ago, and then when we put the guidance out in January, we were thinking about when to apply dividends and went to apply share buyback. I think that in the first quarter, our line of thoughts were very much geared towards dividends because we wanted to show the market that we can distribute 80% of our earnings and dividends. I think that we heard that some people were skeptic about it. And I think it was important to demonstrate that when we say something, we will follow that policy. Obviously, we're not satisfied with the share price where it is right now. That doesn't see that we have not been satisfied with the share price throughout the quarter. It has been a very volatile quarter, not only in terms of rates, but also in terms of share price. And as I said in my prepared remarks, our goal is not to chase the share price and not to support the share price at every single point in time. So if we feel that the share price is weak for a prolonged period of time, then, obviously, we will prefer share buybacks than dividends. I don't think that you will ever see us cutting completely dividends. That's not something that we will ever do in any way. We have a policy for a minimum fixed dividend. But the balance between share buyback and dividends will very much depend on share price weakness. And as I said, at the moment, it doesn't look good. I mean, I don't think it's normal that we are distributing a dividend which represent only for the first 6 months of the year. In fact, only the first 3 months and then a little bit from last year, 11% yield. I mean this is crazy, clearly abnormal.

Right. Okay. I appreciate that. That's pretty clear. I wanted to just pivot on my follow-up to just maybe a more fundamental question about just the oil markets. And I want to understand, from your perspective, what the eventual -- the impact will be from kind of the eventual destocking of inventories and how you think that plays out in terms of absorption of the tanker fleet. Obviously, it's right to assume there's going to be some weakness in rates as vessels are kind of released from floating storage. I think we're already kind of starting to see that in some respects. But how quickly after that do you think the tanker market rebalances? You talked a lot about an aging fleet, but, typically, fleets aren't scrapped unless rates are below OpEx levels. And obviously, there's quite a bit of leg down to get there. So if you can just talk to us how quickly do you think the market can rebalance? How long do you think the weakness in the tanker markets could last if we do get a bigger destocking of inventories?

Yes. We've tried to explain that on Slide 13, I believe, future market developments. And we have split that between short term, midterm, long term. Short term is clearly what we are living through now. And we see that we have continued demand for both trading, transportation, but also storage. As Brian said, we believe that storage will continue to increase and influence our markets assuming we support our markets. It's a little bit of a pity that when people say, yes, the rates have halved in the last 2 weeks, yes, right. But you know what? We're still fixing vessels between $60,000 and $75,000 a day. You look at the TI app, and I think that a vessel was just fixed at $90,000 a day. It doesn't mean that's the average, but I'm just trying to say when we're making good money, but we are coming from extraordinary territory, then people are not happy. And I wonder why. Because personally, or at Euronav, we are very happy with the market at $60,000, $65,000 or $70,000 a day. When it comes to specifically your question of destocking, I think that there are 2 scenarios. There is a quick draw and a slow draw. The quick draw is basically where people are just dumping the oil that have been stored onboard the ships, and ships are returning quickly to the market, which will lead very quickly to the column called long term, and I'm going to come back to that a minute. What is likely to happen is the slow draw. And why do I say that? Well, simply because the last time we had contango, it took about 12 months for the ships that had been taken on storage and potentially prolonged in their contract to come back fully into the trading fleet. And when you think about it, there is a reason for that. If tomorrow all the oil that has been stored is coming back to the market at a point where the market is demanding 95 million or potentially 100 million barrels of consumption per day, well, obviously, the oil price will be negatively impacted. And if it's negatively impacted by the draw on the inventory, it means that there is a contango being created because the oil price will be at $15 or $20, but everybody knows that when the draw is done, the oil price will be higher, creating the contango curve. When you create the contango curve, you obviously ask more ships to play that game and to store the oil for that contango story. So that's a little bit what we believe is going to happen. It's not going to be as supportive as what we have seen in the last month and what we are expecting to see probably in the not-too-distant future. But it will not be a catastrophe. I think that when we will hit weakness in the market is probably when all the ships are coming back to the market. And again, it could be quick, but we don't believe that. And when they are all back, we will need to see what sort of consumption that is out there because many predictions are set for below 100 million barrels of consumption, which is the consumption we had prior to COVID. As Brian said, what is interesting is then to look at the older part of the fleet. And people will take the decision to scrap their ships way, way, way before it hits OpEx level. As a matter of fact, you cannot find one tanker market, I'm talking in VLCC, which on average has printed less than $18,000 per day in the last 20 years. And nevertheless, we have had incredible years in terms of scrapping, the last one being 2018. So it's $8,000, $9,000 above OpEx. And nevertheless, it motivates people to scrap. And why is that? Because people need to spend a big amount of capital, and nowadays even more because of the ballast water treatment system, which is costing $1.5 million. So you will need to return in the next 2.5 years when you're taking a ship to dry dock, which is more than 15 years of age. In the next 2.5 years after your dry dock, you will need to get $4 million, $5 million, sometimes $6 million back before you even contemplate the first cent of profit. So I don't know a lot of owners who will do that, especially, especially after a period where we have earned so much money. Do you think that we are earning money only to waste it in older assets and passing dry docks? I don't believe so. So the minute the feed is oversupplied, we have the perfect solution. And as you can see on Slide 15, every single quarter, there's a collection of ships that will need to face that critical question of, do I spend capital? Or do I receive $15 million, $16 million, $17 million, $18 million, whatever the scrap is giving you? I think I know the answer.

Our next question comes from Randy Giveans from Jefferies LLC.

Yes. I think we can all get bogged down on some details, but congrats on the record quarter. It's clear that the second quarter will be another record quarter. So keep the good work going. Now looking at Slide 9, on your charters, can you give a little more details around that? How many VLCCS, average duration, average rate? When do they begin? We need some details here.

Yes. Well, it's obviously on purpose that we didn't give too many details. I can tell you that it's both VLCCs and Suezmax. I can tell you that it's not only a contract for 6 months. As a matter of fact, the last 1 is a 2-year contract on a non-eco vessel. And we will continue to look at opportunities. I think that when it's a 6-month contract, quite frankly, we shouldn't differentiate between spot and 6-months contract because you will look at the spots. You will look at the next voyage. You are being asked to deliver the ship promptly, which means that you can completely compare and assess what is more lucrative, leaving it into the spot market or pulling it on a 6-months charter. So of course, in that percentage, we have 3 or 4 vessels that are on 6-months charter. But we only accept to book them because at that time, there might have been a little bit of weakness in the spot market, and at that time, the 6-months contract was paying more. We've had plenty of other opportunities that we passed on because when you compare $75,000 a day, which is on average what we were offered for 6 months, and a voyage that can give you $130,000, then, obviously, you take the $130,000 for 90 days. So that's a little bit how we assessed this. We have doubled the number of ships on the time charter. That's correct. We are hopeful that we will see more opportunities for longer duration than 6 months because, as I said, 6 months is very much high in the spot market. And whenever we see those opportunities, we are likely to try to grab them because it's good to have a sort of a balanced approach.

Okay. And I guess touching on that, we saw some 1-year time charters above $70,000 a day a few weeks ago. Where is that market now? How robust or liquid is that market for the 1 year? And then any inquiries for 3 years?

No. We just did 2 years, option one. And that was something, I would say, unrelated to the current environment. It's an oil major that has a program. And then every year, they come with inquiries for 2 years, option 1, or even 3 years. So we just participate to that tender, and we happen to have a good relationship with them. And we have serviced that contract already. So I would say we had a head start. The rest that we have seen was more like 6 months. We've seen that others have picked up 1-year contract. At that time, we decided to pass on, either because it would have meant for us committing an ecoship vessel, and we didn't think that there was value into doing that, i.e., we had no other ships in position to do it or because we thought that the rate was a little bit weak for that matter. At the moment, we're not seeing many 1-year contract. And the majority of the contract that we are seeing is indeed 6 months. The difference with maybe 5, 6 weeks ago is that what we call the Phase 1 of the contango was very much to traders. They were just buying physically the oil, storing in our ship, hedging themselves on paper. And they are usually the first mover. So what we are -- the inquiries that we are receiving now is really from people lacking space. I don't know where to put my oil. I need to rent a ship, and that's what I'm going to do. It is always a time charter contract for trading with an option to store, but there is -- the way they're going to use the ship is very much as a storage. And you can see -- there are different function on Bloomberg, where you can see the number of ships that have been completely standstill for more than 2 weeks. That's how you can identify the number of ships that have been taken for storage. And you can see that it's growing by the day. And in fact, that's what brokers are reporting also on a daily basis. Last but not least, and Brian mentioned that, we're seeing Suezmax being taken as well. In other contango cycle, it was very rare that there was so many Suezmax being taken. That's a demonstration that clearly people are looking for spaces.

Okay. And then just quickly, in terms of the 6-month charter that you mentioned, you're getting a lot of -- that market is very liquid. What kind of rates are you seeing for 6-month inquiries?

Anywhere between $65,000 and still $80,000. It depends a little bit where you're doing it. It depends if the ship is going to move or if you believe that the ship is going to move at the start or at the end of the voyage. So there are a couple of details that will influence the rate. But I think that it's maybe a little bit weaker than what we saw in the first phase, but not that much for the time being.

Perfect. Sounds good. And, yes, just public service announcement for the shareholders. They have to hold the shares on May 28 and, I guess, June 15 to get these dividends. So selling this month is not going to get them any dividends.

That's for sure. Thank you for the reminder, Randy.

Our next question comes from Greg Wasikowski from Webber Research.

It's actually Mike on with Greg. So Hugo, if we could just go to Slide 11 in your deck, I think this kind of sums up where the market is in pretty concise way. And so, obviously, I want to dig in the storage bit. First and foremost, if you look at the demand recovery that's implied by the IEA numbers, right, you're talking about the $20 million to $25 million spike in demand between now and July. Given the lead time associated with international transport, are you guys seeing the green shoots of that kind of demand recovery? Yes, considering that based on most of the published international estimated recovery data, it would have been starting at this point?

No. But I don't think that we're the best people to see that because, indeed, if there is a recovery in demand, I mean, let's not forget that there is quite a lot of product that have installed. And that's very much where you see the demand. So the demand will come from the consumers of petroleum products, which will then send a signal to the refiners, and the refiners will then take more crude oil. And if they take more crude oil, they will probably process the stuff that they have put on storage themselves nearby their facilities before touching either strategic facilities or even what is onboard of vessels.

Yes. Maybe I can frame it a bit differently. Like we can use rate as an indicator there, but there can be a lot of momentum when you get into rates that are 2 and 3x your reference rate, right? When you're getting into the -- closer to $100,000 a day, a lot of that is based on owner momentum and, frankly, kind of the visual negotiating. So I was just curious whether you've seen anything from an operational standpoint that would suggest it. If I look at the -- that implied -- shows kind of a peak in June at about 300 million to 400 million barrels of storage. Based on what you're seeing right now, do you think that's the right month we see a peak in storage? And obviously, this can change quite a bit, but where would you peg a cumulative voting storage peak for the market right now? I think that would help everybody quite a bit if you could just weigh in knowing everything could change very quickly, but I'm not holding you to it, but where is the peak?

Let's -- I don't think that when we -- when Brian was kind enough to read the forward-looking statement or the few words that we always said at the beginning of this call, I was thinking, this has never been so true. The information discussed on this call is based on information as of today. So absolutely right, things can change very quickly. I think that the reason why we've put this graph on Page 11 is because we believe that's a very likely scenario. So yes, indeed, we see the storage onboard vessels peaking. The storage is everywhere, but certainly onboard the vessels peaking in June '20, whether it's at the start of the month, middle of the month or the end of the month, don't ask me. And then let's not forget that most of those contracts will last 6 months. And so it will take 6 months before you release that oil into the market. And we believe that the first oil that will be grabbed from the storages, from the land storage and the ones that are near the facilities, but I think that it is good to monitor that and to monitor what happens until the end of this month and certainly in June. And as we've seen, the number of vessels that are being taken at the moment on storage is evolving almost every day. You see that through different reports. You can monitor that on Bloomberg. And it's a number that continues to creep up at the moment.

Mike, if I can interject. It's Brian Gallagher here. In terms of the numbers, just everyone is clear on the call as well, I think it'd be helpful. We're taking an extraordinarily -- we think a very extremely conservative view, the buildup we've got for May, we're assuming 14, 1-4, million barrels a day of disconnect, and then we see that -- and with pricing in a very conservative, I think, 2 million additional barrels being the disconnect in June. So that's why you have that flattening out. I know what the research that you've written and others have written would suggest that, that would actually be quite an aggressive outcome on the positive side, and things were turning back to normal very, very quickly. So if anything, we would say the risk from the charts we're putting here are actually not trying to sort of back our case that we believe that the storage is going to continue to be an issue. We're not doing it because of just the barrels. There's a sense that this could actually sort of drift further to the right. And that's right and before we look at what we said in our prepared remarks that this shipping doesn't work in real time, as Hugo said just there or was alluding to, we don't anticipate that if this thing finishes in the middle of June that all the barrels will be redistributed in the third week of June. Shipping doesn't work like that. And like I say, we believe there's a latent amount of storage capacity, which is yet to sort of emerge because ships are on their way to take these contracts that then go into storage. So this is going to be a very fast-moving and dynamic market, as we know, but we've tried to be very conservative on this slide.

Great. And I guess that is kind of what I'm getting at. So there's always a natural conservatism in your version doesn't mean any time you're talking about variables that you're stretching out for a number of quarters. So what -- I think that there's a lot of -- there's obviously a lot of ambiguity because we're on charter territory. So what I'm asking is if you were to overlay your estimates in terms of where you actually think, the implication is that we're not -- your implications were not done building yet, and that, that could persist for a while, and the slope of that recovery, probably a bit shallower than what kind of the IEA data would suggest. So I guess what I'm asking is if you could put a vague number on where you think that peak ends up being based on what you can see in front of you right now, and what month do you think that ends up being? I think a degree of clarity around that would be helpful just considering we're all dealing with some pretty vague and smoothed out slopes here.

Yes. We are a little bit on the same camp because who knows? But if -- the number that Brian mentioned, the 14 million barrels to be built up in May, and God knows that we are early May and only 2 million barrels in June, then I think as you -- I mean, clearly, you could see twice as many VLCC and twice as many Suezmax being taken for storage. And then, obviously, that would happen before the end of June. So you will clearly see that. And that would have a positive impact for the ships that are trading because there's still a lot of demand for transporting the oil. So the spot market should be a reflection of the diminishing supply side of the world fleet. As far as the other side of the trade is concerned, i.e., when are we going to see that -- the oil being drawn from those ships? I'm not going to repeat what I said to an earlier question on Page 13. And there are different scenarios. It seems that a slow draw is more likely to happen than a quick draw because the impact on the oil price itself will mean that then you are being asked again to store just for commercial reasons, not for capacity reasons.

Right. Okay. That's helpful. I think what you -- usually the equities is you're trading off on ambiguity in the notion that we're rolling over sort of putting a bit of a fine point on it because I think it would be helpful. But if I can follow up offline. I'll turn it over.

Our next question comes from Greg Lewis from BTIG.

Yes. Just following up a little bit differently on Mike's question. I think the confusion is around the contango and the fact that, I guess, what you're saying is a lot of the storage is going to be related more to logistical bottlenecks, which is what we saw earlier this year. I guess the way I would like to ask it is, clearly, this won't be driven by traders. It will be driven by state oil companies. Have you gotten any indications from them that this is happening? And asking it another way, if I'm a major oil company, and I'm going to take a ship, and I might not necessarily have any place to put the oil, do I even have to communicate that, that is a storage contract? Or could I just simply charter the vessel and then lay it out on demurrage and then just kind of wait?

Normally, that's not what you -- because, of course, when you negotiate a rate, it's between a load port and a discharge port. And then you negotiate the world scale around that and you use the rates that are being published once a year, as you know, and you negotiate a premium discount. That's what we call the world scale, which is above 100% or below 100%. So it's very difficult to play a game where you say, "I'm going to ask you to load the oil in the AG. And then I will pretend to go to China, but I won't deliver the oil in China." So what they do is usually they ask us for an option to store the oil. And then if we go to the option, then it's a rate per day. And very quickly, the contract is being turned into a time charter contract, where we have been paid in advance rather than paid at the end of the voyage. It is true that some people, and I have no doubt that they didn't design that, have ended up having ships that were arriving at the discharge fold and had to wait weeks, if not months, in some locations. And of course, they had to wait being paid the demurrage rate. Now you have to know that the demurrage rate is usually very close to the time charter equivalent that we calculate after agreeing the freight rates. So unless your ship is waiting at a pool freight -- at a pool demurrage rate because the TC was not that good, you are relatively happy about that rate as well. So I don't think there is any design. So when you ask me the question, do we see a difference between the -- what we call the first phase and the second phase? Yes, in the first phase, pretty much all the people asking for a storage option were traders. And I think that we have to accept that those guys also have some limits on the balance sheet because let's not forget that those guys are not only trading oil. They're trading all kinds of products. And it's not pretty out there. So the amount of balance sheet commitment they can do, I think, has reached the top. And what we're seeing today is more, I would say, the conventional oil people, who are looking for space indeed, but they will be relatively straightforward about it and will rent the ship under a TC contract, paying you a daily rate that is agreed between them and us.

Okay, great. And then just what, I guess, my follow-up will be around your -- the fleet time on the website. I guess, based on your comments, 20% of the fleet is fixed. But as I look at these -- the new time charter vessels on this tab, based on your comments, it's safe to -- should I be thinking that the incremental ones that have shown up are 1-year time charters, not 6 months? Is that kind of the right way to think about that?

No. We have -- yes, you're right that we have this internal debate of whether we should treat 6-months time charter contract as a spot or equivalent to the spot. And that's certainly what we do in our philosophy, in our mind and, therefore, what do we do on the website. So we're not trying to be cute about it. We're just trying to be -- well, transparent if we may be and trying to extract more value out of the market. But what we have done is very much 3 contracts -- on VLCC 3 contracts, 6 months, 1 of 2 years, option one. And on the Suezmax, I believe that we have done 1 for 4 months and then 2 for 8 or 9 months. That in addition of what's overall.

Our next question comes from Joe Mares from Trium.

And as a long-term Euronav shareholder and listener to these calls, it's interesting, nobody brings up your scrubbing decision today, but I just wanted to say I think you've shown a lot of wisdom in how you approach that issue and resisted a lot of short-term pressure. So as a long-term shareholder, I appreciate a long-term outlook. My question, if we can discuss in a bit more detail. There've been a lot of headlines about COVID-19 and impact on particular yards or quarantines or bringing things in and out of ports, et cetera. And I'm wondering how that has impacted basically the special surveys, et cetera? Because it seems as though that's one of the thing, besides rates, which probably delays the ability of people to go back into special survey. And if you can discuss that from an operational and how that's played out perspective. If you have to go in for a survey now, kind of what do you do?

Well, Joe, first of all, thank you very much for being a long-term shareholder, and thank you very much for your remarks. It's -- we are also happy about the decision that we took. As far as COVID-19 is concerned, in fact, you've seen 3 phases. And you've seen the aging phase very much dominated, at least in the news line, by China. Then it hit Europe and then it hit the U.S. As most of the shipyards, where we're doing repair and maintenance, i.e., our special surveys are concerned, they are in China and sort of Singapore region. China has completely reopened for those shipyards. But it is true that it has created a bit of a lag because for approximately 6 to 8 weeks, it was not possible to take a ship there. We took, at that time, 1 ship in Singapore and then Singapore decided to close down. We were fortunate enough to have finished the survey and to be able to leave that shipyard. But we also know that some other ship owners had their ships just being stuck there and with no work being conducted. The same thing happened to some people still retrofitting scrubbers. And so some ships were affected there. Today, if you want to take your ship and do a special survey, you clearly can do that, mostly in China. Singapore is a little bit more restricted or still closed at the moment, but there are plenty of yards in China that will do it for the size of ships that we have. It's still a little bit too early to assess the impact for the construction yard, the building yard where you're building your new buildings. Initially, what we heard from Korea, who's sourcing a lot of things from China, is that because China had closed down for 6 to 8 weeks, they were having delays. But it seems that the Koreans are so efficient that they have been able to recover these delays. And so they'll be in a position to deliver the ships that they can or want to deliver. Then last but not least, and that's a rumor which is unconfirmed, but we heard that some new buildings order had been canceled in China during the COVID period, as the Chinese yards didn't know how long it would take to recover. And they were facing specific laws in their contracts, which allowed the owner to stop the contract as it was before the start of the construction. So I don't know if it's true. But Brian, if you help me, I think we heard that about 6 vessels, if I'm not mistaken.

Correct, yes.

Yes. So I mean, to be confirmed would be, again, a very good news for an order book, which already look very, very light.

Our next question comes from Jon Chappell from Evercore ISI.

Hugo, first question is for you. First question on S&P. So well times disposals of non-core tonnage, all-time purchases of newer tonnage. Without asking exactly what the plans are next, as you see the market layout with the different possible scenarios to go out and looking at the asset values today, are you more of a buyer or a seller of assets for the next 6 months?

I would tell you, and that's not going to surprise you, we are more of an opportunistic buyer and seller. And I think that's a little bit what we've tried to demonstrate on this slide. But quite frankly, it may be time to praise the people who are looking after S&P at Euronav because they do a fantastic job really trying to find the good opportunities, be it on the selling side, be it on the buying side. So I think that the -- what you see on the index, you are probably a little bit more of a seller. But again, we're not an asset trader. I mean we like to continue to operate a fairly large fleet. I think that's what -- where we're good at. But we also like to take care of our assets, and that means rejuvenation. And I think going forward, it's going to be very important to make sure that we have very, very economical ships swapping all our assets, which are typically consuming more for more modern assets is certainly not a bad thing, especially when you can sell ahead of the index at the time of selling and below the index at time of buying. So if we find more opportunities there, we're going to continue. As far as growth, because this is more a rejuvenation exercise as far as growth is concerned, I think that Euronav will continue to be opportunistic. We'll continue to be there to try to further consolidate the market, further grow the platform. I think we have a platform which demonstrated it's working fairly well, very strong balance sheet. But that doesn't mean our operational leverage is not good. It's, in fact, as demonstrated in this quarter, last quarter and hopefully the next one, phenomenal operational leverage and, at the same time, very, very solid company in case there are some weakness. And we know we are humble enough to never predict what the next quarter will be. We can exchange views. As I said earlier, everything that we say is true as far as today is concerned, but tomorrow maybe very different. So I think a big consolidation of big fleet acquisition, to the extent it's possible, will more likely take place in the down part of the cycle. But as far as picking up assets here and there, it will depend on what we can find and whether we see that there is value into them or not.

Okay. And the second one, I don't know if it's for Brian or for Hugo. And I think we've beaten the storage horse to death. And you guys had a really good presentation on it. But we're trying to kind of figure out why the storage number keeps rising, all the good things you talked about and yet the rates have collapsed. I'm trying to put those 2 together. And the producers were going full bore in April, and now it seems like they're scaling back in May. So is there any way to kind of gauge the actual transport demand and the impact that that's having as producers scale back in May? Is the beneficial impact of this card?

Well, I

Maybe, Brian, you want to take that.

I'll take the question to Brian. Yes, go ahead.

Sure. Jonathan, yes, I mean, as we're all a little bit groping around in the dark a little bit, in a fast-moving dynamic situation, we're no different. I think we feel that as the industry felt that there's another leg to the storage play to come short term from what we see from some of the plans and what we see from some of the forward cargo patterns. But in terms of the demand side of things, yes, you're exactly right. I wish there was the one variable. But I think you have to remember that roughly 50% to 55% of oil in the demand and use is in transportation. So our view would be it's going to be more sluggish as a recovery. But I know, and there are other views, and we've been very forthright in public this week in terms of the sentiment is obviously very important as well. And as we've seen this week with the oil price falling -- or in the last week or so, rather, the oil price falling and the contango coming down, that's obviously provided a level of support that we had for contango and for higher rates has dropped materially. I think it's just -- we have to get, as Hugo said, right at the start of this call. The volatility is something which we're all used to on this call, and people who follow the stocks. But even someone who has experience as you in this space, it's been incredibly volatile on another level over the last 2 months. I think it's just going to be a moving piece of the dynamic, and it wouldn't surprise us to see continued volatility in this space. I know it's not a very adequate answer maybe, but it is just very -- just until we get some -- until we get some tangible signs of lockdown finishing, I don't think there's a model out there. In Europe, we're seeing Germany next week making -- start making moves. But we're going to have other economies like Spain and the U.K., which are going to take longer. So it's going to be, I think, a case-by-case basis, unfortunately.

Our next question comes from Chris Wetherbee from Citi.

Yes, maybe a short-term one and then maybe a longer-term one. First, in terms of the coverage that you procured in 2Q, just kind of curious how much of that spills over into the third quarter. If you could talk a little bit about sort of how that sort of short-term as well as your term, obviously, we would know sort of the longer-term charters that you've signed up, but in terms of the shorter-term stuff, how much spills over into 3Q?

Very little. I think that we've booked less than 5% of the third quarter at this point in time.

Okay. That's helpful. I appreciate that. And then I guess the bigger picture question that, I think, is probably important is understanding how this sort of dynamic plays out. We've all been trying to get at it in different ways. You're talking about storage and then maybe sort of the unwind of this process. But I think you bring up a very good point about the longer-term uncertainty, which prevents the order book from being added to in a material way. So I guess, as you start to think out beyond sort of the next impact of the storage drawdown and maybe how the fleet development looks beyond sort of that, I don't know if it's a 12-month period here that we're talking about, how do you think that plays out? What would the market look like in late '21 or '22 in a scenario with significantly depleted order book? I don't think we've seen that over the course of the last many decades. I guess I'm kind of curious how that plays out. And how do you think the sort of the ownership structure of the industry might look in terms of consolidation? We've all hoped for that. Is this a potential catalyst for that?

Many very good points that you mentioned or asking, Chris. Again, I'm not sure it's very straightforward for us to see where it's going to pan out, but some thing's got to give. At the moment, people are not buying ships or not ordering ships, I believe, for 2 reasons. The first reason is because there is some sort of uncertainty. And you will remember that most orders are usually placed at the end of a sort of a downturn in our industry or at the very beginning of an uptick. And then people order ships, and they hope to get them before the next cycle or before the uptick cycle is over. We haven't seen that. We've had a good Q4, a good Q1. We're going to get a good Q2, and yet the order book is very flat. So that should tell you something. What it tells you is that, and we've said that many times over this call, there is too much uncertainty. There's too much volatility. I think it also explains partly where -- why our share price are not performing. And here I'm talking collectively better, given the amount of money we are creating. The second leg to that is probably even more important. It's about the technology. So are you going to order a conventional ship? Or are you going to order a dual fuel LNG ship? Or are you going to wait for yet another technology to emerge? Which, clearly, nobody knows what it's going to be. And a lot of people are talking about hydrogen being carried on fuel cells or ammonia or you name it. And I think that, that technology will not be ready before 2023. So people may start ordering it in maybe '22, and that's very, very early stage. So if we try to draw a picture of what's going to happen, I think that any market weakness can be quickly resolved by a number of ships being old enough to hit the scrapyards, the recycling yards. Where we continue to see relatively low order -- because even if the prices go down for dual fuel LNG, it is not yet demonstrated that this is a future-proof ship because the technology may not be the right one compared to other technology, which are supposed to emerge. And so I think that as far as our market is concerned, be it in growth in terms of oil consumption or in decline in terms of oil consumption, we will manage. And any period of weakness should not be lasting too long and certainly should last shorter than what we have seen in the past. So that's the reason why we are relatively optimistic about it. We have no more clues than you guys about the future, but we know that we have a couple of recipes to fix whatever problem we may face. So let's watch all these indicators in the future, and let's make sure that not too many orders are being placed. And the last thing I would like to add there is, obviously, the yards -- for the yards, it's going to be a very difficult period of time. And I have no doubt that the yards, at some point, will make special offers, be it unconventional ships or on dual fuel LNG ships. And I think at that time, it would be normal that you see a couple of orders, but it's not sustainable to do too many of those orders at discounted price, obviously. So let's not be panicking or alarming if we see a couple of orders being placed. That's not going to change the markets in a big way.

And our next question comes from Ben Nolan from Stifel.

Yes. It's been a long call, and I appreciate you guys fitting me in, but I wanted to ask about something that hasn't been asked yet. But thinking through the decision of holding back on consuming the fuel that you are currently storing on your own ship, could you maybe walk me through the idea of doing that rather than consuming it? And specifically, maybe the thinking around the possibility of generating cash flow from that asset by storage for third parties. You use what you have and then you can actually generate some revenue on it. How does that weigh into the calculation of using versus not using?

Yes. Ben, thank you very much for that question. It's very important for people to understand. So we have 2 ULCCs. We have the Europe, and we have the Oceania. And the Europe is indeed being marketed for storage purposes. And I would say it's always trading in storage purposes, and those ships are moving, but it's true that they tend to stay in location longer than conventional VLCCs. Because they are not conventional size, they don't fit the same rate. And that is explained relatively easily by the fact that you need to play a market with the way the market is structured. The market is structured for 1 million barrel lot, 2 million barrel lot. So whenever you have a ship and you can offer space, which is 3.2, it's a bit of an odd cargo size. And so you need to combine it. It's not easy. And when you need to discharge, it's also not easy because you will need to sell it in 1, 2 or 3 -- sorry, in 2 or 3 lots or more. And when you look at, historically, those ships have performed with far less volatility than a VLCC. So yes, today, the Europe is under a contract for $50,000. The charter had an option to extend it last month for another 6 months at $50,000. We were expecting to do that, and it didn't. And so we have rented the ship to someone else at a slightly lower rate. Let's make sure that we don't -- we are not being confused with the lost opportunity on the Oceania and comparing with VLCC because that's not the case. Secondly, why haven't we consumed or what if we stop consuming the fuel oil that is indeed apart from the Oceania? Simply because we wanted to see whether the market was very volatile, in other words, whether the oil price and the fuel oil price was going down very, very quickly and would rebound very quickly up. And obviously, that's not what we have seen. So now what we are doing is we continue to consume a little bit from the Oceania. So we have a mix of procurement from the market from the Oceania. We are buying wholesale in large quantities. We benefit from a discount. And then we distribute from the Oceania to our fleet. And most of it is coming from the market, but some of it is coming from the Oceania. So we're trying to blend it down. And obviously, the figure that Lieve showed you, the $56 million, that was at the end of the quarter. And when you look at the price of gas oil or the price of LSFO, it's obviously higher than that today. So I think we were already right in a way not to consume it directly, but to wait until it bounces back, which is the case today. Will it bounce back to the level of which we acquired it? Probably not. But let's not forget that the game plan was really to assure the quality, to assure that we could smoothen out the exacerbation of the market because it was a new market. We did that. So even if we consume it at a prices slightly above the market, I don't think that it's -- that people will notice it very strongly in our P&L. And again, I don't think that it's the end of that story. We have learned a lot of things about fuel procurement. And touch wood, we have not had any bad stems onboard the vessels, whereas we've heard a lot of horror stories of LSFO being obviously compliant, but creating a lot of problems in the engine room. We haven't had that because we have been able to test all the material. So again, let's not focus too much on the money that is lost on paper at the moment. You can count on us to try to create value or at least limit the loss. And again, very, very happy not to have spend $350 million on scrubbers.

Yes. I certainly would be, too. The -- my next question, and this is just really a clarification. It might have been a missed question, but you're talking through sort of the thinking of dividend payouts. And I just wanted to make sure that I understood clearly. So as it relates to the second quarter and the earnings on the second quarter specifically, investors should expect for that 80% of the net income to be paid out. Is that correct, I guess?

So the policy is actually relatively simple. The policies that we -- we've targeted 80% of net income to be redistributed to shareholders. And you have 2 ways to redistribute that to shareholders. You have dividends and your share buyback. Earlier in this call, as I mentioned, I said that we're not entirely happy with the share price. And I think that no one should be on this call even today. It's still a discount to NAV. And the reason why we haven't done any buyback in the first quarter is because it was very volatile. And at times, it was at NAV. And at times, it wasn't at the NAV. And we're not going to constantly intervene like if we wanted to support the share price on any weakness. If the weakness is prolonged and we continue to see a very big discount compared to NAV, then I think that we will use that tool in the toolbox. So today, I cannot tell you what the level of dividends will be compare to the P&L because some of it -- some of those returns may come with a share buyback, which I think will create long-lasting values for shareholders. But again, it's not going to be all or nothing, right? I mean, dividends are important. We understand that in today's world, very few companies are capable of distributing dividends and certainly capable of distributing as much dividends as we are doing. We had a new guidance in January. We thought it was very important to commit to it and show that we are serious. Even under the current circumstances, we are very serious to distribute 80% of our net income after capital gains, of course, of dividend. We're showing you that this is a reality, and we hope that the market will take it as the reality. And if they don't, and the share price remains weak, then we may use other tools.

Okay. All right. That helps a lot. I appreciate that. And I guess, I don't know if there -- well, at this point, I'll turn it over. Although I do -- it's been a fun market, but I'm looking forward to seeing some more traffic lights at some point there, Brian.

We didn't do the traffic light because we thought that it would confuse people. Or in the 5 different segments, some of it would have been green, and some of it would have been red at the same time. And it can't be amber because it was too distinct, causes for being red or for being green. But we like the idea, and we'll certainly come back to it when times are a little bit more certain. Apologies for that.

Our next question comes from Omar Nokta from Clarksons.

Yes. I know it's quite late in the call, but I just had a couple of quick follow-ups. And maybe just as we think about the $95,000 a day number for the TI Pool average so far for 2Q, I know Brian discussed the lag effect in rates relative to the indexes we're seeing, and, obviously, prices having come off is playing a role. When we think about also the time charters that you've entered into, were those done in the TI Pool that maybe is kind of -- maybe is factored into the $95,000 and thus making it look or appear lower?

No. None of those time charters were done in the TI Pool. And that's not the reason. And it's -- but it's a very good question because we were surprised when we saw most of the analysts, so you're certainly not the only one out there, thinking that the market was a lot higher than what it was. And the only thing that we could say at that time is the market is always volatile. And every single fixture is a mini ocean in itself. But what we saw also during this quarter, and that usually is not the case, is that the market was very fragmented in the sense that if you were doing an AG Far East voyage, it would suddenly pay you way more than a U.S. Gulf Far East, which traditionally over the last 10-years -- 2 years, has been paying a lot more. So when you assess the market as being, okay, it must be $120 a day, in fact, it was $80,000 on one side and $150 on the other side. But obviously, the 2 voyages not being the same length, the average was not $120. The average was probably much lower than that. So that is certainly one of the reasons. The second thing that I would like to mention here is we live in a world where the voyages, on average, are taking longer because in the voyages, you also need to take into account the delays in port. And what it means is that, very often, you're going to have the voyage that will last more than a quarter. So you really need to combine Q1 with Q2, Q2 with Q3, Q3 with Q4 and so on, to have a better average picture of what the market is. I mean we are all sitting here dividing the year in 4, but does it make sense in the VLCC market? Probably not. So let's take a sort of a deeper view. I think that we were much stronger than what the market or the analysts had predicted in Q1. We're very pleased, but we don't call that an outperformance. So I think that you have to mix Q1 and Q2 to arrive to a sort of average performance for the fleet. And it's the same when you compare our results with the index or the index that you're using or when you compare our results with other companies. I think that you have to take more than 1 quarter to differentiate between companies.

No, that's fair. And it's a good point, Hugo. And then just finally, you -- and apologies if you've answered this to an extent, but on the VLSFO in storage, you -- by kind of staying away from it for some time here, one, is there any issues that it's degrading? And then, two, do you think there's an opportunity to maybe offload it, sell it into the market and then maybe make that vessel available for a floating storage contract for -- on a commercial basis?

Yes. So I thought I answered the question with Ben earlier. And it's difficult to offload and sell it to someone. You would crystallize your losses, whereas what we've done so far is, quite frankly, well, not crystallizing the loss. And then, of course, you have to look at the opportunity cost. And the opportunity cost, as I explained, for this particular type of vessel is not that great. So we're not losing a potential $80,000, $90,000, $100,000 a day contract. If that was the case, we would have done it on the other vessels, the Europe, and we haven't done that. And then, of course, we would have tried to get rid of that product as quickly as possible. I think that we will continue to look at ways to create value. And when I say create value, we certainly try to decrease the paper loss that we have at the moment. The market is helping us. Everything from oil to all the products is going up. So it's okay. I would say it's okay. Can I just add something on your previous question? Because I forgot to say that one of the reason why the indexes are probably ahead of the physical market when it comes to time charter equivalent is also because there's been -- certainly in the last 3 months, there's been clearly an abuse of the subjects that are being put when you fix a vessel. So the subject is a concept that was invented to make sure that the vessel was technically acceptable to perform a contract and certainly not to be treated as an option to keep the vessels for 2 or 3 days in your fleet. And then if you think that -- if you see that market is going up, you take it. If you see the market is going down, you let it go. And there's been an abuse -- a clear abuse in the market because of that. And I think that the indexes are much more geared towards the ships on subs rather than fully fixed. So what you see on subs has been -- there's been a lot of failure, and, on average, more failures than in usual time simply because there's been a lot of volatility. And that might be also a distortion that has created this false expectation for rates to be even higher.

Yes, Hugo. That's actually a very important point. And I guess it's something that really showed itself about 6 months ago after the COSCO sanction. And we've been hearing more about that. Is that something that has really developed here over the past year? Or is this just something that long term has always existed and should become much more visible now?

So it has certainly developed far more and the more volatility you will have in our markets. And here, I'm taking -- I'm speaking daily or weekly volatility the more you will see this abuse continuing. And there's very little thing that we can do. Obviously, we like to service our customers, but there's a little bit of a give and take that we're not seeing at the moment. But initially, as I said, the subjects were only because vessel could not be inspected physically, the certificates, the OCIMF or the vetting reports could not be done at the time of negotiating the rate. The terminals need to accept the vessels. So you need to check a number of things. But if your paper are in order, there's absolutely no reason why you should be failed. You have agreed a rate, and that rate should be ones that if your paper are in order, should be the ones that you fix. And unfortunately, at the moment, that's not how the market is playing this subject. So I think that as an industry, this is something that we should address. I don't think that Euronav on its own can address it, but it's certainly something that has increased recently because the market has been more volatile. And so it's so easy to drop the vessels when the market is slightly going down and to keep the vessel when the market is going up.

Yes. Yes, definitely. And DHT made those same comments yesterday. Okay. Well, I appreciate the dialogue.

And our next question comes from J Mintzmyer from Value Investor's Edge.

We got quite the marathon on the call today, but congratulations on an excellent result. Most of the questions -- of course, yes. Most of the questions have been fantastic. I think we covered most of the points. One question I did have is on the nuances of repurchase. I get a lot of questions about that. And I know you kind of bounced back and forth between a 10% and a 20% authorization. So just to make things clear, when does that kick in officially? Are you in any sort of blackout or post earnings? Is that repurchase available?

Yes. So until the next AGM, we still have authorization to do buybacks. And those authorizations are valid for 5 years. The last time we asked was 5 years ago and we got authority to get 20%. As we were preparing for this AGM and we asked it, but it is not an AGM, it is an SGM in fact. We have asked the question because we also need a quorum. I don't want to enter into too many technical details. But in other words, we have been able to test the waters. And to our surprise, most of the proxy agencies recommend to vote against more than 10% share buyback. So when we asked 20%, it was refused with or without quorum. And we hope that the 10% will be accepted, but we believe that it will be accepted because on the one that we just organized, which -- where we didn't have a quorum, it was accepted. And so on the next one, we don't need a quorum. And so we hope that the agencies will vote in the same direction. I personally believe that it's very strange that you guys, you guys being all the investors out there, are being confident that the agencies represents truly what you want us to do. And clearly, we have never said that if we do share buyback, we won't do dividends. We've demonstrated that pretty much every other years where we did both. And I think that share buybacks are there to create long-term value for shareholders. So they are a great tool in the toolbox. And I'm not sure I understand why those proxy agencies are recommending toward against more than 10%. But hopefully, we will get that 10% by the end of May, and that will be valid for the next 5 years. And if we run out of that because we have bought already 10%, then we can ask at the next AGM, et cetera, et cetera. So I don't think it's a big subject, but it's true that I'm a bit frustrated with the recommendation from the proxy agencies.

Excellent, Hugo. You know what they say, don't look a gift horse in the mouth, but it looks like most investors are taking the horse out behind the bar. And so you can get that repurchase activated. I think it will do good things for you. Last time we talked, we looked at your leverage. And look, your book leverage, you mentioned on the slides, is 42% booked after the dividend -- after the large dividend. And of course, your book is very conservative because of your depreciation policy, right, that goes to 20 years to 0 instead of maybe 20 or 25 to scrap. So if anything, your leverage is lower. Last time we talked, you mentioned that you agreed that your leverage is quite low, and you said there's actually room if you wanted to, to expand that leverage maybe up to 50% max. You have about $1 billion in liquidity. Is that still something you would look into if you wanted to maybe accelerate those repurchases or pick up some distressed tonnage? Or are you comfortable where you're at now with leverage?

Well, you're absolutely right in your analysis that you have to take into account all those elements at the same time in order to decide what you do with dividends, what you do with share buyback and potentially what you do with acquisitions, but we already commented earlier on this call that we feel that the values are probably a little bit too high, unless we see a sort of distressed opportunity or an interesting opportunity. Last year, we did share buyback, and, together with the dividend that we distribute, was indeed more than our target of 80%. This is a conversation that we are constantly having amongst ourselves, but also with our Board. And until the time we decide, I'm afraid I'm not going to be able to tell you much more about it. So you will hear about it after the events. But it's true that with the kind of balance sheet, liquidity -- so balance sheet and leverage and the liquidity that we have, with the kind of outlook that we have for Q2, and let's see what -- how the market positions itself in Q3, we have a lot of flexibility to do a lot of things. And the idea is not to rush ourselves in one thing, but to see and analyze a little bit how things are developing. And I think we shouldn't be ashamed of what we have done so far. The fact that we are underlevered is also because the market has developed very, very strongly. And so keeping 20% is indeed quite a lot the more the market is generous with you. But it also builds up some reserves in order to continue the consolidation game when the market will be weaker. So one way or another, the shareholders will benefit from it.

Excellent. I think that makes sense, Hugo. Well, thank you very much for your good leadership at Euronav, and we look forward to the next results.

And ladies and gentlemen, with that, we will be concluding today's question-and-answer session and today's presentation. We do thank you for joining today's conference call. You may now disconnect your lines.

Thank you very much, everyone. See you next time.