Washington, D.C. 20549
Securities registered or to be registered pursuant to section 12(b) of the Act.
Securities registered or to be registered pursuant to section 12(g) of the Act.
* Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See the definitions of "large accelerated filer" and "accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Matters discussed in this report may constitute forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.
We desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are including this cautionary statement in connection therewith. This report and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance, and are not intended to give any assurance as to future results. When used in this document, the words "believe," "expect," "anticipate," "estimate," "intend," "plan," "target," "project," "likely," "may," "will," "would," "could" and similar expressions, terms, or phrases may identify forward-looking statements.
The forward-looking statements in this report are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.
In addition to important factors and matters discussed elsewhere in this report, and in the documents incorporated by reference herein, important factors that, in our view, could cause our actual results and developments to differ materially from those discussed in the forward-looking statements include:
Not applicable.
Not applicable.
Throughout this report, all references to "Euronav," the "Company," "we," "our," and "us" refer to Euronav NV and its subsidiaries. Unless otherwise indicated, all references to "U.S. dollars," "USD," "dollars," "US$" and "$" in this annual report are to the lawful currency of the United States of America and references to "Euro," "EUR," and "€" are to the lawful currency of Belgium.
We refer to our "U.S. Shares" as those shares of the CompanyEuronav with no par value that are reflected in the U.S. component of our share register, or the U.S. Register, that is maintained by Computershare Trust Company N.A, or Computershare, our U.S. transfer agent and registrar, and are formatted for trading on the New York Stock Exchange, or the NYSE. The U.S. Shares are identified by CUSIP B38564 108. We refer to our "Belgian Shares" as those shares of the CompanyEuronav with no par value that are reflected in the Belgian component of our share register, or the Belgian Register, that is maintained by De Interprofessionele Effectendeposito- en Girokas (CIK) NV (acting under the commercial name Euroclear Belgium), or Euroclear Belgium, our agent, and are formatted for trading on Euronext Brussels. The Belgian Shares are identified by ISIN BE0003816338. Our U.S. Shares and our Belgian Shares taken together are collectively referred to as our "ordinary shares." For further discussion of the maintenance of our share register, please see "Item 10. Additional Information —B. Memorandum and Articles of Association—Share Register."
The following tables set forth, in each case for the periods and as of the dates indicated, our selected consolidated financial data and other operating data as of and for the years ended December 31, 2017, 2016 2015, 2014 2013, 2012 and 2011.2013. The selected data is derived from our audited consolidated financial statements, except where noted, which have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. The selected historical financial information presented in the tables below should be read in conjunction with and is qualified in its entirety by reference to our audited consolidated financial statements and the accompanying notes. The audited consolidated financial statements and the accompanying notes as of December 31, 20152017 and 2014December 31, 2016 and for the years ended December 31, 2015, 20142017, 2016 and 20132015 are included in this annual report.
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(2) | Calendar days are the total days the vessels were in our possession for the relevant period, including off-hire days associated with major repairs, drydockings(scheduled or special or intermediate surveys.unscheduled). |
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(3) | Vessel operating daysare the total days our vessels were in our possession for the relevant period net of all off-hire days (scheduled and unscheduled). |
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(4) | Available days are the total days our vessels were in our possession for the relevant period net of scheduled off-hire days associated with major repairs, drydockings or special or intermediate surveys. |
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(5) | Fleet utilization is the percentage of time that our vessels were available for revenue generating voyage days and is determined by dividing Vessel operating days by available days for the relevant period. The shipping industry uses fleet utilization to measure a company's efficiency in finding suitable employment for its vessels and minimizing the number of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades, special surveys or intermediate or vessel positioning. |
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(6) | Time Charter Equivalent, or TCE, (a non-IFRS measure) is a measure of the average daily revenue performance of a vessel on a per voyage basis. Our method of calculating the TCE rate is consistent with industry standards and is determined by dividing total voyage revenues less voyage expenses by vessel operating days for the relevant time period. The period over which voyage revenues are recognized commences at the time the vessel leaves the port at which she discharged her cargo related to her previous voyage (or as the case may be when a vessel is leaving a yard at which she went to drydock or in the case of a newbuilding where she was built or in the case of a newly acquired vessel as from the moment the vessel is available to take a cargo). The period ends at the time that discharge of cargo is completed. Net voyage revenues are voyage revenues minus voyage expenses. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by the charterer under a time charter contract. We may incur voyage related expenses when positioning or repositioning vessels before or after the period of a time charter, during periods of commercial waiting time or while off-hire during dry-docking or due to other unforeseen circumstances. The TCE rate is not a measure of financial performance under IFRS (non-IFRS measure), and should not be considered as an alternative to voyage revenues, the most directly comparable IFRS measure, or any other measure of financial performance presented in accordance with IFRS. However, TCE rate is standard shipping industry performance measure used primarily to compare period-to-period changes in a company's performance and assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance. Our calculation of TCE rates may not be comparable to that reported by other companies. |
The following table reflects the calculation of our TCE rates for the years ended December 31, 2015, 2014, 2013, 2012 and 2011:
| | 2015 | | | 2014 | | | 2013 | |
VLCC | | | | | | | | | |
Net VLCC revenues for all employment types | | $ | 509,277,925 | | | $ | 198,316,363 | | | $ | 104,068,875 | |
Total VLCC operating days | | | 9,645 | | | | 7,294 | | | | 4,036 | |
Daily VLCC TCE Rate | | $ | 52,802 | | | $ | 27,189 | | | $ | 25,785 | |
SUEZMAX | | | | | | | | | | | | |
Net Suezmax revenues for all employment types | | $ | 269,090,422 | | | $ | 165,894,436 | | | $ | 128,449,941 | |
Total Suezmax operating days | | | 6,780 | | | | 6,774 | | | | 6,661 | |
Daily Suezmax rate | | $ | 39,689 | | | $ | 24,491 | | | $ | 19,284 | |
Tanker Fleet | | | | | | | | | | | | |
Net Tanker fleet revenues for all employment type | | $ | 778,368,347 | | | $ | 364,210,799 | | | $ | 232,518,816 | |
Total Fleet operating days | | | 16,425 | | | | 14,068 | | | | 10,697 | |
Daily Fleetwide TCE | | $ | 47,390 | | | $ | 25,890 | | | $ | 21,737 | |
| | 2012 | | | 2011 | |
VLCC | | | | | | |
Net VLCC revenues for all employment types | | $ | 114,987,548 | | | $ | 125,195,000 | |
Total VLCC operating days | | | 4,891 | | | | 5,119 | |
Daily VLCC TCE Rate | | $ | 23,510 | | | $ | 24,457 | |
SUEZMAX | | | | | | | | |
Net Suezmax revenues for all employment types | | $ | 135,488,742 | | | $ | 156,280,502 | |
Total Suezmax operating days | | | 6,436 | | | | 6,448 | |
Daily Suezmax rate | | $ | 21,052 | | | $ | 24,237 | |
Tanker Fleet | | | | | | | | |
Net Tanker fleet revenues for all employment type | | $ | 250,476,290 | | | $ | 281,475,502 | |
Total Fleet operating days | | | 11,327 | | | | 11,568 | |
Daily Fleetwide TCE | | $ | 22,113 | | | $ | 24,332 | |
The following table reflects the calculation of our net revenues for the years ended December 31, 2015, 2014, 2013, 2012 and 2011:
| | Year Ended December 31, | |
(US$ in thousands) | | 2015 | | | 2014 | | | 2013 | | | 2012 | | | 2011 | |
Voyage charter revenues | | $ | 720,416 | | | $ | 341,867 | | | $ | 171,225 | | | $ | 175,947 | | | $ | 139,265 | |
Time charter revenues | | $ | 126,091 | | | $ | 132,118 | | | $ | 133,396 | | | $ | 144,889 | | | $ | 187,050 | |
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Subtotal revenue | | $ | 846,507 | | | $ | 473,985 | | | $ | 304,622 | | | $ | 320,836 | | | $ | 326,315 | |
Other income | | $ | 7,426 | | | $ | 11,411 | | | $ | 11,520 | | | $ | 10,478 | | | $ | 5,773 | |
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Total operating revenues | | $ | 853,933 | | | $ | 485,396 | | | $ | 316,142 | | | $ | 331,314 | | | $ | 332,088 | |
Less: | | | | | | | | | | | | | | | | | | | | |
Other income * | | $ | (4,328 | ) | | $ | (2,882 | ) | | $ | (4,039 | ) | | $ | (8,738 | ) | | $ | (3,729 | ) |
Total revenues attributable to ships owned by Euronav | | $ | 849,605 | | | $ | 482,514 | | | $ | 312,103 | | | $ | 322,576 | | | $ | 328,359 | |
Tanker Fleet Net Tanker Fleet Revenues reconciliation | | | | | | | | | | | | | | | | | | | | |
Share of total Revenues attributable to ships owned by Euronav | | $ | 849,605 | | | $ | 482,514 | | | $ | 312,103 | | | $ | 322,576 | | | $ | 328,359 | |
less voyage expenses and commissions | | $ | (71,237 | ) | | $ | (118,303 | ) | | $ | (79,584 | ) | | $ | (72,100 | ) | | $ | (46,884 | ) |
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Net Total tanker fleet | | $ | 778,368 | | | $ | 364,211 | | | $ | 232,519 | | | $ | 250,476 | | | $ | 281,476 | |
of which Net VLCC Revenues for all employment types | | $ | 509,278 | | | $ | 198,316 | | | $ | 104,069 | | | $ | 114,988 | | | $ | 125,195 | |
of which Net Suezmax Revenues for all employment types | | $ | 269,090 | | | $ | 165,895 | | | $ | 128,450 | | | $ | 135,489 | | | $ | 156,281 | |
*Some revenues are excluded because these do not relate directly to vessels, such as rental income and insurance rebates.
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(7) | Daily vessel operating expenses, or DVOE,, (a non-IFRS measure) is calculated by dividing direct vessel expenses, which includes crew costs, provisions, deck and engine stores, lubricating oil, insurance and maintenance and repairs, by calendar days for the relevant time period. |
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(8) | Average daily general and administrative expenses are calculated by dividing general and administrative expenses by calendar days for our owned tanker segment and relevant time period. Average daily general and administrative expenses are lower when our jointly-owned vessels are included in this calculation. |
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(9) | EBITDA (a non-IFRS measure) represents operating earnings before interest expense, income taxes and depreciation expense attributable to us. EBITDA is presented to provide investors with meaningful additional information that management uses to monitor ongoing operating results and evaluate trends over comparative periods. We believe that EBITDA is useful to investors as the shipping industry is capital intensive which often brings significant cost of financing. EBITDA should not be considered a substitute for profit/(loss) attributable to us or cash flow from operating activities prepared in accordance with IFRS as issued by the IASB or as a measure of profitability or liquidity. The definition of EBITDA used here may not be comparable to that used by other companies. Please see the reconciliation to Profit (loss) for the period, the nearest IFRS measure. |
| | Year Ended December 31, | |
| | 2015 | | | 2014 | | | 2013 | | | 2012 | | | 2011 | |
EBITDA Reconciliation (unaudited) | | | | | | | | | | | | | | | |
Profit (loss) for the period | | $ | 350,301 | | | $ | (45,797 | ) | | $ | (89,683 | ) | | $ | (118,596 | ) | | $ | (95,987 | ) |
plus Net finance expenses | | $ | 47,630 | | | $ | 93,353 | | | $ | 52,644 | | | $ | 50,158 | | | $ | 46,821 | |
plus Depreciation of tangible and intangible assets | | $ | 210,206 | | | $ | 160,954 | | | $ | 136,957 | | | $ | 147,062 | | | $ | 142,571 | |
plus Income tax expense/(benefit) | | $ | 5,633 | | | $ | (5,743 | ) | | $ | 178 | | | $ | (726 | ) | | $ | 118 | |
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EBITDA (unaudited) | | $ | 613,770 | | | $ | 202,767 | | | $ | 100,096 | | | $ | 77,898 | | | $ | 93,523 | |
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(10) | Adjusted EBITDA (a non-IFRS measure) represents operating earnings including(including the share of EBITDA of equity accounted investeesinvestees) before interest expense, income taxes and depreciation expense attributable to us. Adjusted EBITDA provides investors with meaningful additional information that management uses to monitor ongoing operating results and evaluate trends over comparative periods as the shipping industry is a capital intensive industry which often brings significant cost of financing. We also believe that Adjusted EBITDA is useful to investors and equity analysts as a measure of our operating performance that can be readily compared to other companies and we use Adjusted EBITDA in our internal evaluation of operating effectiveness and decisions regarding the allocation of resources. Adjusted EBITDA should not be considered a substitute for profit/(loss) attributable to us or cash flow from operating activities prepared in accordance with IFRS as issued by the IASB or any other measure of operating performance. The definition of Adjusted EBITDA used here may not be comparable to that used by other companies. Please see the reconciliation to Profit (loss) for the period, the nearest IFRS measure. |
The following table reflects the calculation of our TCE rates for the years ended December 31, 2017, 2016, 2015, 2014, and 2013:4
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(Unaudited) | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
VLCC | |
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Net VLCC revenues for all employment types | | $ | 323,892,625 |
| | $ | 445,792,653 |
| | $ | 509,277,925 |
| | $ | 198,316,363 |
| | $ | 104,068,875 |
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Total VLCC operating days | | 10,859 |
| | 10,553 |
| | 9,645 |
| | 7,294 |
| | 4,036 |
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Daily VLCC TCE Rate | | $ | 29,827 |
| | $ | 42,243 |
| | $ | 52,802 |
| | $ | 27,189 |
| | $ | 25,785 |
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SUEZMAX | |
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Net Suezmax revenues for all employment types | | $ | 130,562,503 |
| | $ | 183,049,801 |
| | $ | 269,090,422 |
| | $ | 165,894,436 |
| | $ | 128,449,941 |
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Total Suezmax operating days | | 6,820 |
| | 6,751 |
| | 6,780 |
| | 6,774 |
| | 6,661 |
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Daily Suezmax rate | | $ | 19,144 |
| | $ | 27,114 |
| | $ | 39,689 |
| | $ | 24,490 |
| | $ | 19,284 |
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Tanker Fleet | |
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Net Tanker fleet revenues for all employment type | | $ | 454,455,128 |
| | $ | 628,842,454 |
| | $ | 778,368,347 |
| | $ | 364,210,799 |
| | $ | 232,518,816 |
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Total Fleet operating days | | 17,679 |
| | 17,304 |
| | 16,425 |
| | 14,068 |
| | 10,697 |
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Daily Fleetwide TCE | | $ | 25,706 |
| | $ | 36,341 |
| | $ | 47,389 |
| | $ | 25,889 |
| | $ | 21,737 |
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The following table reflects the calculation of our net revenues for the years ended December 31, 2017, 2016, 2015, 2014, and 2013: |
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| | Year Ended December 31, |
(US$ in thousands) | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Voyage charter revenues | | $ | 394,663 |
| | $ | 544,038 |
| | $ | 720,416 |
| | $ | 341,867 |
| | $ | 171,226 |
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Time charter revenues | | $ | 118,705 |
| | $ | 140,227 |
| | $ | 126,091 |
| | $ | 132,118 |
| | $ | 133,396 |
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Subtotal revenue | | $ | 513,368 |
| | $ | 684,265 |
| | $ | 846,507 |
| | $ | 473,985 |
| | $ | 304,622 |
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Other income | | $ | 4,902 |
| | $ | 6,996 |
| | $ | 7,426 |
| | $ | 11,411 |
| | $ | 11,520 |
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Total operating revenues | | $ | 518,270 |
| | $ | 691,261 |
| | $ | 853,933 |
| | $ | 485,396 |
| | $ | 316,142 |
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Less: | |
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Other Income* | | $ | (1,780 | ) | | $ | (2,858 | ) | | $ | (4,328 | ) | | $ | (2,882 | ) | | $ | (4,039 | ) |
Tanker Fleet | | |
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Net Tanker Fleet Revenues reconciliation | |
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Share of total Revenues attributable to ships owned by Euronav* | | $ | 516,490 |
| | $ | 688,403 |
| | $ | 849,605 |
| | $ | 482,514 |
| | $ | 312,103 |
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less voyage expenses and commissions | | $ | (62,035 | ) | | $ | (59,560 | ) | | $ | (71,237 | ) | | $ | (118,303 | ) | | $ | (79,584 | ) |
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Net Total tanker fleet | | $ | 454,455 |
| | $ | 628,843 |
| | $ | 778,368 |
| | $ | 364,211 |
| | $ | 232,519 |
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of which Net VLCC Revenues for all employment types | | $ | 323,893 |
| | $ | 445,793 |
| | $ | 509,278 |
| | $ | 198,316 |
| | $ | 104,069 |
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of which Net Suezmax Revenues for all employment types | | $ | 130,562 |
| | $ | 183,050 |
| | $ | 269,090 |
| | $ | 165,895 |
| | $ | 128,450 |
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* Some revenues are excluded because these do not relate directly to vessels, such as rental income and insurance rebates.
| | | | | Year Ended December 31, | |
| | 2015 | | | 2014 | | | 2013 | | | 2012 | | | 2011 | |
Adjusted EBITDA Reconciliation (unaudited) | | | | | | | | | | | | | | | |
Profit (loss) for the period | | $ | 350,301 | | | $ | (45,797 | ) | | $ | (89,683 | ) | | $ | (118,596 | ) | | $ | (95,987 | ) |
plus Net finance expenses | | $ | 47,630 | | | $ | 93,353 | | | $ | 52,644 | | | $ | 50,158 | | | $ | 46,821 | |
plus Net finance expenses JV | | $ | 5,288 | | | $ | 7,351 | | | $ | 8,352 | | | $ | 12,370 | | | $ | 8,892 | |
plus Depreciation of tangible and intangible assets | | $ | 210,206 | | | $ | 160,954 | | | $ | 136,957 | | | $ | 147,062 | | | $ | 142,571 | |
plus Depreciation of tangible and intangible assets JV | | $ | 29,314 | | | $ | 29,058 | | | $ | 30,405 | | | $ | 30,451 | | | $ | 25,952 | |
plus Income tax expense/(benefit) | | $ | 5,633 | | | $ | (5,743 | ) | | $ | 178 | | | $ | (726 | ) | | $ | 118 | |
plus Income tax expense/(benefit) JV | | $ | (182 | ) | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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Adjusted EBITDA (unaudited) | | $ | 648,190 | | | $ | 239,176 | | | $ | 138,853 | | | $ | 120,719 | | | $ | 128,367 | |
B. | Capitalization and Indebtedness |
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| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
EBITDA Reconciliation (unaudited) | |
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Profit (loss) for the period | | $ | 1,383 |
| | $ | 204,049 |
| | $ | 350,301 |
| | $ | (45,797 | ) | | $ | (89,683 | ) |
plus Net finance expenses | | $ | 43,463 |
| | $ | 44,840 |
| | $ | 47,630 |
| | $ | 93,353 |
| | $ | 52,644 |
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plus Depreciation of tangible and intangible assets | | $ | 229,872 |
| | $ | 227,763 |
| | $ | 210,206 |
| | $ | 160,954 |
| | $ | 136,958 |
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plus Income tax expense/(benefit) | | $ | (1,358 | ) | | $ | (174 | ) | | $ | 5,633 |
| | $ | (5,743 | ) | | $ | 178 |
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EBITDA (unaudited) | | $ | 273,360 |
| | $ | 476,478 |
| | $ | 613,770 |
| | $ | 202,767 |
| | $ | 100,097 |
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| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Adjusted EBITDA Reconciliation (unaudited) | |
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Profit (loss) for the period | | $ | 1,383 |
| | $ | 204,049 |
| | $ | 350,301 |
| | $ | (45,797 | ) | | $ | (89,683 | ) |
plus Net finance expenses | | $ | 43,463 |
| | $ | 44,840 |
| | $ | 47,630 |
| | $ | 93,353 |
| | $ | 52,644 |
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plus Net finance expenses JV | | $ | 829 |
| | $ | 3,212 |
| | $ | 5,288 |
| | $ | 7,351 |
| | $ | 8,352 |
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plus Depreciation of tangible and intangible assets | | $ | 229,872 |
| | $ | 227,763 |
| | $ | 210,206 |
| | $ | 160,954 |
| | $ | 136,958 |
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plus Depreciation of tangible and intangible assets JV | | $ | 18,071 |
| | $ | 23,774 |
| | $ | 29,314 |
| | $ | 29,058 |
| | $ | 30,404 |
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plus Income tax expense/(benefit) | | $ | (1,358 | ) | | $ | (174 | ) | | $ | 5,633 |
| | $ | (5,743 | ) | | $ | 178 |
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plus Income tax expense/(benefit) JV | | $ | 1,488 |
| | $ | 215 |
| | $ | (182 | ) | | — |
| | — |
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Adjusted EBITDA (unaudited) | | $ | 293,748 |
| | $ | 503,679 |
| | $ | 648,190 |
| | $ | 239,176 |
| | $ | 138,853 |
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B.Capitalization and Indebtedness
Not applicable.
C. | Reasons for the Offer and Use of Proceeds |
C.Reasons for the Offer and Use of ProceedsNot applicable.
D.Risk Factors
The following risks relate principally to us and our business and the industry in which we operate, the securities market and ownership of our securities, including our ordinary shares. The occurrence of any of the risk factors described below could significantly and negatively affect our business, financial condition or operating results, which may reduce our ability to pay dividends, and lower the trading price of our ordinary shares.
Risk Factors Relating to Our Industry
The tanker industry is cyclical and volatile, which may lead to reductions and volatility in the charter rates we are able to obtain, in vessel values and in our earnings and available cash flow.
The tanker industry is both cyclical and volatile in terms of charter rates and profitability. For example, during the sixseven year period from 2010 through 2015,2016, time charter equivalent, or TCE, spot rates for a VLCC trading between the Middle East Gulf and Japan ranged from rates below operating expenses to a high of $115,780$114,148 per day. This volatility continued in 2016,2017, with average monthlydaily rates on the same route fluctuating between $39,750$7,502 (below operating expenses) to $101,923$62,223 per day. A worsening of the current global economic conditions may adversely affect our ability to charter or recharter our vessels or to sell them on the expiration or termination of their charters, or any renewal or replacement charters that we enter into may not be sufficient to allow us to operate our vessels profitably. Fluctuations in charter rates and vessel values result from changes in the supply and demand for tanker capacity and changes in the supply and demand for oil and oil products.
The factors affecting the supply and demand for tankers are outside of our control, and the nature, timing and degree of changes in industry conditions are unpredictable.
The factors that influence demand for tanker capacity include:
| · | supply and demand for energy resources and oil and petroleum products; |
| · | competition from, and supply and demand for, alternative sources of energy; |
| · | regional availability of refining capacity and inventories; |
| · | global and regional economic and political conditions, including armed conflicts, terrorist activities and strikes; |
5the distance over which the oil and the oil products are to be moved by sea;
changes in seaborne and other transportation patterns, including shifts in transportation demand between crude oil and refined oil products;
environmental and other legal and regulatory developments;
| · | the distance over which the oilweather and natural disasters; and the oil products are to be moved by sea; |
| · | changes in seaborne and other transportation patterns; |
| · | environmental and other legal and regulatory developments; |
| · | weather and natural disasters; and |
| · | international sanctions, embargoes, import and export restrictions, nationalizations and wars. |
The factors that influence the supply of tanker capacity include:
| · | demand for alternative sources of energy; |
| · | the number of newbuilding deliveries; |
| · | the scrapping rate of older vessels; |
the scrapping of older vessels, depending, amongst other things, on scrapping rates and international scrapping regulations; | · | conversion of tankers to other uses; |
| · | the number of vessels that are out of service; |
| · | environmental concerns and regulations; and |
| · | port or canal congestion. |
Declines in oil and natural gas prices for an extended period of time, or market expectations of potential decreases in these prices, could negatively affect our future growth in the tanker and offshore sector. Sustained periods of low oil and natural gas prices typically result in reduced exploration and extraction because oil and natural gas companies' capital expenditure budgets are subject to cash flow from such activities and are therefore sensitive to changes in energy prices. These changes in commodity prices can have a material effect on demand for our services, and periods of low demand can cause excess vessel supply and intensify the competition in the industry, which often results in vessels, particularly older and less technologically-advanced vessels, being idle for long periods of time. We cannot predict the future level of demand for our services or future conditions of the oil and natural gas industry. Any decrease in exploration, development or production expenditures by oil and natural gas companies could reduce our revenues and materially harm our business, results of operations and cash available for distribution.
Any decrease in shipments of crude oil may adversely affect our financial performance.
The demand for our vessels and services in transporting oil derives primarily from demand for Arabian Gulf, West African, North Sea, Caribbean Gulf and CaribbeanGulf of Mexico crude oil, which, in turn, primarily depends on the economies of the world's industrial countries and competition from alternative energy sources. A wide range of economic, social and other factors can significantly affect the strength of the world's industrial economies and their demand for crude oil from the mentioned geographical areas. One such factor is the price of worldwide crude oil. The world's oil markets have experienced high levels of volatility in the last 25 years. In 2015,2017, crude oil reached a high of $61.36$60.46 per barrel (WTI)/$66.3366.80 per barrel (Brent) and a low of $34.55$42.53 per barrel (WTI)/$35.2645.31 per barrel (Brent). As of March 24, 2016,1, 2018, crude oil was $39.46$60.99 per barrel (WTI)/40.44$54.08 per barrel (Brent).
Any decrease in shipments of crude oil from the above-mentioned geographical areas could have a material adverse effect on our financial performance. Among the factors which could lead to such a decrease are:
| · | increased crude oil production from other areas, including the exploitation of shale reserves in the United States and the growth in its domestic oil production and exportation; |
| · | increased refining capacity in the Arabian Gulf or West Africa; |
6increased use of existing and future crude oil pipelines;
a decision by Arabian Gulf or West African oil-producing nations to increase their crude oil prices or to further decrease or limit their crude oil production;
armed conflict in the Arabian Gulf and West Africa and political or other factors;
| · | increased use of existingtrade embargoes or other economic sanctions by the United States and other countries (including the economic sanctions against Russia as a result of continued political tension due to the situation in the Ukraine); and future crude oil pipelines; |
| · | a decision by Arabian Gulf or West African oil-producing nations to increase their crude oil prices or to further decrease or limit their crude oil production; |
| · | armed conflict in the Arabian Gulf and West Africa and political or other factors; |
| · | trade embargoes or other economic sanctions by the United States and other countries (including the economic sanctions against Russia as a result of increased political tension due to the situation in the Ukraine); and |
| · | the development and the relative costs of nuclear power, natural gas, coal and other alternative sources of energy. |
In addition, conditions affecting the economy of the United States and the world economies such as China may result in reduced consumption of oil products and a decreased demand for our vessels and lower charter rates, which could have a material adverse effect on our earnings and our ability to pay dividends.
An over-supply of tanker capacity may lead to a reduction in charter rates, vessel values, and profitability.
The market supply of tankers is affected by a number of factors, such as supply and demand for energy resources, including oil and petroleum products, supply and demand for seaborne transportation of such energy resources, and the current and expected purchase orders for newbuildings.newbuildings and the number of vessels being scrapped. If the capacity of new tankers delivered exceeds the capacity of tankers being scrapped andor converted to non-trading tankers, tanker capacity will increase. If the supply of tanker capacity increases and if the demand for tanker capacity decreases or does not increase correspondingly, charter rates could materially decline. A reduction in charter rates and the value of our vessels may have a material adverse effect on our results of operations and available cash and our ability to comply with the covenants in our loan agreements.
Our growth in the offshore floating, storage and offloading (FSO) sector depends on the level of activity in the offshore oil and natural gas industry, which is significantly affected by, among other things, volatile oil and natural gas prices, and may be materially and adversely affected by a decline in the offshore oil and natural gas industry.
The offshore production, storage and export industry is cyclical and volatile. Our growth strategy depends in partis partially based on expansion in the offshore FSO sector, which depends on the level of activity in oil and natural gas exploration, development and production in offshore areas worldwide. The availability of quality FSO prospects, exploration success, relative production costs, the stage of reservoir development and political and regulatory environments affect customers' FSO programs. Oil and natural gas prices and market expectations of potential changes in these prices also significantly affect this level of activity and demand for offshore units.
Our results of operations are subject to seasonal fluctuations, which may adversely affect our financial condition.
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, charter rates. Peaks in tanker demand quite often precede seasonal oil consumption peaks, as refiners and suppliers anticipate consumer demand. Seasonal peaks in oil demand can broadly be classified into two main categories: (1) increased demand prior to Northern Hemisphere winters as heating oil consumption increases and (2) increased demand for gasoline prior to the summer driving season in the United States. Unpredictable weather patterns and variations in oil reserves disrupt tanker scheduling. This seasonality may result in quarter-to-quarter volatility in our operating results, as many of our vessels trade in the spot market. Seasonal variations in tanker demand will affect any spot market related rates that we may receive.
Acts of piracy on ocean-going vessels could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels trading in regions of the world such as the South China Sea, the Indian Ocean, the Gulf of Guinea and in the Gulf of Aden off the coast of Somalia. Over the past few years, the frequency of piracy incidents in the Gulf of Aden and in the Indian Ocean has decreased significantly whereas there has been an increase in the South China Sea whileand the situation in the Gulf of Guinea has now more or less stabilized.stabilized, whereas there has been an increase in the South China Sea. If these piracy attacks occur in regions in which our vessels are deployed being characterized by insurers as "enhanced risk" zones, premiums payable for such coverage could increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, as well as costs which may be incurred to the extent we employ onboard security guards, could increase in such circumstances. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, detention hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a material adverse impact on our business, results of operations, cash flows and financial condition and may result in loss of revenues, increased costs and decreased cash flows to our customers, which could impair their ability to make payments to us under our charters.
The current state of the global financial banking markets and current economic conditions may adversely impact our ability to obtain additional financing on acceptable terms and otherwise negatively impact our business.
Global financial banking markets and economic conditions have been, and continue to be, volatile. In recent years, operating businesses in the global economyAlthough capital markets have faced tightening credit, weakening demand for goods and services, deteriorating international liquidity conditions, and declining markets.improved, they still remain volatile. Since 2008, there has been a general decline in the willingness of banks and other financial institutions to extend credit, particularly in the shipping industry, due to the historically volatile asset values of vessels. As the shipping industry is highly dependent on the availability of credit to finance and expand operations, it has been negatively affected by this decline.
As a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets may increase as many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, and in some cases ceased, to provide funding to borrowers. Due to these factors, additional financing may not be available if needed and to the extent required, on acceptable terms or at all. If additional financing is not available when needed, or is available only on unfavorable terms, we may be unable to expand or meet our obligations as they come due or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.
If economic conditions throughout the world continue to be volatile, it could impede our operations.
Negative trends in the global economy that emerged in 2008 continue to adversely affect global economic conditions. In addition, theThe world economy continues to facefaces a number of new challenges, including the effects of lowervolatile oil prices, continuing turmoil and hostilities in the Middle East, the Korean Peninsula, North Africa, RussiaVenezuela and other geographic areas and countries, continuing threat of terrorist attacks around the world, continuing instability and conflicts and other recent occurrences in the Middle East and in other geographic areas and countries, continuing economic weakness in the European Union, or the E.U., and softeningstabilizing growth in China. There has historically been a strong link between the development of the world economy and demand for energy, including oil and gas. An extended period of deterioration in the outlook for the world economy could reduce the overall demand for oil and gas and for our services. Such changes could adversely affect our results of operations and cash flows.
The economies of the United States, the E.U. and other parts of the world continue to experience relatively slow growth and exhibit weak economic trends. The credit
Credit markets in the United States and Europe have in the past experienced significant contraction, de-leveraging and reduced liquidity, and there is a risk that the U.S. federal government and state governments and European authorities continue to implement a broad variety of governmental action and/or new regulation of the financial markets. Global financial markets and economic conditions have been, and continue to be, severely disrupted and volatile. Since 2008, lending by financial institutions worldwide remains at significantly lower levels than in the period preceding 2008.
We face risks attendant to changes in economic environments, changes in interest rates, and instability in the banking and securities markets around the world, among other factors. We cannot predict how long the current market conditions will last. However, these recent and developing economic and governmental factors, together with the concurrent decline in charter rates and vessel values, may have a material adverse effect on our results of operations and financial condition and may cause the price of our ordinary shares to decline.
The instability of the Euro or the inability of countries to refinance their debts could have a material adverse effect on our revenue, profitability and financial position.
As a result of the credit crisis in Europe, in particular in Greece, Italy, Ireland, Portugal and Spain, the European Commission created the European Financial Stability Facility, or the EFSF, and the European Financial Stability Mechanism, or the EFSM, to provide funding to Eurozone countries in financial difficulties that seek such support. In March 2011, the European Council agreed on the need for Eurozone countries to establish a permanent stability mechanism, the European Stability Mechanism, or the ESM, which was established on September 27, 2012activated by mutual agreement, to assume the role of the EFSF and the EFSM in providing external financial assistance to Eurozone countries.countries entered into force in May 2013. Despite these measures, concerns persist regarding the debt burden of certain Eurozone countries and their ability to meet future financial obligations and the overall stability of the Euro. An extended period of adverse development in the outlook for European countries could still reduce the overall demand for oil and gas and for our services. These potential developments, or market perceptions concerning these and related issues, could affect our financial position, results of operations and cash flow.
Consolidation and governmental regulation of suppliers may increase the cost of obtaining supplies or restrict our ability to obtain needed supplies, which may have a material adverse effect on our results of operations and financial condition.
We rely on third-parties to provide supplies and services necessary for our operations, including equipment suppliers, caterers and machinery suppliers. Recent mergers have reduced the number of available suppliers, resulting in fewer alternatives for sourcing key supplies. With respect to certain items, we are generally dependent upon the original equipment manufacturer for repair and replacement of the item or its spare parts. Such consolidation may result in a shortage of supplies and services thereby increasing the cost of supplies and/or potentially inhibiting the ability of suppliers to deliver on time. These cost increases or delays could have a material adverse effect on our results of operations and result in downtime, and delays in the repair and maintenance of our vessels and FSOs. Furthermore, many of our suppliers are U.S. companies or non-U.S. subsidiaries owned or controlled by U.S. companies, which means that in the event a U.S. supplier was debarred or otherwise restricted by the U.S. government from delivering products, our ability to supply and service our operations could be materially impacted. In addition, through regulation and permitting, certain foreign governments effectively restrict the number of suppliers and technicians available to supply and service our operations in those jurisdictions, which could materially impact our operations and financial condition.
Our international operations expose us to additional costs and legal and regulatory risks, which could have a material adverse effect on our business, results of operations and financial conditions
We operate worldwide, where appropriate, through agents or other intermediaries. Compliance with complex local, foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business. These numerous and sometimes conflicting laws and regulations include, among others, data privacy requirements (particularly with respect to(in particular the recent invalidation ofEuropean General Data Protection Regulation, enforceable as from May 25, 2018 and the U.S.-European Union safe harborEU-US Privacy Shield Framework, as adopted by the European Court of Justice)Commission on July 12, 2016), labor relations laws, tax laws, anti-competition regulations, import and trade restrictions, export requirements, U.S. laws such as the FCPA and other U.S. federal laws and regulations established by the office of Foreign Asset Control, local laws such as the UK Bribery Act 2010 or other local laws which prohibit corrupt payments to governmental officials or certain payments or remunerations to customers.
Given the high level of complexity of these laws, there is a risk that we may inadvertently breach some provisions. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business. Violations of laws and regulations also could result in prohibitions on our ability to operate in one or more countries and could materially damage our reputation, our ability to attract and retain employees, or our business, results of operations and financial condition. Furthermore, detecting, investigating and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.
We are subject to complex laws and regulations, including environmental laws and regulations that can adversely affect our business, results of operations, cash flows, financial condition, and our available cash.
Our operations are subject to numerous laws and regulations in the form of international conventions and treaties, national, state and local laws and national and international regulations in force in the jurisdictions in which our vessels operate or are registered, which can significantly affect the ownership and operation of our vessels. These requirements include, but are not limited to, the United States ,or U.S., Oil Pollution Act of 1990, or OPA, the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA, the U.S. Clean Air Act, or the CAA, the U.S. Clean Water Act, or the CWA, the U.S. Marine Transportation Security Act of 2002, or the MTSA, European Union or E.U., regulations, regulations of the United Nations International Maritime Organization, or the IMO, including the International Convention for the Prevention of Pollution from Ships of 1975,1973, as from time to time amended and generally referred to as MARPOL, including the International Convention for the Preventiondesignation of Marine Pollution of 1973, the International Convention for the Safety of Life at Sea of 1974,Emission Control Areas, or ECAs, thereunder, the International Convention on Load Lines of 1966, and the International Ship and Port Facility Security Code, or the ISPS Code. Compliance with such laws and regulations, where applicable, may require installation of costly equipment or operational changes and may affect the resale value or useful lives of our vessels. We may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to air emissions including greenhouse gases, the management of ballast waters, maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution incidents. Oil spills that occur from time to time may also result in additional legislative or regulatory initiatives that may affect our operations or require us to incur additional expenses to comply with such new laws or regulations.
These costs could have a material adverse effect on our business, results of operations, cash flows and financial condition and our available cash. A failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Environmental laws often impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Under OPA, for example, owners, operators and bareboat charterers are jointly and severally strictly liable for the discharge of oil within the 200-nautical mile exclusive economic zone around the United StatesU.S. (unless the spill results solely from the act or omission of a third-party, an act of God or an act of war). An oil spill could result in significant liability, including fines, penalties, criminal liability and remediation costs for natural resource damages under international and U.S. federal, state and local laws, as well as third-party damages, including punitive damages, and could harm our reputation with current or potential charterers of our tankers. We are required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although we have arranged insurance to cover certain environmental risks, there can be no assurance that such insurance will be sufficient to cover all such risks or that any claims will not have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.
It should be noted that the U.S. is currently experiencing changes in its environmental policy, the results of which have yet to be fully determined. For example, in April 2017, the U.S. President signed an executive order regarding environmental regulations, specifically targeting the U.S. offshore energy strategy, which may affect parts of the maritime industry and our operations. Furthermore, recent action by the IMO’s Maritime Safety Committee and United States agencies indicate that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. For example, cyber-risk management systems must be incorporated by ship-owners and managers by 2021. This might cause companies to cultivate additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. However, the impact of such regulations is hard to predict at this time.
If we fail to comply with international safety regulations, we may be subject to increased liability, which may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.
The operation of our vessels is affected by the requirements set forth in the IMO's International Management Code for the Safe Operation of Ships and for Pollution Prevention, or the ISM Code, promulgated by the IMO under the International Convention for the Safety of Life at Sea of 1974, or SOLAS. The ISM Code requires the party with operational control of a vessel to develop and maintain an extensive "Safety Management System" that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. If we fail to comply with the ISM Code, we may be subject to increased liability, invalidation of our existing insurance or a reduction in available insurance coverage for our affected vessels.
Non-compliance with the ISM Code and other IMO regulations may subject the shipowner or bareboat charterer to increased liability, may lead to decreases in, or invalidation of, available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The U.S. Coast Guard ("USCG") and E.U. authorities have indicated that vessels not inAuthorities enforce compliance with the ISM Code by the applicable deadlines will be prohibitedand prohibit non-compliant vessels from trading in U.S. and E.U. ports.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Due to concern over the risk of climate change, a number of countries and the IMO have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. These regulatory measures may include, among others, adoption of cap and trade regimes, carbon taxes, decreases of fossil fuel subsidies, increased efficiency standards and incentives or mandates for renewable energy. More specifically, on October 27, 2016, the International Maritime Organization’s Marine Environment Protection Committee announced its decision concerning the implementation of regulations mandating a reduction in sulfur emissions from 3.5% currently to 0.5% as of the beginning of 2020. By 2020 ships will now have to either remove sulfur from emissions or buy fuel with low sulfur content, which may lead to increased costs and supplementary investments for ship owners.
In addition, although the emissions of greenhouse gases from international shipping currently are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which required adopting countries to implement national programs to reduce emissions of certain gases, or the Paris Agreement (discussed further below), a new treaty may be adopted in the future that includes restrictions on shipping emissions. Compliance with changes in laws, regulations and obligations relating to climate change could increase our costs related to operating and maintaining our vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions or administer and manage a greenhouse gas emissions program. Revenue generation and strategic growth opportunities may also be adversely affected.
Adverse effects upon the oil and gas industry relating to climate change, including growing public concern about the environmental impact of climate change, may also adversely affect demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the demand for oil and gas in the future or create greater incentives for use of alternative energy sources. In addition, the physical effects of climate change, including changes in weather patterns, extreme weather events, rising sea levels, scarcity of water resources, may negatively impact our operations. Any long-term material adverse effect on the oil and gas industry could have a significant financial and operational adverse impact on our business that we cannot predict with certainty at this time.
Declines in charter rates, vessel values and other market deterioration could cause us to incur impairment charges.
We evaluate the carrying amounts of our vessels to determine if events have occurred that would require an impairment of their carrying amounts. The recoverable amount of vessels is reviewed based on events and changes in circumstances that would indicate that the carrying amount of the assets might not be recovered. The review for potential impairment indicators and projection of future cash flows related to the vessels is complex and requires us to make various estimates relating to, among other things, vessel values, future freight rates, earnings from the vessels, discount rates and discount rates. Alleconomic life of vessels. Many of these items have been historically volatile.experienced volatility.
We evaluate the recoverable amount as the higher of fair value less costs to sell andor value in use. If the recoverable amount is less than the carrying amount of the vessel, the vessel is deemed impaired. The carrying values of our vessels may not represent their fair market value at any point in time because the new market prices of secondhand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. For the years ended December 31, 20152017 and 2014,2016, we evaluated the recoverable amount of our vessels and we did not recognize an impairment loss. AnyFactors that we considered in our estimate are described in the Critical Accounting policies. In particular, our estimate for future TCE rates is based on the trailing 10-year historical average spot rates for both VLCC and Suezmax tankers, which we believe is a reasonable basis for this determination. As 2008 was an exceptionally high year in terms of TCE achieved by both the VLCC and Suezmax fleets, the use of a 10-year range that excludes year 2008 may result in a reduction of the value in use used in the determination of the recoverable amount, compared to the 10-year range as of December 31, 2017 which includes 2008. Excluding the year 2008 from our determination of value in use, which would be the case when applying the 10-year range as of December 31, 2018, could result in an impairment charge incurred as a result of further declines in charter rates could negatively affect our business, financial condition, operating results orloss for the trading price of our ordinary shares.year ending December 31, 2018.
We operate our vessels worldwide and as a result, our vessels are exposed to international risks and inherent operational risks of the tanker industry, which may adversely affect our business and financial condition.
The operation of an ocean-going vessel carries inherent risks. Our vessels and their cargoes will beare at risk of being damaged or lost because of events such as marine disasters, bad weather, and acts of God, business interruptions caused by mechanical failures, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and other circumstances or events. In addition, changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. These events may result in death or injury to persons, loss of revenues or property, the payment of ransoms, environmental damage, higher insurance rates, damage to our customer relationships, and market disruptions, delay or rerouting, which may also subject us to litigation. In addition, the operation of tankers has unique operational risks associated with the transportation of oil. An oil spill may cause significant environmental damage and the associated costs could exceed the insurance coverage available to us. Compared to other types of vessels, tankers are exposed to a higher risk of damage and loss by fire, whether ignited by a terrorist attack, collision, or other cause, due to the high flammability and high volume of the oil transported in tankers.
If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs and maintenance are unpredictable and may be substantial. We may have to pay drydocking costs that our insurance does not cover in full. The loss of revenues while these vessels are being repaired and repositioned, as well as the actual cost of these repairs, may adversely affect our business and financial condition. In addition, space at drydocking facilities is sometimes limited and not all drydocking facilities are conveniently located. We may be unable to find space at a suitable drydocking facility or our vessels may be forced to travel to a drydocking facility that is not conveniently located to our vessels' positions. The loss of earnings while these vessels are forced to wait for space or to travel to more distant drydocking facilities may adversely affect our business and financial condition. Further, the total loss of any of our vessels could harm our reputation as a safe and reliable vessel owner and operator. If we are unable to adequately maintain or safeguard our vessels, we may be unable to prevent any such damage, costs, or loss which could negatively impact our business, financial condition, results of operations and available cash.
In addition, international shipping is subject to various security and customs inspection and related procedures in countries of origin and destination and trans-shipment points. Inspection procedures can result in the seizure of the cargo and/or our vessels, delays in the loading, offloading or delivery and the levying of customs duties, fines or other penalties against us. It is possible that changes to inspection procedures could impose additional financial and legal obligations on us. Furthermore, changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.
We may be subject to risks inherent in the conversion of vessels into FSOs and the operation of FSO activities.
Our FSO activities are subject to various risks, including delays, cost overruns, unavailability of supplies, employee negligence, defects in machinery, collisions, service damage to vessels, damage or loss to freight, piracy or strikes. In case of delays in delivering FSO under service contract to the end-user, contracts can be amended and/or cancelled. Moreover, the operation of FSO vessels is subject to the inherent possibility of maritime disasters, such as oil spills and other environmental accidents, and to the obligations arising from the ownership and management of vessels in international trade. We have established current insurance against possible accidents and environmental damage and pollution that complies with applicable law and standard practices in the sector. However, there is no guarantee that such insurance will remain available at rates which are regarded as reasonable by us or that such insurance will remain sufficient to cover all losses incurred or the cost of each compensation claim made against us, or that our insurance policies will cover the loss of income resulting from a vessel becoming non-operational. Should compensation claims be made against us, our vessels may be impounded or subject to other judicial procedures, which would adversely affect our results of operations and financial condition.
If labor interruptions are not resolved in a timely manner, they could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
We employ masters, officers and crews to man our vessels. If not resolved in a timely and cost-effective manner, industrial action or other labor unrest could prevent or hinder our operations from being carried out as we expect and could have a material adverse effect on our business, results of operations, cash flows, financial condition and ability to pay dividends.
Our labor costs and the operating restrictions that apply to us could increase as a result of collective bargaining negotiations and changes in labor laws and regulations, and disputes resulting in work stoppages, strikes, or disruptions could adversely affect our business.
The majority of our employees (land-based and offshore) are represented by collective bargaining agreements in Belgium, Greece, France and the Philippines. For a limited number of vessels, the employment of onboard staff is based on internationally negotiated collective bargaining agreements. In addition, many of these represented individuals are working under agreements that are subject to salary negotiation. These negotiations could result in higher personnel costs, other increased costs or increased operating restrictions that could adversely affect our financial performance. In addition, as part of our legal obligations, we are required to contribute certain amounts to retirement funds and pension plans (with insurance companies or integrated in a national social security scheme) and are bound to legal restrictions in our ability to dismiss employees. Any disagreements concerning ordinary or extraordinary collective bargaining may damage our reputation and the relationship with our employees and lead to labor disputes, including work stoppages, strikes and/or work disruptions, which could hinder our operations from being carried out normally, and if not resolved in a timely cost-effective manner, could have a material effect on our business.
World events could affect our results of operations and financial condition.
We conduct most of our operations outside of the United StatesU.S. and Belgium. Our business, results of operations, cash flows, financial condition and available cash may be adversely affected by the effects of political instability, terrorist or other attacks, war or international hostilities. Continuing conflicts and recent developments in North Korea, the Middle East, including Syria and Egypt, andthe Korean Peninsula, North Africa, including Libya,and other geographic regions and countries and the presence of the United States and Belgium and other armed forces in Afghanistancertain of these regions may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further world economic instability and uncertainty in global financial markets. As a result of the above, insurers have increased premiums and reduced or restricted coverage for losses caused by terrorist acts generally. Future terrorist attacks could result in increased volatility of the financial markets and negatively impact the U.S. and global economy. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all.
In the past, political instability has also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia. Any of these occurrences could have a material adverse impact on our business, financial condition, results of operations and available cash.
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In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum (informally known as Brexit). The referendum was advisory, and the terms of any withdrawal are subject to a negotiation period that could last two years after the government of the United Kingdom formally initiated the withdrawal process by invoking Article 50 of the Treaty on European Union on March 29, 2017. It is not clear what impact this will have on the conduct of cross-border business, and this uncertain outcome could increase volatility in the markets and could increase our regulatory compliance costs. These developments have had and may continue to have a material adverse effect on global economic conditions. The withdrawal of the United Kingdom from the EU may lead to a downturn across the European economies, and there is a risk that other countries in the European Union will look to hold referendums on whether to stay in or leave the EU. The potential effects of Brexit could have unpredictable consequences for financial and shipping markets and may adversely affect our future performance, results of operations, cash flows and financial position.
If our vessels call on ports located in countries that are subject to sanctions and embargos imposed by the U.S. or other governments, that could adversely affect our reputation and the market for our ordinary shares.
Although we believe that no vessels owned or operated by usThe U.S. government and other authorities have called on ports located inmade certain countries subject to sanctions and embargoes imposed by the U.S. government and other authorities or countrieshave identified by the U.S. governmentcountries or other authorities as state sponsors of terrorism, such as Iran, Sudan, Syria and Syria, in the future, our vessels may call on ports in these countries fromNorth-Korea. From time to time on charterers' instructions.instructions, our vessels may, always to the extent permitted under such sanctions and embargoes, call on ports located in such countries. Sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. In 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or "CISADA," which expanded the scope of the Iran Sanctions Act. Among other things, CISADA expands the application of the prohibitions on companies such as ours and introduces limits on the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products.
In 2012, President Obama signed Executive Order 13608 which prohibits foreign persons from violating or attempting to violate, or causing a violation of any sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. Any persons found to be in violation of Executive Order 13608 will be deemed a foreign sanctions evader and will be banned from all contacts with the United States,U.S., including conducting business in US dollars. Also in 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, or the Iran Threat Reduction Act, which created new sanctions and strengthened existing sanctions. Among other things, the Iran Threat Reduction Act intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Iran's petroleum or petrochemical sector. The Iran Threat Reduction Act also includes a provision requiring the President of the United StatesU.S. to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a person the President determines is a controlling beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a variety of sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of that person's vessels from U.S. ports for up to two years.
On November 24, 2013, the P5+1 (the United States,U.S., United Kingdom, Germany, France, Russia and China) entered into an interim agreement with Iran entitled the "Joint Plan of Action," or JPOA. Under the JPOA it was agreed that, in exchange for Iran taking certain voluntary measures to ensure that its nuclear program is used only for peaceful purposes, the United StatesU.S. and E.U. would voluntarily suspend certain sanctions for a period of six months. On January 20, 2014, the United StatesU.S. and the E.U. indicated that they would begin implementing the temporary relief measures provided for under the JPOA. These measures include, among other things, the suspension of certain sanctions on the Iranian petrochemicals, precious metals and automotive industries from January 20, 2014 until July 20, 2014. The JPOA was subsequently extended twice.
On July 14, 2015, the P5+1 and the E.U. announced that they reached a landmark agreement with Iran titled the Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran's Nuclear Program, or the JCPOA, which is intended to significantly restrict Iran's ability to develop and produce nuclear weapons for 10 years while simultaneously easing sanctions directed toward non-U.S. persons for conduct involving Iran, but taking place outside of U.S. jurisdiction and does not involve U.S. persons. On January 16, 2016, or the Implementation Day, the United StatesU.S. joined the E.U. and the United Nations in lifting a significant number of their nuclear-related sanctions on Iran following an announcement by the International Atomic Energy Agency, or IAEA, that Iran had satisfied its respective obligations under the JCPOA.
U.S. sanctions prohibiting certain conduct that is now permitted under the JCPOA have not actually been repealed or permanently terminated at this time. Rather, the U.S. government has implemented changes to the sanctions regime by: (1) issuing waivers of certain statutory sanctions provisions; (2) committing to refrain from exercising certain discretionary sanctions authorities; (3) removing certain individuals and entities from OFAC's sanctions lists; and (4) revoking certain Executive Orders and specified sections of Executive Orders. These sanctions will not be permanently "lifted" until the earlier of "Transition Day," set to occur on October 20, 2023, or upon a report from the IAEA stating that all nuclear material in Iran is being used for peaceful activities.
In addition, charterers and other parties that we have previously entered into contracts with regarding our vessels may be affiliated with persons or entities that are now or may soon be the subject of sanctions imposed by the Obama administrationU.S. Government and/or the E.U. or other international bodies. If we determine that such sanctions require us to terminate existing contracts or if we are found to be in violation of such sanctions, we may suffer reputational harm and our results of operations may be adversely affected.
Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations, and with respect to the JCPOA, the U.S. retains the authority to revoke the aforementioned relief if Iran fails to meet its commitments under the JCPOA. Any such violation could result in fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, our ordinary shares may adversely affect the price at which our ordinary shares trades.trade. Additionally, some investors may decide to divest their interest, or not to invest, in our company simply because we do business with companies that do business in sanctioned countries. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into charters with individuals or entities in countries subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries, or engaging in operations associated with those countries pursuant to contracts with third-parties that are unrelated to those countries or entities controlled by their governments. Investor perception of the value of our ordinary shares may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
We expect that our vessels will call in ports where smugglers attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of our vessel and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims which could have an adverse effect on our business, results of operations, cash flows and financial condition.
Maritime claimants could arrest our vessels, which would have a negative effect on our cash flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo, secured lenders, and other parties may be entitled to a maritime lien against the relevant vessel for unsatisfied debts, claims or damages. In many jurisdictions, a maritime lien holder may enforce its lien by arresting or attaching a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our business or require us to pay large sums of money to have the arrest lifted, which would have a negative effect on our cash flows.
In addition, in some jurisdictions, such as South Africa, under the "sister ship" theory of liability, a claimant may arrest both the vessel which is subject to the claimant's maritime lien and any "associated" vessel, which is any vessel owned or controlled by the same owner. Claimants could try to assert "sister ship" liability against one vessel in our fleet for claims relating to another of our ships.
Governments could requisition our vessels during a period of war or emergency, which may negatively impact our business, financial condition, results of operations and available cash.
A government could requisition one or more of our vessels for title or hire. Requisition for title occurs when a government takes control of a vessel and becomes the owner. Also, a government could requisition our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Government requisition of one or more of our vessels may negatively impact our business, financial condition, results of operations and available cash.
Technological innovation could reduce our charterhire income and the value of our vessels.
The charterhire rates and the value and operational life of a vessel are determined by a number of factors including the vessel's efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to load and discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. The length of a vessel's physical life is related to its original design and construction, its maintenance and the impact of the stress of operations. If new tankers are built that are more efficient or more flexible or have longer physical lives than our vessels, competition from these more technologically advanced vessels could adversely affect the amount of charterhire payments we receive for our vessels and the resale value of our vessels could significantly decrease. As a result, our results of operations and financial condition could be adversely affected.
Risk Factors Relating to Our Company
We are dependent on spot charters and any decrease in spot charter rates in the future may adversely affect our earnings.
As of March 24, 2016,19, 2018, we employed 4139 of our vessels in either the spot market or in a spot market-oriented tanker pool, including 24 vessels in the Tankers International Pool, or the TI Pool, a spot market-oriented pool in which we were a founding member in 2000, exposing us to fluctuations in spot market charter rates. We will also enter into spot charters in the future. Further, it is our intention to employ as soon as commercially practicable all of the vessels that we will acquire from Gener8 Maritime, Inc. in the proposed Merger (as defined herein) on the spot markets, including within the TI Pool. The spot charter market may fluctuate significantly based upon tanker and oil supply and demand. For example, over the past sixseven years, VLCC spot market rates on the route from Arabian Gulf to Japan expressed as a time charter equivalent have ranged from negative values to a high of $115,780$114,148 per day, and in March 20162018 are so far averaging $58,287$7,728 per day on the new benchmark route between the Middle East Gulf and Japan.China. The VLCC benchmark route from the AG to the Far East was changed by the Baltic in 2018 from discharging in Japan to discharging in China, to better reflect current trading patterns in the VLCC market.The successful operation of our vessels in the competitive spot charter market depends on, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling unladen to pick up cargo. The spot market is very volatile, and, in the past, there have been periods when spot charter rates have declined below the operating cost of vessels. If future spot charter rates decline, then we may be unable to operate our vessels trading in the spot market profitably, meet our obligations, including payments on indebtedness, or pay dividends in the future. Furthermore, as charter rates for spot charters are fixed for a single voyage which may last up to several weeks, during periods in which spot charter rates are rising, we will generally experience delays in realizing the benefits from such increases.
We may not be able to renew or obtain new and favorable charters for our vessels whose charters are expiring or are terminated, which could adversely affect our revenues and profitability.
Our ability to renew expiring contracts or obtain new charters will depend on the prevailing market conditions at the time. If we are not able to obtain new contracts in direct continuation with existing charters or for newly acquired vessels, or if new contracts are entered into at charter rates substantially below the existing charter rates or on terms otherwise less favorable compared to existing contracts terms, our revenues and profitability could be adversely affected. As of March 24, 2016,19, 2018, we employed 118 vessels on time charters, 5 of which expire in 2017 and 6all of which expire in 2018.
The markets in which we compete experience fluctuations in the demand. Upon the expiration or termination of their current charters, we may not be able to obtain charters for our vessels currently employed and there may be a gap in employment of the vessels between current charters and subsequent charters. In particular, if oil and natural gas prices are low, or if it is expected that such prices will decrease in the future, at a time when we are seeking to arrange charters for our vessels, we may not be able to obtain charters at attractive rates or at all.
If the charters which we receive for the reemployment of our current vessels are less favorable, we will recognize less revenue from their operations. Our ability to meet our cash flow obligations will depend on our ability to consistently secure charters for our vessels at sufficiently high charter rates. We cannot predict the future level of demand for our services or future conditions in the oil and gas industry. If oil and gas companies do not continue to increase exploration, development and production expenditures, we may have difficulty securing charters or we may be forced to enter into charters at unattractive rates, which would adversely affect our results of operations and financial condition.
We are subject to certain risks with respect to our counterparties including our joint venture partners, on contracts, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.
We have entered into, and may enter in the future, various contracts, including shipbuilding contracts, credit facilities, charter agreements and other agreements associated with the operation of our vessels. Such agreements subject us to counterparty risks. The ability of each of our counterparties including our joint venture partners, to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the maritime and offshore industries, the overall financial condition of the counterparty, charter rates received for specific types of vessels and various expenses. For example, the combination of a reduction of cash flow resulting from declines in world trade, a reduction in borrowing bases under reserve-based credit facilities and the lack of availability of debt or equity financing may result in a significant reduction in the ability of our charterers to make charter payments to us. In addition, in depressed market conditions, our charterers and customers may no longer need a vessel that is currently under charter or contract or may be able to obtain a comparable vessel at lower rates. As a result, charterers and customers may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts. Should a counterparty fail to honor its obligations under agreements with us, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The failure of our charterers to meet their obligations under our charter agreements, on which we depend for our revenues, could cause us to suffer losses or otherwise adversely affect our business.
The ability and willingness of each of our counterparties to perform their obligations under a time charter, spot voyage or other agreement with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the tanker shipping industry and the overall financial condition of the counterparties. Charterers are sensitive to the commodity markets and may be impacted by market forces affecting commodities such as oil. In addition, in depressed market conditions, there have been reports of charterers renegotiating their charters or defaulting on their obligations under charters. Our customers may fail to pay charterhire or attempt to renegotiate charter rates. Should a counterparty fail to honor its obligations under agreements with us, it may be difficult to secure substitute employment for such vessel, and any new charter arrangements we secure in the spot market or on time charters may be at lower rates given currently decreased tanker charter rate levels. If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to pay dividends, if any, in the future, and compliance with covenants in our credit facilities.
Newbuilding projects are subject to risks that could cause delays, cost overruns or cancellation of our newbuilding contracts.
We are currently party to a shipbuilding contractcontracts with Hyundai Heavy Industries Co. Ltd., in South Korea, or Hyundai, for the construction of onefour newbuilding vessel,Suezmax vessels, for aan aggregate purchase price of $96 million. This vessel is$247.9 million, of which we have already made installment payments to Hyundai of $62.0 million as of March 19, 2018. These vessels are expected to be delivered to us in the second quartercourse of 2016.2018. We may, in the future, enter into additional construction contracts or purchase vessels that are under construction. These construction projects are subject to risks of delay or cost overruns inherent in any large construction project from numerous factors, including shortages of equipment, materials or skilled labor, unscheduled delays in the delivery of ordered materials and equipment or shipyard construction, failure of equipment to meet quality and/or performance standards, financial or operating difficulties experienced by equipment vendors or the shipyard, unanticipated actual or purported change orders, inability to obtain required permits or approvals, unanticipated cost increases between order and delivery, design or engineering changes and work stoppages and other labor disputes, adverse weather conditions or any other events of force majeure. Significant cost overruns or delays could adversely affect our financial position, results of operations and cash flows. Additionally, failure to complete a project on time may result in the delay of revenue from that vessel.
IfIf for any reason we default under our newbuilding contracts, or otherwise fail to take delivery of our newbuilding vessels, we would be prevented from realizing potential revenues from these vessels, we could also lose all or a portion of our investment, including the installment payments made to Hyundai, and we could be liable for penalties and damages under such contracts.
In addition, in the event a shipyard does not perform under its contract, we may lose all or part of our investment, which would have a material adverse effect on our results of operations, financial condition and cash flows.
If we do not identify suitable tankers for acquisition or successfully integrate any acquired tankers, we may not be able to grow or to effectively manage our growth.
One of our strategies is to continue to grow by expanding our operations and adding to our fleet at attractive points in the cycle, including through mergers (such as our proposed Merger with Gener8) strategic alliances or joint ventures. Our future growth will depend upon a number of factors, some of which may not be within our control. These factors include our ability to:
| · | identify suitable tankers and/or shipping companies for acquisitions at attractive prices, which may not be possible if asset prices rise too quickly; |
| · | manage relationships with customers and suppliers; |
obtain financing; | · | identify businesses engaged in managing, operating or owning tankers for acquisitions or joint ventures; |
manage relationships with customers and suppliers; | · | integrate any acquired tankers or businesses successfully with our then-existing operations; |
identify businesses engaged in managing, operating or owning tankers for acquisitions or joint ventures;15integrate any acquired tankers or businesses successfully with our then-existing operations;
attract, hire, train, integrate and retain qualified, highly trained personnel and crew to manage and operate our growing business and fleet;
| · | attract, hire, train, integrate and retain qualified, highly trained personnel and crew to manage and operate our growing business and fleet; |
identify additional new markets; | · | identify additional new markets; |
enhance our customer base; | · | enhance our customer base; |
improve our operating, financial and accounting systems and controls; and | · | improve our operating, financial and accounting systems and controls; and |
| · | obtain required financing for our existing and new operations. |
Our failure to effectively identify, purchase, develop and integrate any tankers or businesses such as the Metrostar Acquisition Vessels (defined below), could adversely affect our business, financial condition and results of operations. We may incur unanticipated expenses as an operating company. Our current operating and financial systems may not be adequate as we implement our plan to expand the size of our fleet. Finally, additional acquisitions such as the Metrostar Acquisition Vessels, may require additional equity issuances or debt issuances, both of which could reduce our cash flow. If we are unable to execute the points noted above, our financial condition may be adversely affected.
Growing any business by acquisition presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel and managing relationships with customers and suppliers and integrating newly acquired operations into existing infrastructures. The expansion of our fleet may impose significant additional responsibilities on our management and staff, and the management and staff of our commercial and technical managers, and may necessitate that we, and they, increase the number of personnel. We cannot give any assurance that we will be successful in executing our growth plans or that we will not incur significant expenseexpenses and losses in connection with our future growth.
An increase in operating costs would decrease earnings and available cash.
Under time charters the charterer is responsible for voyage expenses and the owner is responsible for the vessel operating costs. Under our spot charters, we are responsible for vessel operating expenses. When our owned vessels are operated in the spot market, we are also responsible for voyage expenses and vessel costs. Our vessel operating expenses include the costs of crew, provisions, deck and engine stores, insurance and maintenance and repairs, which expenses depend on a variety of factors, many of which are beyond our control. Voyage expenses include bunkers (fuel), port and canal charges. If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and can be substantial. Increases in any of these expenses would decrease earnings and dividends per share.
Changes in fuel, or bunkers, prices may adversely affect our profits.
Fuel, or bunkers, is typically the largest expense in our shipping operations for our vessels which operate on voyage charter and changes in the price of fuel may therefore adversely affect our profitability. The price and supply of fuel are unpredictable and fluctuate based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by the Organization of the Petroleum Exporting Countries and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Further, fuel and in particular fuel that is reducing sulfur emission may become much more expensive in the future, which may reduce our profitability. We currently do not hedge our exposure to the fluctuating price of bunkers.
If we are unable to operate our vessels profitably, we may be unsuccessful in competing in the highly competitive international tanker market, which would negatively affect our financial condition and our ability to expand our business.
The operation of tanker vessels and transportation of crude and petroleum products is extremely competitive and reduced demand for transportation of oil and oil products could lead to increased competition. Competition arises primarily from other tanker owners, including major oil companies and national oil companies or companies linked to authorities of oil producing or importing countries, as well as independent tanker companies, some of whom have substantially greater resources than we do. Competition for the transportation of oil and oil products can be intense and depends on price, location, size, age, condition and the acceptability of the tanker and its operators to the charterers. We will have to compete with other tanker owners, including major oil companies as well as independent tanker companies.
Our market share may decrease in the future. If we expand our business or provide new services in new geographic regions, we may not be able to compete profitably. New markets may require different skills, knowledge or strategies than we use in our current markets, and the competitors in those new markets may have greater financial strength and capital resources than we do.
A substantial portion of our revenue is derived from a limited number of customers and the loss of any of these customers could result in a significant loss of revenues and cash flow.
We currently derive a substantial portion of our revenue from a limited number of customers. For the year ended December 31, 2015,2017, Valero Energy Corporation, or Valero, accounted for 11%10%, Total S.A., or Total, accounted for 5%6% and Chevron Marine Products LLCPetroleo Brasileiro S.A. accounted for 2%6% of our total revenues in our tankers segment. In addition, our only FSO customer as of December 31, 20152017 was MaerskNorth Oil Qatar AS, or Maersk Oil.Company. All of our charter agreements have fixed terms, but may be terminated early due to certain events, such as a charterer's failure to make charter payments to us because of financial inability, disagreements with us or otherwise. The ability of each of our counterparties to perform its obligations under a charter with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the tanker industry and the overall financial condition of the counterparty. Should a counterparty fail to honor its obligations under an agreement with us, we may be unable to realize revenue under that charter and could sustain losses, which could have a material adverse effect on our business, financial condition, results of operations and ability to pay dividends, if any.
In addition, a charterer may exercise its right to terminate the charter if, among other things:
| · | the vessel suffers a total loss or is damaged beyond repair; |
| · | we default on our obligations under the charter, including prolonged periods of vessel off-hire; |
| · | war or hostilities significantly disrupt the free trade of the vessel; |
| · | the vessel is requisitioned by any governmental authority; or |
| · | a prolonged force majeure event occurs, such as war or political unrest, which prevents the chartering of the vessel. |
In addition, the charter payments we receive may be reduced if the vessel does not perform according to certain contractual specifications. For example, charterhire may be reduced if the average vessel speed falls below the speed we have guaranteed or if the amount of fuel consumed to power the vessel exceeds the guaranteed amount. Additionally, compensation under our FSO service contracts is based on daily performance and/or availability of each FSO in accordance with the requirements specified in the applicable FSO service contracts. The charter payments we receive under our FSO service contracts may be reduced if the vessel is idle, but available for operation, or if a force majeure event occurs, or we may not be entitled to receive charter payments if the FSO is taken out of service for maintenance for an extended period, or the charter may be terminated if these events continue for an extended period.
If any of our charters or FSO service contracts are terminated, we may be unable to re-deploy the related vessel on terms as favorable to us as our current charters, or at all. If we are unable to re-deploy a vessel for which the charter has been terminated, we will not receive any revenues from that vessel and we may be required to pay ongoing expenses necessary to maintain the vessel in proper operating condition. Any of these factors may decrease our revenue and cash flows. Further, the loss of any of our charterers, charters or vessels, or a decline in charterhire under any of our charters, could have a material adverse effect on our business, results of operations, financial condition and ability to pay dividends, if any, to our shareholders.
Our FSO service contracts may not permit us to fully recoup our cost increases in the event of a rise in expenses.
Our FSO service contracts have dayrates that are fixed over the contract term. In order to mitigate the effects of inflation on revenues from these term contracts, our FSO service contracts include yearly escalation provisions. These provisions are designed to recompense us for certain cost increases, including wages, insurance and maintenance costs. However, actual cost increases may result from events or conditions that do not cause correlative changes to the applicable escalation provisions. In addition, the adjustments are normally performed on an annual basis. For these reasons, the timing and amount received as a result of the adjustments may differ from the timing and amount of expenditures associated with actual cost increases, which could adversely affect our results of operations and financial condition and ability to pay dividends, if any, to our shareholders.
Currently, we operate our FSOs only offshore Qatar, which has fields whose production lives deplete over time and as a result, overall activity may decline faster than anticipated.
We currently operate our FSOs only offshore Qatar, which has fields whose production lives deplete over time, and as a result, the overall activity in such fields may decline faster than anticipated. There are increased costs associated with retiring old oil and gas installations, which may threaten to slow the development of the region's remaining resources.
The purchase and operation of secondhand vessels expose us to increased operating costs which could adversely affect our earnings and, as our fleet ages, the risks associated with older vessels could adversely affect our ability to obtain profitable charters.
Our current business strategy includes additional growth through the acquisition of new and secondhand vessels. While we typicallytry to inspect secondhand vessels prior to purchase, this does not provide us with the same knowledge about their condition that we would have had if these vessels had been built for and operated exclusively by us. Generally, as is customary in the shipping sector, we do not receive the benefit of warranties from the builders for the secondhand vessels that we acquire.
In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel. Older vessels are typically less fuel-efficient than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, sincewhich could lead to older vessels may bebeing less desirable tofor charterers.
Governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations or the addition of new equipment to our vessels and may restrict the type of activities in which the vessels may engage. As our vessels age, market conditions may not justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.
We will be required to make additional capital expenditures to expand the number of vessels in our fleet and to maintain all our vessels, which will be dependent on additional financing.
Our business strategy is based in part upon the expansion of our fleet through the purchase of additional vessels at attractive points in the cycle. If we are unable to fulfill our obligations under any memorandum of agreement or newbuilding construction contract for future vessel acquisitions, the sellers of such vessels may be permitted to terminate such contracts and we may forfeit all or a portion of the down payments we already made under such contracts and we may be sued for any outstanding balance.
In addition, we will incur significant maintenance costs for our existing and any newly-acquired vessels. A newbuilding vessel must be drydocked within five years of its delivery from a shipyard, with survey cycles of no more than 60 months for the first three surveys, and 30 months thereafter, not including any unexpected repairs. We estimate the cost to drydock a vessel to be between $750,000$0.75 and $2,000,000,$2.5 million, depending on the size and condition of the vessel and the location of drydocking and the special surveys to be performed.
We may be required to make significant investments in ballast water management which may have a material adverse effect on our future performance, results of operations, and financial position.
The IMO adopted an International Convention for the Control and Management of Vessels'Ships' Ballast Water and Sediments, or the BWM Convention, which aims to prevent the spread of harmful aquatic organisms from one region to another, by establishing standards and procedures for the management and control of ships' ballast water and sediments. The BWM Convention calls for a phased introduction of mandatory ballast water exchange requirements to be replaced in time with mandatory concentration limits. InvestmentsIn order to comply with IMO and U.S. ballast water regulations, we are required to install ballast water treatment plants on all vessels from March 2020 to June 2024. The cost of compliance per vessel for us is estimated to be between $1.6 and $2.0 million, depending on size of the vessel. Significant investments in ballast water treatment may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
If we do not set aside funds and are unable to borrow or raise funds for vessel replacement, at the end of a vessel's useful life our revenue will decline, which would adversely affect our business, results of operations, financial condition, and available cash.
If we do not set aside funds and are unable to borrow or raise funds for vessel replacement, we will be unable to replace the vessels in our fleet upon the expiration of their remaining useful lives. Our cash flows and income are dependent on the revenues earned by the chartering of our vessels. If we are unable to replace the vessels in our fleet upon the expiration of their useful lives, our business, results of operations, financial condition and available cash per share would be adversely affected. Any funds set aside for vessel replacement will reduce available cash.
Our ability to obtain additional financing may be dependent on the performance and creditworthiness of our then existing charters.
The actual or perceived credit quality of our charterers and any defaults by them, may materially affect our ability to obtain the additional capital resources that we will require to purchase additional vessels or may significantly increase our costs of obtaining such capital. Our inability to obtain additional financing at all or at a higher than anticipated cost may materially affect our results of operationsoperation and our ability to implement our business strategy.
We depend on our executive officers and other key employees, and the loss of their services could, in the short term, have a material adverse effect on our business, results and financial condition.
We depend on the efforts, knowledge, skill, reputations and business contacts of our executive officers and other key employees. Accordingly, our success will depend on the continued service of these individuals. We may experience departures of senior executive officers and other key employees, and we cannot predict the impact that any of their departures would have on our ability to achieve our financial objectives. The loss of the services of any of them could, in the short term, have a material adverse effect on our business, results of operations and financial condition.
Failure to obtain or retain highly skilled personnel could adversely affect our operations.
We require highly skilled personnel to operate our business, and will be required to hire additional highly trained personnel in connection with the operation of newly acquired vessels. Competition for skilled and other labor required for our operations has increased in recent years as the number of ocean-going vessels in the worldwide fleet has increased. If this expansion continues and is coupled with improved demand for seaborne shipping services in general, shortages of qualified personnel could further create and intensify upward pressure on wages and make it more difficult for us to staff and service vessels. Such developments could adversely affect our financial results and cash flow. Furthermore, as a result of any increased competition for people and risk for higher turnover, we may experience a reduction in the experience level of our personnel, which could lead to higher downtime and more operating incidents.
United States tax authorities could treat us as a "passive foreign investment company," which could have adverse United States federal income tax consequences to United States shareholders.
A foreign corporation will be treated as a "passive foreign investment company," or PFIC, for United States federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of "passive income." For purposes of these tests, "passive income" includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute "passive income." United States shareholders of a PFIC are subject to a disadvantageous United States federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
Based on our current and proposed method of operation, we do not believe that we will be a PFIC with respect to any taxable year. In this regard, we intend to treat the gross income we derive or are deemed to derive from our time chartering activities as services income, rather than rental income. Accordingly, our income from our time and voyage chartering activities should not constitute "passive income," and the assets that we own and operate in connection with the production of that income should not constitute assets that produce or are held for the production of "passive income."
There is substantial legal authority supporting this position, consisting of case law and United States Internal Revenue Service, or IRS, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, it should be noted that there is also authority that characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if the nature and extent of our operations change.
If the IRS were to find that we are or have been a PFIC for any taxable year, our United States shareholders would face adverse United States federal income tax consequences and incur certain information reporting obligations. Under the PFIC rules, unless those shareholders make an election available under the United States Internal Revenue Code of 1986, as amended, or the Code (which election could itself have adverse consequences for such shareholders), such shareholders would be subject to United States federal income tax at the then prevailing rates on ordinary income plus interest, in respect of excess distributions and upon any gain from the disposition of their ordinary shares, as if the excess distribution or gain had been recognized ratably over the shareholder's holding period of the ordinary shares. See "Item 10. Additional Information—E. Taxation—Passive Foreign Investment Company Status and Significant Tax Consequences" for a more comprehensive discussion of the United States federal income tax consequences to United States shareholders if we are treated as a PFIC.
We may have to pay tax on United States source shipping income, or taxes in other jurisdictions, which would reduce our net earnings.
Under the Code, 50% of the gross shipping income of a corporation that owns or charters vessels, as we and our subsidiaries do, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States may be subject to a 4% United States federal income tax without allowance for deductions, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the regulations promulgated thereunder by the United States Department of the Treasury or an applicable U.S. income tax treaty.
We and our subsidiaries intendcontinue to take the position that we qualify for either this statutory tax exemption or exemption under an income tax treaty for United States federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to United States federal income tax on our United States source shipping income. For example, we may no longer qualify for exemption under Section 883 of the Code for a particular taxable year if shareholders with a five percent or greater interest in our ordinary shares, or "5% Shareholders," owned, in the aggregate, 50% or more of our outstanding ordinary shares for more than half the days during the taxable year, and there does not exist sufficient 5% Shareholders that are qualified shareholders for purposes of Section 883 of the Code to preclude non-qualified 5% Shareholders from owning 50% or more of our ordinary shares for more than half the number of days during such taxable year or we are unable to satisfy certain substantiation requirements with regard to our 5% Shareholders. Due to the factual nature of the issues involved, there can be no assurances on the tax-exempt status of us or any of our subsidiaries.
If we or our subsidiaries were not entitled to exemption under Section 883 of the Code for any taxable year, we or our subsidiaries could be subject for such year to an effective 2% United States federal income tax on the shipping income we or they derive during such year which is attributable to the transport of cargoes to or from the United States. The imposition of this taxation would have a negative effect on our business and would decrease our earnings available for distribution to our shareholders.
We may also be subject to tax in other jurisdictions, which could reduce our earnings.
Our shareholders residing in countries other than Belgium may be subject to double withholding taxation with respect to dividends or other distributions made by us.
Any dividends or other distributions we make to shareholders will, in principle, be subject to withholding tax in Belgium at a rate of 27%30%, except for shareholders which qualify for an exemption of withholding tax such as, amongst others, qualifying pension funds or a company qualifying as a parent company in the sense of the Council Directive (90/435/EEC) of July 23, July 1990, (the "Parent-Subsidiary Directive")or the Parent-Subsidiary Directive or that qualify for a lower withholding tax rate or an exemption by virtue of a tax treaty. Various conditions may apply and shareholders residing in countries other than Belgium are advised to consult their advisers regarding the tax consequences of dividends or other distributions made by us. Our shareholders residing in countries other than Belgium may not be able to credit the amount of such withholding tax to any tax due on such dividends or other distributions in any other country than Belgium. As a result, such shareholders may be subject to double taxation in respect of such dividends or other distributions.
Belgium and the United States have concluded a double tax treaty concerning the avoidance of double taxation, or the "U.S.U.S.—Belgium Treaty".Treaty. The U.S.—Belgium Treaty reduces the applicability of Belgian withholding tax to 15%, 5% or 0% for U.S. taxpayers, provided that the U.S. taxpayer meets the limitation of benefits conditions imposed by the U.S.—Belgium Treaty. The Belgian withholding tax is generally reduced to 15% under the U.S.—Belgium Treaty. The 5% withholding tax applies in casecases where the U.S. shareholder is a company which holds at least 10% of the shares in the Company. A 0% Belgian withholding tax applies when the shareholder is a company which has held at least 10% of the shares in the Company for at least 12 months, or is, subject to certain conditions, a U.S. pension fund. The U.S. shareholders are encouraged to consult their own tax advisers to determine whether they can invoke the benefits and meet the limitation of benefits conditions as imposed by the U.S.—Belgium Treaty.
Changes to the tonnage tax or the corporate tax regimes applicable to us, or to the interpretation thereof, may impact our future operating results.
The Belgian Ministry of Finance approved our application on October 23, 2013 for beneficial tax treatment of certain of our vessel operations income. Under this Belgian tax regime, our taxable basis is determined on a lump-sum basis (which is, on the basis of the tonnage of the vessels it operates), rather than on the basis of our accounting results, as adjusted, for Belgian corporate income tax purposes. This tonnage tax regime was initially granted for 10 years, and was renewed for an additional 10-year period in 2013. In addition, with respect to certain of our vessels operating under the Greek flag, we benefit from a similar tonnage tax regime in Greece. Certain of ourOur two subsidiaries that were formed in connection with our recent vessel acquisitions are subject to the ordinary Belgian corporate income tax regime, however, which benefit from a tax investment allowance due to the acquisition. However, we have decided to apply for the Belgian Tonnage Tax regime for those subsidiaries and obtained approval forin 2014, Euronav Shipping NV and Euronav Tankers NV effectiveare as from January 1, 2016.2016 also subject to the Belgian Tonnage Tax regime. We cannot assure you that we will be able to continue to take advantage of thesepast tax benefits built up in those companies, which can only be claimed upon an eventual return to the future. Belgian corporate income tax regime.
Changes to the tax regimes applicable to us, or the interpretation thereof, may impact our future operating results. In 2017 and early 2018 the Company took note of the correspondence between the Belgian authorities and the European Commission within the framework of request for extension of the state aid to the maritime industry by the State of Belgium. Based on the actual draft law, which includes the legislative changes as requested by the Commission, has been reviewed by the Company, we do not expect any adverse effect of these changes to our existing tonnage tax regime.
Insurance may be difficult to obtain, or if obtained, may not be adequate to cover our losses that may result from our operations due to the inherent operational risks of the tanker industry.
We carry insurance to protect us against most of the accident-related risks involved in the conduct of our business, including marine hull and machinery insurance, protection and indemnity insurance, which include pollution risks, crew insurance and war risk insurance. However, we may not be adequately insured to cover losses from our operational risks, which could have a material adverse effect on us. Additionally, our insurers may refuse to pay particular claims and our insurance may be voidable by the insurers if we take, or fail to take, certain action, such as failing to maintain certification of our vessels with applicable maritime regulatory organizations. Any significant uninsured or under-insured loss or liability could have a material adverse effect on our business, results of operations, cash flows and financial condition and our available cash. In addition, we may not be able to obtain adequate insurance coverage at reasonable rates in the future during adverse insurance market conditions.
In addition, changes in the insurance markets attributable to terrorist attacks may also make certain types of insurance more difficult for us to obtain due to increased premiums or reduced or restricted coverage for losses caused by terrorist acts generally.
Because we obtain some of our insurance through protection and indemnity associations, which result in significant expenses to us, we may be required to make additional premium payments.
We may be subject to increased premium payments, or calls, in amounts based on our claim records, the claim records of our managers, as well as the claim records of other members of the protection and indemnity associations through which we receive insurance coverage for tort liability, including pollution-related liability. In addition, our protection and indemnity associations may not have enough resources to cover claims made against them. Our payment of these calls could result in significant expense to us, which could have a material adverse effect on our business, results of operations, cash flows, financial condition and available cash.
Servicing our current or future indebtedness limits funds available for other purposes and if we cannot service our debt, we may lose our vessels.
We had $1,135.0$964.6 million and $1,623.7$1,159.0 million of indebtedness as of December 31, 20152017 and December 31, 2014,2016, respectively, and expect to incur additional indebtedness as we take delivery of the remaining Metrostar Acquisition Vesselstwo vessels that are currently under construction and further expand our fleet. Borrowing under our credit facilities requires us to dedicate a part of our cash flow from operations to paying interest on our indebtedness. These payments limit funds available for working capital, capital expenditures and other purposes, including further equity or debt financing in the future. Amounts borrowed under our credit facilities bear interest at variable rates. Increases in prevailing rates could increase the amounts that we would have to pay to our lenders, even though the outstanding principal amount remains the same and our net income and cash flows would decrease. We expect our earnings and cash flow to vary from year to year due to the cyclical nature of the tanker industry. If we do not generate or reserve enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as:
| · | seeking to raise additional capital; |
| · | refinancing or restructuring our debt; |
refinancing or restructuring our debt; | · | selling tankers; or reducing or delaying capital investments. |
However, these alternative financing plans, if necessary, may not be sufficient to allow us to meet our debt obligations. If we are unable to meet our debt obligations or if some other default occurs under our credit facilities, our lenders could elect to declare that our debt, totally or partially, together with accrued interest and fees, to be immediately due and payable and proceed against the collateral vessels securing that debt even though the majority of the proceeds used to purchase the collateral vessels did not come from our credit facilities.
Adverse market conditions could cause us to breach covenants in our credit facilities and adversely affect our operating results.
The market values of tankers have generally been depressed. The market prices for tankers declined significantly from historically high levels reached in early 2008 and remain at relatively low levels. You should expect the market value of our vessels to fluctuate depending on general economic and market conditions affecting the shipping industry and prevailing charterhire rates, competition from other tanker companies and other modes of transportation, types, sizes and ages of vessels, applicable governmental regulations and the cost of newbuildings. We believe that the current aggregate market value of our vessels will be in excess of loan to value amounts required under our credit facilities. Our credit facilities generally require that the fair market value of the vessels pledged as collateral never be less than between 100% and 125%, depending on the applicable credit facility, of the aggregate principal amount outstanding under the loan. We were in compliance with these requirements as of December 31, 20152017 and as of March 24, 2016.the date of this annual report.
A decrease in vessel values or a failure to meet this ratio could cause us to breach certain covenants in our existing credit facilities and future financing agreements that we may enter into from time to time. If we breach such covenants and are unable to remedy the relevant breach or obtain a waiver, our lenders could accelerate our debt and foreclose on our owned vessels. Additionally, if we sell one or more of our vessels at a time when vessel prices have fallen, the sale price may be less than the vessel's carrying value on our consolidated financial statements, resulting in a loss on sale or an impairment loss being recognized, ultimately leading to a reduction in earnings.
We may be unable to comply with the restrictions and financial covenants in the agreements governing our indebtedness or any future financial obligations, including the loan agreements that our 50%-owned joint ventures have entered or may enter into, that impose operating and financial restrictions on us.
Our agreements governing our indebtedness, including the loan agreements that our 50%-owned joint ventures have entered into, impose certain operating and financial restrictions on us, mainly to ensure that the market value of the mortgaged vessel under the applicable credit facility does not fall below a certain percentage of the outstanding amount of the loan, which we refer to as the asset coverage ratio. In addition, certain of our credit facilities will require us to satisfy certain other financial covenants, which require us to, among other things, maintain:
| · | an amount of current assets, which may include undrawn amount of any committed revolving credit facilities and credit lines having a maturity of more than one year, that, on a consolidated basis, exceeds our current liabilities; |
| · | an aggregate amount of cash, cash equivalents and available aggregate undrawn amounts of any committed loan of at least $50.0 million or 5% of our total indebtedness (excluding guarantees), depending on the applicable loan facility, whichever is greater; |
| · | an aggregate cash balance of at least $30.0 million; and |
| · | a ratio of stockholders' equity to total assets of at least 30%. |
In general, the operating restrictions that are contained in our credit facilities may prohibit or otherwise limit our ability to, among other things:
| · | effect changes in management of our vessels; |
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transfer or sell or otherwise dispose of all or a substantial portion of our assets;
| · | transfer or sell or otherwise dispose of all or a substantial portion of our assets; |
declare and pay dividends if there is or will be, as a result of the dividend, an event of default or breach of a loan covenant; and | · | declare and pay dividends if there is or will be, as a result of the dividend, an event of default or breach of a loan covenant; and |
| · | incur additional indebtedness. |
A violation of any of our financial covenants or operating restrictions contained in our credit facilities including the loan agreements of our 50%-owned joint ventures, may constitute an event of default under our credit facilities, which, unless cured within the grace period set forth under the applicable credit facility, if applicable, or waived or modified by our lenders, provides our lenders with the right to, among other things, require us to post additional collateral, enhance our equity and liquidity, increase our interest payments, pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, reclassify our indebtedness as current liabilities and accelerate our indebtedness and foreclose their liens on our vessels and the other assets securing the credit facilities, which would impair our ability to continue to conduct our business.
Furthermore, certain of our credit facilities contain a cross-default provision that may be triggered by a default under one of our other credit facilities, or those of our 50%-owned joint ventures. A cross-default provision means that a default on one loan would result in a default on certain other loans. Because of the presence of cross-default provisions in certain of our credit facilities, the refusal of any one lender under our credit facilities to grant or extend a waiver could result in certain of our indebtedness being accelerated, even if our other lenders under our credit facilities have waived covenant defaults under the respective credit facilities. If our secured indebtedness is accelerated in full or in part, it would be very difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels and other assets securing our credit facilities if our lenders foreclose their liens, which would adversely affect our ability to conduct our business.
Moreover, in connection with any waivers of or amendments to our credit facilities that we may obtain, our lenders may impose additional operating and financial restrictions on us or modify the terms of our existing credit facilities. These restrictions may further restrict our ability to, among other things, pay dividends, make capital expenditures or incur additional indebtedness, including through the issuance of guarantees. In addition, our lenders may require the payment of additional fees, require prepayment of a portion of our indebtedness to them, accelerate the amortization schedule for our indebtedness and increase the interest rates they charge us on our outstanding indebtedness.
As of December 31, 2015,2017 and as of the date of this annual report, we were in compliance with the financial covenants contained in our debt agreements.
For more information, please read "Item 5. Operating and Financial Review and Prospects."
The contribution of our joint ventures to our profits and losses may fluctuate, which could have a material adverse effect on our business, financial condition, results of operationsoperation and cash flows.
We currently own an interest in seventwo of our vessels through 50%-owned joint ventures, together with other third-party vessel owners and operators in our industry. Our ownership in these joint ventures is accounted for using the equity method, which means that our allocation of profits and losses of the applicable joint venture is included in our consolidated financial statements. The contribution of our joint ventures to our profits and losses may fluctuate, including the dividends that we may receive from such entities, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In addition, we have provided, and may continue to provide in the future, unsecured loans to our joint ventures which we treat as additional investments in the joint ventures. Accordingly, in the event our joint ventures do not repay these loans as they become due and payable, the value of our investment in such entities may decline. Furthermore, we have provided, and may continue to provide in the future, guarantees to certain banks with respect to commercial bank indebtedness of our joint ventures. Failure on behalf of any of our joint ventures to service its debt requirements and comply with any provisions contained in its commercial loan agreements, including paying scheduled installments and complying with certain covenants, may lead to an event of default under its loan agreement. As a result, if our joint ventures are unable to obtain a waiver or do not have enough cash on hand to repay the outstanding borrowings, their lenders may foreclose their liens on the vessels securing the loans or seek repayment of the loan from us, or both, which would have a material adverse effect on our financial condition, results of operations, and cash flows. As of December 31, 2015, $251.6 million was outstanding under these2017, the joint venture loan agreements, of which we have guaranteed $125.8 million.
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agreement has been repaid in full.
Risks related to our relationships with joint venture partners may have a material adverse effect on our business and results of operations.
We have a number of strategic relationships with joint venture partners through which we own certain of our vessels together with other third-party vessel owners and operators in our industry, and we may pursue additional joint venture relationships in the future. We currently own a 50% interest in seven of our vessels through joint ventures. Because we do not own a majority interest in these joint ventures, we may not be able to exercise control over such entities. Accordingly, we cannot guarantee that such joint ventures will act in our best interests, meet our operational standards (including with respect to our policies on risk management), or distribute their earnings to us, which may have a material adverse effect on our business, financial condition, results of operations, cash flows, and ability to pay dividends to our shareholders.
In addition, while the duration of each joint venture relationship is governed by the applicable joint venture agreement, such relationship may be terminated early for, among other things, force majeure events or counterparty breach. Furthermore, due to transfer restrictions in our joint venture agreements, we may be prevented from selling or otherwise disposing of our interest in a respective joint venture. We are also subject to counterparty risk with respect to our joint venture partners, and the ability and willingness of each of our partners to perform their obligations to us under their respective joint venture agreements will depend on a number of factors that are beyond our control. The occurrence of any of these events may have a material adverse effect on our business, financial condition, results of operations, cash flows, and ability to pay dividends to our shareholders.
Please also see "—We are subject to certain risks with respect to our counterparties, including our joint venture partners, on contracts, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows."
We are exposed to volatility in the London Interbank Offered Rate ("LIBOR"), and we have and we intend to selectively enter into derivative contracts, which can result in higher than market interest rates and charges against our income.
The amounts outstanding under our senior secured credit facilities have been, and amounts under additional credit facilities that we may enter in the future will generally be, advanced at a floating rate based on LIBOR, which has been stable, but was volatile in prior years, which can affect the amount of interest payable on our debt, and which, in turn, could have an adverse effect on our earnings and cash flow. In addition, in recent years, LIBOR has been at relatively low levels, and may rise in the future as the current low interest rate environment comes to an end. Our financial condition could be materially adversely affected at any time that we have not entered into interest rate hedging arrangements to hedge our exposure to the interest rates applicable to our credit facilities and any other financing arrangements we may enter into in the future. Moreover, even if we have entered into interest rate swaps or other derivative instruments for purposes of managing our interest rate exposure, our hedging strategies may not be effective and we may incur substantial losses.
We have previously entered into and may selectively in the future enter into derivative contracts to hedge our overall exposure to interest rate risk exposure. Entering into swaps and derivatives transactions is inherently risky and presents various possibilities for incurring significant expenses. The derivatives strategies that we employ in the future may not be successful or effective, and we could, as a result, incur substantial additional interest costs and recognize losses on such arrangements in our financial statements. See "Item 5. Operating and Financial Review and Prospects" for a description of our interest rate swap arrangements.
Fluctuations in exchange rates and non-convertibility of currencies could result in losses to us.
As a result of our international operations, we are exposed to fluctuations in foreign exchange rates due to parts of our operating costs being expressed in currencies other than U.S. dollars, primarily in Euro. Accordingly, we may experience currency exchange losses if we have not fully hedged our exposure to a foreign currency, which could lead to fluctuations in our results of operations. At the time of this annual report, we have an agreement with a third party financial advisor with the aim to manage the risk from adverse movements in EUR/USD exchange rates. The program uses a financial trading strategy called Currency Overlay Management strategy which manages the equivalent of €40 million exposures on a yearly basis. The currency overlay manager conducts foreign-exchange hedging by selectively placing and removing hedges to achieve the objectives set by us. However, the manager may not achieve these objectives.
Our costs of operating as a public company are significant, and our management is required to devote substantial time to complying with public company regulations.
We recentlyIn January 2015, we became subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the other rules and regulations of the SEC, including the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and as such, we have significant legal, accounting and other expenses that we did not incur previously. In 2016, we became subject to the requirements as directed by Section 404(b) of the Sarbanes-Oxley Act of 2002, requiring an auditor attestation with respect to our internal control over financial reporting (ICOFR). These reporting obligations impose various requirements on US registered public companies, including changes in corporate governance practices, and these requirements may continue to evolve. We and our management personnel, and other personnel, if any, devote a substantial amount of time to comply with these requirements. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly.
Sarbanes-Oxley requires, among other things, that we maintain and periodically evaluate our internal control over financial reporting and disclosure controls and procedures. In particular, we need to perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of Sarbanes-Oxley, subject to the reduced disclosure requirements for emerging growth companies set forth below.Sarbanes-Oxley. Our compliance with Section 404 has and may continue to require that weus to incur substantial accounting expenses and expend significant management efforts.
We depend on directors who are associated with affiliated companies, which may create conflicts of interest.
John Michael Radziwill, oneCertain of our directors is the sonare associated with affiliated companies, which may create conflicts of John Radziwill who owns Bretta Tanker Holdings Inc., or Bretta, a company that has a 50% interest in four of our joint ventures as further outlined in "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions." John Michael Radziwill is not a shareholder or director of, nor is he employed by Bretta.interest. Because these directors owe fiduciary duties to both us and other related parties, conflicts of interest may result in matters involving or affecting us and our customers. In addition, they may have conflicts of interest when faced with decisions that could have different implications for other related parties than they do for us. Any such conflicts of interest could adversely affect our business, financial condition and results of operations and the trading price of our ordinary shares. For further discussion of transactions with, or involving, our directors that may give rise to potential conflicts of interest, please see "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions."
A shift in consumer demand from oil towards other energy sources or changes to trade patterns for oil and oil products may have a material adverse effect on our business.
A significant portion of our earnings are related to the oil industry. A shift in the consumer demand from oil towards other energy resources such as wind energy, solar energy, water energy gas or nuclear energy will potentially affect the demand for our vessels. This could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Seaborne trading and distribution patterns are primarily influenced by the relative advantage of the various sources of production, locations of consumption, pricing differentials and seasonality. Changes to the trade patterns of oil and oil products may have a significant negative or positive impact on the ton-mileston-mile and therefore the demand for our tankers. This could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
An inability to effectively time investments in and divestments of vessels could prevent the implementation of our business strategy and negatively impact our results of operations and financial condition.
Our strategy is to own and operate a fleet large enough to provide global coverage, but no larger than what the demand for our services can support over a longer period by both contracting newbuildings and through acquisitions and disposals in the secondhand market. Our business is greatly influenced by the timing of investments and/or divestments and contracting of newbuildings. If we are unable to identify the optimal timing of such investments, divestments or contracting of newbuildings in relation to the shipping value cycle due to capital restraints, this could have a material adverse effect on our competitive position, future performance, results of operations, cash flows and financial position.
25We rely on our information systems to conduct our business, and failure to protect these systems against security breaches could adversely affect our business and results of operations. Additionally, if these systems fail or become unavailable for any significant period of time, our business could be harmed.
The efficient operation of our business is dependent on computer hardware and software systems. Information systems are vulnerable to security breaches by computer hackers and cyber-terrorists. We rely on industry accepted security & control frameworks and technology to securely maintain confidential and proprietary information and personal data maintained on our information systems. However, these measures and technology may not adequately prevent security breaches. In addition, the unavailability of the information systems or the failure of these systems to perform as anticipated for any reason could disrupt our business and could result in decreased performance and increased operating costs, causing our business and results of operations to suffer. Any significant interruption or failure of our information systems or any significant breach of security could adversely affect our business, results of operations and financial condition, as well as our cash flows. Furthermore, as from May 25, 2018, data breaches on personal data as defined in the General Data Protection Regulation 2016/679 (EU), could lead to administrative fines up to €20 million or up to 4% of the total worldwide annual turnover of the company, whichever is higher.
Risk Factors Relating to Our Proposed Merger with Gener8
Completion of the Merger is subject to a number of other conditions, and if these conditions are not satisfied or waived, the Merger will not be completed.
On December 20, 2017, the Company, Gener8 Maritime. Inc., a corporation organized under the laws of the Republic of the Marshall Islands ("Gener8") and Euronav MI Inc., a corporation organized under the laws of the Republic of the Marshall Islands and a wholly-owned subsidiary of the Company (the “Merger Sub”) entered into an agreement and plan of merger (the "Merger Agreement") to govern a stock-for-stock merger (the "Merger") for the entire issued and outstanding share capital of Gener8.
Our obligations and the obligations of Gener8 to complete the merger are subject to satisfaction or waiver of a number of conditions including, among other conditions: (i) approval of the Merger Agreement and the related transactions, including the appointment of an exchange agent to, among other things, act as agent for the Merger, by holders of a majority of the outstanding Gener8 common shares at a special meeting, (ii) Gener8 obtaining certain consents and waivers under its applicable credit agreements and related transaction documents to allow the Merger to be properly entered into without causing a breach of any of the terms of such agreements, (iii) approval for the listing on the New York Stock Exchange of our ordinary shares to be issued in the Merger, (iv) our registration statement on Form F-4 being declared effective under the Securities Act by the SEC; (v) absence of any applicable law or order that prohibits completion of the transaction, (vi) accuracy of the representations and warranties made in the Merger Agreement by the other party, subject to certain materiality qualifications, (vii) performance in all material respects by the other party of the material obligations required to be performed by it at or prior to completion of the transaction, and (viii) the absence of a material adverse effect on the other party.
There can be no assurance that the conditions to completion of the Merger will be satisfied or waived or that other events will not intervene to delay or result in the failure to complete the Merger.
We may fail to realize the anticipated benefits of the Merger.
We believe that the Merger will provide benefits to the combined company resulting from the Merger. However, there is a risk that some or all of the expected benefits of the Merger may fail to materialize, or may not occur within the time periods anticipated. The realization of such benefits may be affected by a number of factors, many of which are beyond our control, including but not limited to the strength or weakness of the economy and competitive factors in the areas where we and Gener8 do business, the effects of competition in the markets in which Euronav or Gener8 operate, and the impact of changes in the laws and regulations regulating the seaborne transportation or refined petroleum products industries or affecting domestic or foreign operations. The challenge of coordinating previously separate businesses makes evaluating the business and future financial prospects of the combined company following the Merger difficult. We and Gener8 have operated and, until completion of the Merger, will continue to operate, independently. The success of the Merger, including anticipated benefits and cost savings, will depend, in part, on the ability to successfully integrate the operations of both companies in a manner that results in various benefits, including, among other things, an expanded market reach and operating efficiencies, and that does not materially disrupt existing relationships nor result in decreased revenues or dividends. The past financial performance of each of us and Gener8 may not be indicative of their future financial performance. Realization of the anticipated benefits in the Merger will depend, in part, on the combined company’s ability to successfully integrate the two businesses. The combined company will be required to devote significant management attention and resources to integrating its business practices and support functions. The diversion of management’s attention and any delays or difficulties encountered in connection with the Merger and the coordination of the two companies’ operations could have an adverse effect on the business, financial results, financial condition or the share price of the combined company following the Merger. The coordination process may also result in additional and unforeseen expenses.
Failure to realize all of the anticipated benefits of the Merger may impact the financial performance of the combined company, the price of our ordinary shares and our ability to pay dividends, which will be at the discretion of its board of directors in accordance with Euronav’s dividend policy. In addition, even if we do not realize the anticipated benefits of the merger, we would remain liable for significant transaction costs, including legal, accounting and financial advisory fees. Any delay in completing the Merger may significantly reduce the benefits that we expect to achieve if they successfully complete the Merger within the expected timeframe and integrate their respective businesses.
The announcement and pendency of the Merger could adversely affect our businesses, results of operations and financial condition.
The announcement and pendency of the Merger could cause disruptions in and create uncertainty surrounding our businesses, including affecting our relationships with our existing and future customers, suppliers and employees, which could have an adverse effect on our business, results of operations and financial condition, regardless of whether the Merger is completed. In particular, we could potentially lose customers or suppliers, and new customer or supplier contracts could be delayed or decreased. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is consummated and for a period of time thereafter. In addition, we have expended, and continue to expend, significant management resources, in an effort to complete the Merger, which are being diverted from our day-to-day operations.
If the Merger is not completed, the price of our ordinary shares may fall to the extent that the current price of their shares reflects a market assumption that the Merger will be completed. In addition, the failure to complete the Merger may result in negative publicity or a negative impression of us in the investment community and may affect our relationships with employees, customers, suppliers, lenders and other partners in the business community.
We will incur significant transaction and integration-related costs in connection with the merger.
We expect to incur a number of non-recurring costs associated with the merger and combining Gener8’s operations into our operations. We will incur significant transaction costs and integration-related fees and costs related to formulating and implementing integration plans, including systems consolidation costs and employment-related costs. We continue to assess the amount of these costs, and additional unanticipated costs may be incurred in the Merger. Although we expect to realize other efficiencies related to the integration of us with Gener8 which may allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.
The termination of the Merger Agreement could negatively impact us.
If the Merger is not completed for any reason, including as a result of Gener8’s shareholders failing to approve the Merger Agreement, our ongoing business may be adversely affected and, without realizing any of the anticipated benefits of having completed the Merger, we may be subject to a number of risks, including the following:
we may experience negative reactions from the financial markets, including a decline of our share price (which may reflect a market assumption that the Merger will be completed);
we may experience negative reactions from the investment community, its respective customers and employees and other partners in the business community;
we may be required to pay certain costs relating to the Merger, whether or not the Merger is completed; and
matters relating to the Merger will have required substantial commitments of time and resources by our management, which would otherwise have been devoted to our day-to-day operations and other opportunities that may have been beneficial had the Merger not been contemplated.
The Merger Agreement could lead to financing restrictions and changes in covenants.
We will assume or repay a substantial part of the existing indebtedness of Gener8 if the Merger is completed, which may impose additional operating and financial restrictions on us (beyond those that currently exist) which, together with the resulting debt services obligations, could significantly limit the combined company’s ability to execute its business strategy, and increase the risk of default under its debt obligations after the Merger is completed.
As of December 31, 2017, we intend to assume $1,358.0 million of the existing indebtedness of Gener8 in connection with the completion of the Merger. Gener8’s current secured credit facilities require it to maintain specified financial ratios and satisfy financial covenants, including ratios and covenants based on the market value of the vessels in Gener8’s fleet in relation to the indebtedness outstanding. Gener8 is reasonably likely, absent waivers or amendments from its senior secured lenders, to be in breach of certain financial covenants in its senior secured credit facilities as early as the end of the first quarter of 2018, subject to the completion of covenant testing. Although Gener8 has requested a waiver from its lenders for the potential breach, such waiver might not obtained before the Merger is consummated.
Because some of the ratios and covenants set minimum values for the vessels in respect of the indebtedness outstanding, should vessel values decline in the future for any reason whatsoever, including due to declines in charter rates, the combined company may be required to take action to reduce its debt or to act in a manner contrary to its business objectives to meet any such financial ratios and satisfy any such financial covenants. Additionally, some of the ratios and covenants require the combined company to (i) maintain minimum levels of liquidity and interest expense coverage and (ii) not exceed the maximum level of leverage specified therein. Events beyond the combined company’s control, including changes in the economic and business conditions in the shipping markets in which the combined company will operate, may affect its ability to comply with these covenants. No assurance can be provided that the combined company will meet its financial or other covenants or that its lenders will waive any failure to do so.
Additionally, the terms of Gener8’s existing indebtedness place certain restrictions on the operations of the obligors thereunder, including restrictions on incurring additional indebtedness and liens, disposal of assets and chartering arrangements. These covenants, along with the financial covenants discussed above, may adversely affect the combined company’s ability to finance future operations or limit its ability to pursue certain business opportunities or take certain corporate actions. The covenants may also restrict the combined company’s flexibility in planning for, or reacting to, changes in its business and the industry and make it more vulnerable to economic downturns and adverse developments. A breach of any of the covenants in, or the combined company’s inability to maintain the required financial ratios under, its credit facilities would prevent it from borrowing additional money under its credit facilities and could result in a default under its credit facilities. If a default occurs under the combined company’s credit facilities, the lenders could elect to declare the issued and outstanding debt, together with accrued interest and other fees, to be immediately due and payable and foreclose on the collateral securing that debt, which could constitute all or substantially all of the combined company’s assets. Furthermore, the combined company’s debt agreements contain cross-default provisions, whereby a default by the combined company under one of its debt agreements would automatically be an event of default under other debt agreements. Such cross defaults could result in the acceleration of the maturity of the debt under these agreements and the lenders thereunder may foreclose upon any collateral securing that debt, including the combined company’s vessels. In the event of such acceleration or foreclosure, the combined company might not have sufficient funds or other assets to satisfy all of its obligations, which would have a material adverse effect on its business, results of operations and financial condition.
Following the completion of the Merger, the combined company’s ability to meet its cash requirements, including the combined company’s debt service obligations, will be dependent upon its operating performance, which will be subject to general economic and competitive conditions and to financial, business and other factors affecting its operations, many of which are or may be beyond the combined company’s control. The combined company cannot provide assurance that its business operations will generate sufficient cash flows from operations to fund these cash requirements and debt service obligations. If the combined company’s operating results, cash flow or capital resources prove inadequate, it could face substantial liquidity problems and might be required to dispose of material assets or operations to meet its debt and other obligations. If the combined company is unable to service its debt, it could be forced to reduce or delay planned expansions and capital expenditures, sell assets, restructure or refinance its debt or seek additional equity capital. The combined company may be unable to take any of these actions on satisfactory terms or in a timely manner which could result in the combined company entering bankruptcy proceedings. Further, any of these actions may not be sufficient to allow the combined company to service its debt obligations or may have an adverse impact on its business. The combined company’s debt agreements may limit its ability to take certain of these actions. The combined company’s failure to generate sufficient operating cash flow to pay its debts or to successfully undertake any of these actions could have a material adverse effect on the combined company. These risks may be increased as a result of the increased amount of indebtedness of the combined company following the completion of the Merger.
In addition, the degree to which the combined company may be leveraged as a result of the indebtedness assumed in connection with the Merger or otherwise could materially and adversely affect its ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or other purposes, could make the combined company more vulnerable to general adverse economic, regulatory and industry conditions, and could limit its flexibility in planning for, or reacting to, changes and opportunities in the markets in which it competes.
Additional information concerning the risks, uncertainties and assumptions associated with the Merger can be found in the section entitled “Risk Factors” contained in our preliminary joint proxy statement/prospectus on Form F-4 (Registration No. 333-223039), as amended and supplemented, that was initially filed with the SEC on February 14, 2018, and as may be subsequently amended.
Risk Factors Relating to an Investment in Our Ordinary Shares
We are an "emerging growth company" and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our ordinary shares less attractive to investors.
We are an "emerging growth company," as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley for up to five years. Investors may find our ordinary shares and the price of our ordinary shares less attractive because we rely, or may rely, on these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and the price of our ordinary shares may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We currently prepare our consolidated financial statements in accordance with IFRS, as issued by the International Accounting Standards Board, which do not have separate provisions for publicly traded and private companies. However, in the event we convert to U.S. GAAP while we are still an emerging growth company, we may be able to take advantage of the benefits of this extended transition period and, as a result, during such time that we delay the adoption of any new or revised accounting standards, our consolidated financial statements may not be comparable to other companies that comply with all public company accounting standards.
We could remain an "emerging growth company" until the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering in the United States, although a variety of circumstances could cause us to lose that status earlier. For as long as we take advantage of the reduced reporting obligations, the information that we provide shareholders may be different from information provided by other public companies.
Our share price may be highly volatile and future sales of our ordinary shares could cause the market price of our ordinary shares to decline.
The market price of our ordinary shares has historically fluctuated over a wide range and may continue to fluctuate significantly in response to many factors, such as actual or anticipated fluctuations in our operating results, changes in financial estimates by securities analysts, economic and regulatory trends, general market conditions, rumors, fabricated news and other factors, many of which are beyond our control. Since 2008, the stock market has experienced extreme price and volume fluctuations. If the volatility in the market continues or worsens, it could have an adverse effect on the market price of our ordinary shares and impact a potential sale price if holders of our ordinary shares decide to sell their shares.
We cannot assure you that we will declare or pay any dividends. The tanker industry is volatile and we cannot predict with certainty the amount of cash, if any, that will be available for distribution as dividends in any period.
Our Board of Directors may from time to time, declare and pay cash dividends in accordance with our Articles of Association and applicable Belgian law. The declaration and payment of dividends, if any, will always be subject to the approval of either our Board of Directors (in the case of "interim dividends") or of the shareholders (in the case of "regular dividends" or "intermediary dividends").
On April 1, 2015, we announced the adoption of our new "return to shareholders" policy, pursuant to which we intend to distribute to our shareholders 80% of our annual net consolidated profit (excluding exceptional items such as gains on the disposal of vessels), subject to the discretion of our Board of Directors, the terms of our loan agreements, and provisions of Belgian law, discussed below. Notwithstanding the adoption of this policy, our Board of Directors' primary obligation remains to act in the best interest of the Company and in doing so our Board of Directors will always consider alternatives for use of cash that might otherwise be distributed as dividends. This may include the purchase by us of our own shares, the accelerated amortisation of debt or the acquisition of vessels which we consider at that time to be accretive to shareholders' value.
Dividends, if any, will be paid in two instalments:installments: first as an interim dividend based on the results of the first 6 months of our fiscal year, then as a balance payment corresponding to the final dividend.dividend once the full year results have been audited and presented to our shareholders for approval. The interim dividend payout ratio may typically be more conservative than the yearly payout and will take into account any other form of at least 80%return of net consolidated profit. At our annual shareholders' meeting held on May 13, 2015, our shareholders approvedcapital done over the distribution of a gross dividend in the amount of $0.25 per share to all shareholders, which was paid in May 2015. In addition, on the occasion of the announcement of our half year results in August 2015, our Board of Directors declared an interim dividend in the amount of $0.62 per share, which was paid in September 2015.
same period.
Pursuant to the dividend policy set out above, our Board of Directors will continue to assess the declaration and payment of dividends upon consideration of our financial results and earnings, restrictions in our debt agreements, market prospects, current capital expenditures, commitments, investment opportunities, and the provisions of Belgian law affecting the payment of dividends to shareholders and other factors. We may stop paying dividends at any time and cannot assure you that we will pay any dividends in the future or of the amount of such dividends. For instance, we did not declare or pay any dividends from 2010 until 2014.
In general, under the terms of our debt agreements, we are not permitted to pay dividends if there is or will be as a result of the dividend a default or a breach of a loan covenant. Please see "Item 5. Operating and Financial Review and Prospects" for more information relating to restrictions on our ability to pay dividends under the terms of the agreements governing our indebtedness. Belgian law generally prohibits the payment of dividends unless net assets on the closing date of the last financial year do not fall beneath the amount of the registered capital and, before the dividend is paid out, 5% of the net profit is allocated to the legal reserve until this legal reserve amounts to 10% of the share capital. No distributions may occur if, as a result of such distribution, our net assets would fall below the sum of (i) the amount of our registered capital, (ii) the amount of such aforementioned legal reserves, and (iii) other reserves which may be required by our Articles of Association or by law, such as the reserves not available for distribution in the event we hold treasury shares. We may not have sufficient surplus in the future to pay dividends and our subsidiaries may not have sufficient funds or surplus to make distributions to us. We can give no assurance that dividends will be paid at all. In addition, the corporate law of jurisdictions in which our subsidiaries are organized may impose restrictions on the payment or source of dividends under certain circumstances.
Future issuances and sales of our ordinary shares could cause the market price of our ordinary shares to decline.
As of December 31, 2015,2017, our issued (and fully paid up) share capital was $173,046,122.14 which was represented by 159,208,949 ordinary shares, and our Board of Directors is authorized to increase share capital in one or several times by a total maximum of $150,000,000 for a period of five years as from June 19, 2015. Issuances and sales of a substantial number of ordinary shares in the public market, or the perception that these issuances or sales could occur, may depress the market price for our ordinary shares. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the future. We intend to issue additional ordinary shares in the future. Our shareholders may incur dilution from any future equity offering.
We are incorporated in Belgium, which provides for different and in some cases more limited shareholder rights than the laws of jurisdictions in the United States.
We are a Belgian company and our corporate affairs are governed by Belgian corporate law. Principles of law relating to such matters as the validity of corporate procedures, the fiduciary duties of management, the dividend payment dates and the rights of shareholders may differ from those that would apply if we were incorporated in a jurisdiction within the United States.
For example, there are no statutory dissenters' rights under Belgian law with respect to share exchanges, mergers and other similar transactions, and the rights of shareholders of a Belgian company to sue derivatively, on the company's behalf, are more limited than in the United States.
Civil liabilities based upon the securities and other laws of the United States may not be enforceable in original actions instituted in Belgium or in actions instituted in Belgium to enforce judgments of U.S. courts.
Civil liabilities based upon the securities and other laws of the United States may not be enforceable in original actions instituted in Belgium or in actions instituted in Belgium to enforce judgments of U.S. courts. Actions for the enforcement of judgments of U.S. courts might be successful only if the Belgian court confirms the substantive correctness of the judgment of the U.S. court and is satisfied that:
| · | the effect of the enforcement judgment is not manifestly incompatible with Belgian public policy; |
| · | the judgment did not violate the rights of the defendant; |
the effect of the enforcement judgment is not manifestly incompatible with Belgian public policy; | · | the judgment was not rendered in a matter where the parties transferred rights subject to transfer restrictions with the sole purpose of avoiding the application of the law applicable according to Belgian international private law; |
the judgment did not violate the rights of the defendant; | · | the judgment is not subject to further recourse under U.S.the judgment was not rendered in a matter where the parties transferred rights subject to transfer restrictions with the sole purpose of avoiding the application of the law applicable according to Belgian international private law; |
27the judgment is not subject to further recourse under U.S. law;
the judgment is not incompatible with a judgment rendered in Belgium or with a subsequent judgment rendered abroad that might be enforced in Belgium;a claim was not filed outside Belgium after the same claim was filed in Belgium, while the claim filed in Belgium is still pending;
the Belgian courts did not have exclusive jurisdiction to rule on the matter;
the U.S. court did not accept its jurisdiction solely on the basis of either the nationality of the plaintiff or the location of the disputed goods; and
the judgment submitted to the Belgian court is authentic.
| · | the judgment is not incompatible with a judgment rendered in Belgium or with a subsequent judgment rendered abroad that might be enforced in Belgium; |
| · | a claim was not filed outside Belgium after the same claim was filed in Belgium, while the claim filed in Belgium is still pending; |
| · | the Belgian courts did not have exclusive jurisdiction to rule on the matter; |
| · | the U.S. court did not accept its jurisdiction solely on the basis of either the nationality of the plaintiff or the location of the disputed goods; and |
| · | the judgment submitted to the Belgian court is authentic. |
ITEM 4. | ITEM 4. INFORMATION ON THE COMPANY |
A. | History and Development of the Company |
A.History and Development of the Company
Euronav NV was incorporated under the laws of Belgium on June 26, 2003 for an indefinite term, and we grew out of the combination of certain tanker businesses carried out by three companies that had a strong presence in the shipping industry: Compagnie Maritime Belge NV, or CMB, formed in 1895, Compagnie Nationale de Navigation SA, or CNN, formed in 1938, and Ceres Hellenic Shipping Enterprises Ltd., or Ceres Hellenic, formed in 1950. Our predecessor started doing business under the name "Euronav" in 1989. Our Company has the legal form of a public limited liability company (naamloze vennootschap/société anonyme).
Our principal shareholder is Marc Saverys, individually or through Saverco NV, or Saverco, an entity controlled by him. The Saverys family has had a continuous presence in the shipping industry since the early nineteenth century. The Saverys family owned a shipyard which was founded in 1829, owned and operated various shipowning companies since the 1960s, and acquired CMB in 1991.
Our ordinary shares have traded on Euronext Brussels since December 2004. In January 2015, we completed our underwritten initial public offering in the United States of 18,699,000 ordinary shares at $12.25 per share, and our ordinary shares commenced trading on the New York Stock Exchange, or NYSE. In March 2015, we completed our offer to exchange unregistered ordinary shares that were previously issued in Belgium (other than ordinary shares owned by our affiliates) for ordinary shares that were registered under the Securities Act of 1933, as amended, or the U.S. Exchange Offer, in which an aggregate of 42,919,647 ordinary shares were validly tendered and exchanged. Our ordinary shares currently trade on the NYSE and Euronext Brussels under the symbol "EURN."
For information about the development of our fleet, please see Item 5. Operating and Financial Review and Prospects—Fleet Development."
B.Business Overview
We are a fully-integrated provider of international maritime shipping and offshore services engaged primarily in the transportation and storage of crude oil. As of March 24, 2016,19, 2018, we owned andor operated a modern fleet of 5553 vessels (including twofour chartered-in vessels, and one newbuildingfour to be delivered in 2016)2018) with an aggregate carrying capacity of approximately 13.113.4 million deadweight tons, or dwt, consisting of 3028 very large crude carriers, (including one newbuilding to be delivered in 2016), or VLCCs, one ultra large crude carrier, or ULCC,V-plus, 22 Suezmax vessels (including four under construction as of March 19, 2018), and two floating, storage and offloading vessels, or FSOs.FSOs (both owned through 50/50 joint ventures). The weighted average age of our fleet as of March 24, 201619, 2018 was approximately 7.79.0 years, as compared to an industry average age as of December 31, 2015March 19, 2018 of approximately 8.59.4 years for the VLCC fleet and 8.99.5 years for the Suezmax fleet.
In July 2014, we agreed to acquire four additional modern VLCCs, which we refer to as the VLCC Acquisition Vessels, from Maersk Tankers Singapore Pte Ltd., or Maersk Tankers, for an aggregate purchase price of $342.0 million. The purchase price of the VLCC Acquisition Vessels was financed using the net proceeds of $121.1 million that we received in an underwritten private offering of 10,556,808 of our ordinary shares in Belgium in July 2014, available cash on hand, and borrowings under our $340.0 million Senior Secured Credit Facility. During the period from December 2014 through April 2015, we took delivery of all of the VLCC Acquisition Vessels.
In addition, in June 2015, we agreed to acquire from an unrelated third-party contracts for the construction of four VLCCs with Hyundai, which we refer to as the Metrostar Acquisition Vessels, for an aggregate purchase price of $384.0 million. We financed this acquisition with borrowings under our then existing credit facilities and our new $750.0 Million Senior Secured Credit Facility. The first Metrostar Acquisition Vessel was delivered to us during the third quarter of 2015, two Metrostar Acquisition Vessels were delivered to us during the first quarter of 2016, and the remaining Metrostar Acquisition Vessel is expected to be delivered to us during the second quarter of 2016.
The seller of the Metrostar Acquisition Vessels also agreed to sell us its option, for an option fee of $8.0 million, to acquire up to an additional four VLCCs, which are sister-vessels of the Metrostar Acquisition Vessels, at a purchase price of $98.0 million each. In October 2015, we decided not to exercise this option.
We currently charter our vessels, non-exclusively, to leading international energy companies, such as MaerskNorth Oil Company, or NOC, (whose shareholders are Qatar Petroleum Oil & Gas Limited and Total E&P Golfe Limited), Total and Valero, although there is no guarantee that these companies will continue their relationships with us. We pursue a chartering strategy that seeks an optimal mix of employment of our vessels depending on the fluctuations of freight rates in the market and our own judgment as to the direction of those rates in the future. Our vessels are therefore routinely employed on a combination of spot market voyages, fixed-rate contracts and long-term time charters, which typically include a profit sharing component. We principally employ our VLCCs through the TI Pool, a spot market-oriented pool in which we were a founding member in 2000. As of March 24, 2016, 1819, 2018, 15 of our vessels were employed directly in the spot market, 2324 of our vessels were employed in the TI Pool, 118 of our vessels were employed on long-term charters, of which the average remaining duration is 22.44 months, including ninefive with profit sharing components, and our two FSOs were employed on long-term service contracts. While we believe that our chartering strategy allows us to capitalize on opportunities in an environment of increasing rates by maximizing our exposure to the spot market, our vessels operating in the spot market may be subject to market downturns to the extent spot market rates decline. At times when the freight market may become more challenging, we will try to timely shift our exposure to more time charter contracts and potentially dispose of some of our assets which should provide us with incremental stable cash flows and stronger utilization rates supporting our business during periods of market weakness. We believe that our chartering strategy and our fleet size management, combined with the leadership of our experienced management team should enable us to capture value during cyclical upswings and to withstand the challenging operating environment such as the one seen in the years 2010 to 2013.2013 or/and seen since the last quarter of 2017.
28Developments in 2017
On April 20, 2017 we signed two long-term time charter contracts, each with a term of seven years with Valero Energy Inc. for the employment of two Suezmax vessels with specialized Ice Class 1C capability. The charters are expected to commence in late 2018. In connection with entry charter contracts, on April 27, 2017 we entered into newbuilding contracts for the construction of two high specification Ice Class Suezmax vessels from Hyundai shipyard in South Korea. These vessels have a substantially increased steel structure that enables a ship to navigate through sea ice and are equipped with specific emissions controls and other bespoke operational capabilities. Delivery of these vessels is expected in the second half of 2018 when each of the time charter contracts will begin. On May 11, 2017, our General Meeting of Shareholders approved the annual accounts for the year ended December 31, 2016, and a dividend of $0.22 per ordinary share. Taken into account the gross dividend of USD 0.55 per share paid on September 30, 2016 as interim dividend, this brings the total gross dividend paid in relation to 2016 to USD 0.77 per share.
On May 14, 2017, our joint ventures with International Seaways, Inc. signed a five year contract for the FSO Africa and FSO Asia in direct continuation of the previous contractual service with Maersk Oil Qatar, which expired on September 21, 2017 and July 21, 2017, respectively. The contracts were signed with North Oil Company, the new operator of the Al-Shaheen oil field, whose shareholders are Qatar Petroleum Oil & Gas Limited and Total E&P Golfe Limited. The new contracts for these custom-made three million barrels capacity units which have been significantly converted and that have been serving the Al-Shaheen field without interruption since 2010, have a duration of five years.
On May 31, 2017, Euronav Luxembourg SA, one of our wholly owned subsidiaries, completed a new senior unsecured bond issue of $150 million with a coupon of 7.50% and maturity in May 2022. The net proceeds from the bond issue will be used for general corporate purposes. We serve as guarantor of the bonds. On October 23, 2017, the bonds were listed on the Oslo Stock Exchange.
On June 6, 2017, we entered into an agreement, or the Dealer Agreement,with BNP Paribas Fortis SA/NV to act as arranger and dealer for a Belgian Multi-currency Short- Notes Program with a maximum outstanding amount of €50million. Pursuant to the terms of the Dealer Agreement, we may issue the treasury notes to the dealer from time to time upon such terms and such prices as we and the dealer agree. As of December 31, 2017 the outstanding balance under this program was €41.7 million or $50.0 million.
For information about acquisitions and dispositions of our vessels during 2017, please see Item. 5. Operating and Financial Review and Prospects-Fleet Development.
Proposed Merger with Gener8 Maritime, Inc.
On December 20, 2017, the Company, Gener8 Maritime, Inc., which we refer to as Gener8, and Euronav MI Inc., which we refer to as Merger Sub, entered into the Merger Agreement to govern the Merger. Pursuant to the Merger Agreement, subject to the satisfaction or waiver of certain conditions, the Merger Sub will merge with and into Gener8 and Gener8 will continue its corporate existence as a wholly-owned subsidiary of the Company. At the effective time of the Merger (the "Effective Time"), each issued and outstanding Gener8 common share will be canceled and automatically converted into the right to receive 0.7272 of an ordinary share of the Company (the "Exchange Ratio"). The Gener8 common shares will be contributed to the Company pursuant to applicable provisions of the Belgian Companies Code in a capital increase procedure referred to as a Contribution in Kind. Immediately following the Effective Time, the Company expects to issue approximately 60.9 million new ordinary shares to Gener8 shareholders, based on the Exchange Ratio, which are estimated to represent approximately 28% of the outstanding Euronav ordinary shares (based on the fully diluted share capital of Euronav and the fully diluted share capital of Gener8). The Exchange Ratio implies a premium of 35% paid on Gener8 shares based on the closing share prices on December 20, 2017.
The completion of the Merger is subject to the satisfaction of certain closing conditions, many of which are substantive and which have not been met as of the date of this annual report. The Merger is currently projected to close in the second quarter of 2018; however, there is no assurance that the Merger will be completed. The Merger is subject to, among other important conditions, (i) the approval of the Merger Agreement by Gener8 shareholders representing at least a majority of the issued and outstanding common shares of Gener8 at a special meeting, (ii) the consent of certain of Gener8’s lenders to assign certain debt facilities to the combined entity following the Merger, (iii) the effectiveness of a registration statement filed by the Company with the SEC to register our ordinary shares to be issued in the Merger and (iv) the approval for the listing of such shares on the NYSE.
If the Merger is completed, we will assume approximately $1,358.0 million of Gener8’s existing indebtedness (which was the amount outstanding as of December 31, 2017) in connection with the completion of the Merger. Gener8’s current secured credit facilities require it to maintain specified financial ratios and satisfy financial covenants, including ratios and covenants based on the market value of the vessels in Gener8’s fleet in relation to the indebtedness outstanding, which vary from the covenants and restrictions contained in our existing debt agreements and with which the combined company will be required to comply.
After the Merger, members of our Board of Directors and executive management will continue to serve in such positions of the combined company. In addition, pursuant to the Merger Agreement, we have agreed to take all actions necessary so that Mr. Steven Smith (a current director of Gener8) (or if Mr. Smith is unavailable, then such other person designated by a committee of Gener8’s disinterested directors who is reasonably satisfactory to Euronav, which acceptance shall not be unreasonably withheld) will, upon recommendation of our corporate governance and nomination committee, be proposed for election to serve on our Board of Directors at our next regularly scheduled annual general meeting. In connection with the proposed Merger, certain shareholders of Gener8, representing approximately 48% of the issued and outstanding share of Gener8 as of the date of this annual report, have entered into certain voting agreements pursuant to which these shareholders, subject to the terms and conditions of such voting agreements, to appear (in person or by proxy) at any meeting of the shareholders convened for the purpose of approving the Merger Agreement and to vote their Gener8 common shares in favor of the Merger Agreement and the related transactions.
Concurrently with the execution of the Merger Agreement, the Company and Gener8 executed and delivered three memoranda of agreement which contemplate the purchase by us of three vessels from Gener8 at a total purchase price of $220.9 million if the Merger is not consummated, other than as a result of a breach of the Merger Agreement by us. A portion of the purchase price of each of the three vessels can be offset by up to one-third of the $39 million termination fee contemplated by the Merger Agreement payable by Gener8 in the case of a termination of the Merger Agreement in circumstances that trigger the termination fee.
We expect to enter into an agreement with International Seaways, Inc., or International Seaways, an unaffiliated third-party, pursuant to which International Seaways would, subject to the consummation of the Merger, among other conditions, purchase from us up to six VLCC vessels (the “Gener8 VLCC Vessels”) and their respective special purpose vehicles for an aggregate purchase price of up to $434 million part of which is expected to be by assuming the outstanding debt related to those vessels. The purchase by International Seaways of the Gener8 VLCC Vessels is subject to the consent of International Seaways’ existing lenders. If such lenders do not consent to International Seaways’ purchase of the Gener8 VLCC Vessels, Seaways will nevertheless buy the Gener8 VLCC Vessels and their respective special purpose vehicles for the same aggregate purchase price and may or may not assume the debt related to those vessels and we expect to repurchase two of the Gener8 VLCC Vessels from International Seaways for cash consideration of $143 million and we may also prepay all or part of the outstanding debt obligations associated with those VLCCs and subject to certain other conditions. The Gener8 VLCC Vessels, which have an average age of 1.7 years as of the date the Merger Agreement, are expected to be delivered to the buyer during the second fiscal quarter of 2018. The sale of the Gener8 VLCC Vessels is subject to definitive documentation.
Following the completion of the proposed Merger with Gener8 and assuming the proposed sale of six VLCCs to International Seaways, it is expected that the combined company resulting from the Merger will own and operate a combined fleet, or the Combined Fleet, with an average age of approximately 7.71 years (estimated as of March 19, 2018), an aggregate carrying capacity of approximately 19.1 million deadweight tons, or dwt and consisting of one V-Plus crude carrier, 43 very large crude carriers, or VLCCs (including four vessels that we charter-in), 28 Suezmax vessels (which include the newbuilding delivered to us on March 26, 2018 and the remaining three newbuildings expected to be delivered in 2018), two Panamax vessels, one Aframax vessel, and two floating, storage and offloading vessels, or FSOs (in which we hold a 50% ownership interest).
It is our intention to employ as soon as commercially practicable all of the Gener8 vessels either in commercial pools, on time charters or in the spot market, consistent with the strategy currently employed by us, as described below under the heading "Employment of Our Fleet." Generally, the Combined Fleet will be technically and commercially managed as described below under the heading “Technical and Commercial Management of Our Vessels." As a result of the Merger, a larger proportion of the vessels in the Combined Fleet may be managed by third-party managers than the proportion of vessels in our fleet that were managed by third-party managers prior to the Merger.
For additional information on the Proposed Merger with Gener8, including the risks associated with the Merger, please see our preliminary joint proxy statement/prospectus on Form F-4 (Registration No. 333-223039), as amended and supplemented, that was initially filed with the SEC on February 14, 2018, and as may be subsequently amended. Please also refer to Item 3. Key Information-D. Risk Factors".
Our Fleet
Set forth below is certain information regarding our fleet as of March 24, 2016.19, 2018.Vessel Name | Type | Deadweight Tons (dwt) | Year Built | Shipyard(1) | Charterer | Employment | Charter Expiry Date(2) |
Owned Vessels | | | | | | | |
TI Europe | ULCC | 441,561 | 2002 | Daewoo | | Spot | N/A |
Sandra | VLCC | 323,527 | 2011 | STX | Total | Time Charter(3) | January 2017 |
Sara | VLCC | 323,183 | 2011 | STX | Total | Time Charter(3) | October 2017 |
Alsace | VLCC | 320,350 | 2012 | Samsung | | TI Pool | N/A |
TI Topaz | VLCC | 319,430 | 2002 | Hyundai | | TI Pool | N/A |
TI Hellas | VLCC | 319,254 | 2005 | Hyundai | Petrobras | Time Charter | November 2018 |
Ilma | VLCC | 314,000 | 2012 | Hyundai | | TI Pool | N/A |
Simone | VLCC | 313,988 | 2012 | STX | | TI Pool | N/A |
Sonia | VLCC | 314,000 | 2012 | STX | | TI Pool | N/A |
Ingrid | VLCC | 314,000 | 2012 | Hyundai | | TI Pool | N/A |
Iris | VLCC | 314,000 | 2012 | Hyundai | | TI Pool | N/A |
Nucleus | VLCC | 307,284 | 2007 | Dalian | | TI Pool | N/A |
Nautilus | VLCC | 307,284 | 2006 | Dalian | | TI Pool | N/A |
Navarin | VLCC | 307,284 | 2007 | Dalian | | TI Pool | N/A |
Nautic | VLCC | 307,284 | 2008 | Dalian | | TI Pool | N/A |
Newton | VLCC | 307,284 | 2009 | Dalian | | TI Pool | N/A |
Nectar | VLCC | 307,284 | 2008 | Dalian | | TI Pool | N/A |
Neptun | VLCC | 307,284 | 2007 | Dalian | | TI Pool | N/A |
Noble | VLCC | 307,284 | 2008 | Dalian | | TI Pool | N/A |
Flandre | VLCC | 305,688 | 2004 | Daewoo | Petrobras | Time Charter | August 2018 |
V.K. Eddie(4) | VLCC | 305,261 | 2005 | Daewoo | | TI Pool | N/A |
Hojo | VLCC | 302,965 | 2013 | JMU | | TI Pool | N/A |
Hakone | VLCC | 302,624 | 2010 | Universal | | TI Pool | N/A |
Hirado | VLCC | 302,550 | 2011 | Universal | | TI Pool | N/A |
Hakata | VLCC | 302,550 | 2010 | Universal | Total | Time Charter(3) | September 2017 |
Artois | VLCC | 298,330 | 2001 | Hitachi | | TI Pool | N/A |
Antigone | VLCC | 299,421 | 2015 | Hyundai | | TI Pool | N/A |
Alice | VLCC | 299,320 | 2016 | Hyundai | | Spot | N/A |
Alex | VLCC | 229,445 | 2016 | Hyundai | | TI Pool | N/A |
Anne(6) | VLCC | 300,000 | 2016 | Hyundai | | N/A | N/A |
Cap Diamant | Suezmax | 160,044 | 2001 | Hyundai | | Spot | N/A |
Cap Pierre | Suezmax | 159,083 | 2004 | Samsung | Valero | Time Charter(3) | June 2018 |
Cap Leon | Suezmax | 159,049 | 2003 | Samsung | Valero | Time Charter(3) | April 2018 |
Cap Philippe | Suezmax | 158,920 | 2006 | Samsung | | Spot | N/A |
Cap Guillaume | Suezmax | 158,889 | 2006 | Samsung | | Spot | N/A |
Cap Charles | Suezmax | 158,881 | 2006 | Samsung | | Spot | N/A |
Cap Victor | Suezmax | 158,853 | 2007 | Samsung | | Spot | N/A |
Cap Lara | Suezmax | 158,826 | 2007 | Samsung | | Spot | N/A |
Cap Theodora | Suezmax | 158,819 | 2008 | Samsung | | Spot | N/A |
Cap Felix | Suezmax | 158,765 | 2008 | Samsung | | Spot | N/A |
Fraternity | Suezmax | 157,714 | 2009 | Samsung | Repsol | Time Charter(3) | November 2017 |
Eugenie(4) | Suezmax | 157,672 | 2010 | Samsung | | Spot | N/A |
Felicity | Suezmax | 157,667 | 2009 | Samsung | | Spot | N/A |
Capt. Michael(4) | Suezmax | 157,648 | 2012 | Samsung | | Spot | N/A |
Devon(4) | Suezmax | 157,642 | 2011 | Samsung | | Spot | N/A |
Maria(4) | Suezmax | 157,523 | 2012 | Samsung | | Spot | N/A |
Finesse | Suezmax | 149,994 | 2003 | Universal | | Spot | N/A |
Filikon | Suezmax | 149,989 | 2002 | Universal | | Spot | N/A |
Cap Georges | Suezmax | 146,652 | 1998 | Samsung | Valero | Time Charter(3) | May 2017 |
Cap Romuald | Suezmax | 146,640 | 1998 | Samsung | Valero | Time Charter(3) | May 2018 |
Cap Jean | Suezmax | 146,627 | 1998 | Samsung | Valero | Time Charter(3) | March 2018 |
Total DWT—Owned Vessels(5) | | 12,201,743 | | | | | |
| | | | | | | |
| | | | | | | Chartered-In Expiry Date |
Chartered-In Vessels | | | | | | | |
KHK Vision | VLCC | 305,749 | 2007 | Daewoo | | TI Pool | October 2016 |
Suez Hans | Suezmax | 158,574 | 2011 | Hyundai | | Spot | December 2016 |
Total DWT Chartered-In Vessels | | 464,323 | | | | | |
| | | | | | | |
| | | | | | | Service Contract Expiry Date |
FSO Vessels | | | | | | | |
FSO Africa(4) | FSO | 442,000 | 2002 | Daewoo | Maersk Oil | Service Contract | September 2017 |
FSO Asia(4) | FSO | 442,000 | 2002 | Daewoo | Maersk Oil | Service Contract | July 2017 |
Total DWT FSO Vessels(5) | | 442,000 | | | | | |
|
| | | | | | | | | | | | | | | |
Vessel Name | | Type | | Deadweight Tons (dwt) | | Year Built | | Shipyard (1) | | Charterer | | Employment | | Charter Expiry Date (2) |
Owned Vessels | |
| |
| |
| |
| |
| |
| |
|
TI Europe | | V-Plus | | 441,561 | | 2002 |
| | Daewoo | | Statoil | | Time Charter | | Mar-18 |
Sandra | | VLCC | | 323,527 | | 2011 |
| | STX | |
| | TI Pool | | N/A |
Sara | | VLCC | | 323,183 | | 2011 |
| | STX | | Total | | Time Charter (3) | | Nov-18 |
Alsace | | VLCC | | 320,350 | | 2012 |
| | Samsung | |
| | TI Pool | | N/A |
TI Hellas | | VLCC | | 319,254 | | 2005 |
| | Hyundai | | Petrobras | | Time Charter | | Nov-18 |
Ilma | | VLCC | | 314,000 | | 2012 |
| | Hyundai | |
| | TI Pool | | N/A |
Simone | | VLCC | | 313,988 | | 2012 |
| | STX | |
| | TI Pool | | N/A |
Sonia | | VLCC | | 314,000 | | 2012 |
| | STX | |
| | TI Pool | | N/A |
Ingrid | | VLCC | | 314,000 | | 2012 |
| | Hyundai | |
| | TI Pool | | N/A |
Iris | | VLCC | | 314,000 | | 2012 |
| | Hyundai | |
| | TI Pool | | N/A |
Nautic | | VLCC | | 307,284 | | 2008 |
| | Dalian | |
| | TI Pool | | N/A |
Newton | | VLCC | | 307,284 | | 2009 |
| | Dalian | |
| | TI Pool | | N/A |
Nectar | | VLCC | | 307,284 | | 2008 |
| | Dalian | |
| | TI Pool | | N/A |
Noble | | VLCC | | 307,284 | | 2008 |
| | Dalian | |
| | TI Pool | | N/A |
V.K. Eddie | | VLCC | | 305,261 | | 2005 |
| | Daewoo | | Petrobras | | Time Charter | | Aug-18 |
Hojo | | VLCC | | 302,965 | | 2013 |
| | JMU | |
| | TI Pool | | N/A |
Hakone | | VLCC | | 302,624 | | 2010 |
| | Universal | |
| | TI Pool | | N/A |
Hirado | | VLCC | | 302,550 | | 2011 |
| | Universal | |
| | TI Pool | | N/A |
Hakata | | VLCC | | 302,550 | | 2010 |
| | Universal | | Total | | Time Charter (3) | | Sep-18 |
Antigone | | VLCC | | 299,421 | | 2015 |
| | Hyundai | |
| | TI Pool | | N/A |
Anne | | VLCC | | 299,533 | | 2016 |
| | Hyundai | |
| | TI Pool | | N/A |
Alex | | VLCC | | 299,445 | | 2016 |
| | Hyundai | |
| | TI Pool | | N/A |
Alice | | VLCC | | 299,320 | | 2016 |
| | Hyundai | |
| | TI Pool | | N/A |
Aquitaine | | VLCC | | 298,767 | | 2017 |
| | Hyundai | |
| | TI Pool | | N/A |
Ardeche | | VLCC | | 298,642 | | 2017 |
| | Hyundai | |
| | TI Pool | | N/A |
Cap Diamant | | Suezmax | | 160,044 | | 2001 |
| | Hyundai | |
| | Spot | | N/A |
Cap Pierre | | Suezmax | | 159,083 | | 2004 |
| | Samsung | |
| | Spot | | N/A |
Cap Leon | | Suezmax | | 159,049 | | 2003 |
| | Samsung | | Valero | | Time Charter (3) | | Jul-18 |
Cap Philippe | | Suezmax | | 158,920 | | 2006 |
| | Samsung | |
| | Spot | | N/A |
Cap Guillaume | | Suezmax | | 158,889 | | 2006 |
| | Samsung | |
| | Spot | | N/A |
Cap Charles | | Suezmax | | 158,881 | | 2006 |
| | Samsung | |
| | Spot | | N/A |
Cap Victor | | Suezmax | | 158,853 | | 2007 |
| | Samsung | |
| | Spot | | N/A |
Cap Lara | | Suezmax | | 158,826 | | 2007 |
| | Samsung | |
| | Spot | | N/A |
Cap Theodora | | Suezmax | | 158,819 | | 2008 |
| | Samsung | |
| | Spot | | N/A |
Cap Felix | | Suezmax | | 158,765 | | 2008 |
| | Samsung | |
| | Spot | | N/A |
Fraternity | | Suezmax | | 157,714 | | 2009 |
| | Samsung | |
| | Spot | | N/A |
Felicity | | Suezmax | | 157,667 | | 2009 |
| | Samsung | |
| | Spot | | N/A |
Capt. Michael | | Suezmax | | 157,648 | | 2012 |
| | Samsung | |
| | Spot | | N/A |
Maria | | Suezmax | | 157,523 | | 2012 |
| | Samsung | |
| | Spot | | N/A |
Cap Quebec (7) | | Suezmax | | 156,600 | | 2018 |
| | Hyundai | | Valero | | Time Charter (3) (6) | | May-25 |
Hull S910 (4) | | Suezmax | | 156,600 | | 2018 |
| | Hyundai | | Valero | | Time Charter (3) (6) | | N/A |
Hull S911 (4) | | Suezmax | | 156,600 | | 2018 |
| | Hyundai | | Valero | | Time Charter (3) (6) | | N/A |
Hull S912 (4) | | Suezmax | | 156,600 | | 2018 |
| | Hyundai | | Valero | | Time Charter (3) (6) | | N/A |
Finesse | | Suezmax | | 149,994 | | 2003 |
| | Universal | |
| | Spot | | N/A |
Filikon | | Suezmax | | 149,989 | | 2002 |
| | Universal | |
| | Spot | | N/A |
Cap Romuald | | Suezmax | | 146,640 | | 1998 | | Samsung | | Valero | | Time Charter (3) | | May-18 |
Cap Jean | | Suezmax | | 146,643 | | 1998 |
| | Samsung | | Valero | | Time Charter (3) | | Mar-18 |
Total DWT—Owned Vessels | |
| | 11,278,424 | |
| |
| |
| |
| |
|
________________________
|
| | | | | | | | | | | | | | | |
Vessel Name | | Type | | Deadweight Tons (dwt) | | Year Built |
| | Shipyard (1) | | Charterer | | Employment | | Chartered-In Expiry Date |
Chartered-In Vessels | | | | | | | | | | | | | | |
Nucleus | | VLCC | | 307,284 | | 2007 |
| | Dalian | | | | TI Pool | | Dec-21 |
Nautilus | | VLCC | | 307,284 | | 2006 |
| | Dalian | | | | TI Pool | | Dec-21 |
Navarin | | VLCC | | 307,284 | | 2007 |
| | Dalian | | | | TI Pool | | Dec-21 |
Neptun | | VLCC | | 307,284 | | 2007 |
| | Dalian | | | | TI Pool | | Dec-21 |
Total DWT Chartered-In Vessels | | 1,229,136 | |
| |
| | | |
| |
|
| | | | | | | | | | | | | | Service Contract Expiry Date |
FSO Vessels | | | | | | | | | | | | | | |
FSO Africa (5) | | FSO | | 442,000 | | 2002 |
| | Daewoo | | NOC | | Service Contract | | Sep-22 |
FSO Asia (5) | | FSO | | 442,000 | | 2002 |
| | Daewoo | | NOC | | Service Contract | | Jul-22 |
Total DWT FSO Vessels(6) | | 442,000 | |
| |
| | | |
| |
|
| |
(1) | As used in this report, "Samsung" refers to Samsung Heavy Industries Co., Ltd, "Hyundai" refers to Hyundai Heavy Industries Co., Ltd., "Universal" refers to Universal Shipbuilding Corporation, "Hitachi refers to Hitachi Zosen Corporation, "Daewoo" refers to Daewoo Shipbuilding and Marine Engineering S.A., "JMU" refers to Japan Marine United Corp., Ariake Shipyard, Japan, "Dalian" refers to Dalian Shipbuilding Industry Co. Ltd., and "STX" refers to STX Offshore and Shipbuilding Co. Ltd. |
| |
(2) | Assumes no exercise by the charterer of any option to extend (if applicable). |
| |
(3) | Profit sharing component under time charter contracts. |
| |
(4) | Vessels expected to be delivered to us in the course of 2018. |
| |
(5) | Vessels in which we hold a 50% ownership interest. |
(5) | |
(6) | Vessels in which we hold a 50% ownership interest are only accounted for the share of DWT corresponding to our ownership interest. |
(6) | |
(7) | Vessel expected to bewas delivered to us in the course of the second quarter of 2016.Company on March 26, 2018 |
Employment of Our Fleet
Our tanker fleet is employed worldwide through a combination of primarily spot market voyage fixtures, including through the TI Pool, fixed-rate contracts and time charters. We deploy our two FSOs as floating storage units under fixed-rate service contracts in the offshore services sector. For the year 2016,2018, our fleet is currently expected to have approximately 18,36717,484 available days for hire, of which, as of March 24, 2016, 76%19, 2018, 85.99% are expected to be available to be employed on the spot market, either directly or through the TI Pool, 18%10.32% are expected to be available to be employed on fixed time charters with a profit sharing element and 6%3.69% are expected to be available to be employed on fixed time charters without a profit sharing element.
Spot Market
A spot market voyage charter is a contract to carry a specific cargo from a load port to a discharge port for an agreed freight per ton of cargo or a specified total amount. Under spot market voyage charters, we pay voyage expenses such as port, canal and bunker costs. Spot charter rates have historically been volatile and fluctuate due to seasonal changes, as well as general supply and demand dynamics in the crude oil marine transportation sector. Although the revenue we generate in the spot market is less predictable, we believe our exposure to this market provides us with the opportunity to capture better profit margins during periods when vessel demand exceeds supply leading to improvements in tanker charter rates. As of March 24, 2016,19, 2018, we employed 1815 of our vessels directly in the spot market.
A majoritySuezmax Chartering
In June 2016, Euronav, together with Diamond S. Management LLC and Frontline Ltd., companies not affiliated with Euronav, formed Suezmax Chartering, a chartering joint venture that creates a single point of our Suezmaxes operating incontact for cargo owners to access a large fleet of 46 modern Suezmax vessels, including newbuildings, operated on the spot market participate in an internal Revenue Sharing Agreement, or RSA, together with the four Suezmaxes that we jointly own with Bretta as well as Suezmaxes owned by third-parties. Under the RSA, each vessel owner is responsible for its own costs, including voyage-related expenses, but will share in the net revenues, after the deduction of voyage-related expenses, retroactively on a semi-annual basis. Calculation of allocations and contributions under the RSA are based on a pool points system and are paid after the deduction of the pool fee to Euronav, as pool manager, from the gross pool income. We believe this arrangement results in an increased market presence and allows us to benefit from additional market information which in turn is beneficial to our performance in the spot market.
Tankers International Pool
WeEuronav principally employemploys and commercially manage ourmanages its VLCCs through the Tankers International Pool, or the TI Pool, a leading spot market-oriented VLCC pool in which other shipowners with vessels of similar size and quality participate along with us. We participated in the formation of the TI Pool in 2000 to allow usit and other TI Pool participants, consisting of unaffiliated third-party owners and operators of similarly sized vessels, to gain economies of scale, obtain increased cargo, flow of information, logistical efficiency and greater vessel utilization. As of March 24, 2016,19, 2018, the TI Pool was comprised of 3837 vessels, including 2324 of ourEuronav’s VLCCs.
By pooling ourits VLCCs with those of other shipowners, we areEuronav is able to derive synergies, including (i) the potential for increased vessel utilization by securing backhaul voyages for ourits vessels, and (ii) the performance of the Contracts of Affreightment, or COAs. Backhaul voyages involve the transportation of cargo on part of the return leg of a voyage. COAs, which can involve backhauls, may generate higher effective time charter equivalent, or TCE, revenues than otherwise might be obtainable directly in the spot market. Additionally, by operating a large number of vessels as an integrated transportation system, the TI Pool offers customers greater flexibility and an additional level of service while achieving scheduling efficiencies. The TI Pool is an owner-focused pool that does not charge commissions to its members, a practice that differs from that of other commercial pools; rather, the TI Pool aggregates gross charter revenues it receives and deducts voyage expenses and administrative costs before distributing net revenues to the pool members in accordance with their allocated pool points, which are based on each vessel's speed, fuel consumption and cargo-carrying capacity. We believe this results in lower TI Pool membership costs, compared to other similarly sized pools. In 2015,2017, TI Pool membership costs were approximately $770$750 per vessel per day (with each vessel receiving its proportional share of pool membership expenses)expenses, excluding pool credit line costs).
In 2017, the corporate structure of the TI Pool was rationalized. This new structure allowed the TI Pool to arrange for a credit line financing. This credit line is used to fund the working capital in the ordinary course of TI Pool's business of operating a pool of tankers vessels, including but not limited to the purchase of bunker fuel, the payment of expenses relating to specific voyages and supplies of pool vessels, commissions payable on fixtures, port costs, expenses for hull and propeller cleaning, canal costs, insurance costs for the account of the pool, and insurance and fees payable for towage of vessels.
Tankers International LLC, or Tankers International,(UK) Agencies Ltd., of which we own 40%Euronav owns 50% of the outstanding interests,voting shares, is the manager of the pool and is also responsible for the commercial management of the pool participants, including negotiating and entering into vessel employment agreements on behalf of the pool participants. Technical management of the pooled vessels is performed by each shipowner, who bears the operating costs for its vessels.
Tankers International and Frontline Management (Bermuda) Ltd., or Frontline, a company not affiliated with us,Euronav, together formed VLCC Chartering Ltd., a chartering joint venture that has access to the combined fleets of Frontline and the TI Pool, including ourEuronav’s vessels that are operating in the TI Pool. VLCC Chartering Ltd. commenced operations on October 6, 2014. Tankers International and Frontline each own 50% of VLCC Chartering Ltd. We believeEuronav believes that VLCC Chartering Ltd. increases ourits fleet earnings potential while creating greater options for cargo end-users.
Time Charters
Time charters provide us with a fixed and stable cash flow for a known period of time. Time charters may help usEuronav mitigate, in part, ourits exposure to the spot market, which tends to be volatile in nature, being seasonal and generally weaker in the second and third quarters of the year due to refinery shutdowns and related maintenance during the warmer summer months. In the future, weEuronav may when the cycle matures or otherwise opportunistically employ more of ourits vessels under time charter contracts as the available rates for time charters improve. WeEuronav may also enter into time chartertime-charter contracts with profit sharingprofit-sharing arrangements, which we believeit believes will enable usEuronav to benefit if the spot market increases above a base charter rate as calculated either by sharing sub charter profits of the charterer or by reference to a market index and in accordance with a formula provided in the applicable charter contract. As of March 24, 2016, we19, 2018, Euronav employed 11eight of ourits vessels on fixed-rate time charters with an average remaining duration of 22.4four months, including ninefive with profit sharingprofit-sharing components based on a percentage of the excess between the prevailing applicable market rate and the base charter rate.
FSOs and Offshore Service Contracts
We currently deploy our two FSOs as floating storage units under service contracts with MaerskNorth Oil Company, in the offshore services sector. As our tanker vessels age, we may seek to extend their useful lives by employing such vessels on long-term offshore projects at rates higher than may otherwise be achieved in the time charter market, or sell such vessels to third-party owners in the offshore conversion market at a premium.
Technical and Commercial Management of our Vessels
OurMost of Euronav’s vessels are technically managed in-house through our wholly-owned subsidiaries, Euronav Ship Management SAS, Euronav SAS and Euronav Ship Management (Hellas) Ltd. OurIts in-house technical management services include providing technical expertise necessary for all vessel operations, supervising the maintenance, upkeep and general efficiency of vessels, arranging and supervising newbuilding construction, drydocking, repairs and alterations, and developing, implementing, certifying and maintaining a safety management system.
OurIn addition to Euronav’s in-house fully integrated technical management, Euronav utilizes from time to time the services of experienced third party managers. The independent technical managers typically have specific teams dedicated to Euronav’s vessels and are supervised by our in house oversight team. Euronav currently contract Wallem Shipmanagement Limited for one of Euronav’s owned VLCCs and Anglo Eastern group of companies (through the fellow subsidiaries, Anglo-Eastern (Antwerp) NV, Anglo-Eastern Tanker Management (Hong Kong) Limited and Anglo-Eastern (Labuan) Limited for two of Euronav’s owned VLCCs and two VLCCs that we have on bareboat charter. The services provided by Euronav’s third party technical management are very similar to Euronav’s own technical management and involves part or all of the day-to-day management of vessels.
Euronav’s VLCCs are commercially managed by Tankers International while operating in the TI Pool. All of the participants in the TI Pool collectively pay a pool management fee equivalent to the costs of running the pool business, after deductingexcluding voyage expenses, interest adjustments and administration costs, including legal, banking and other professional fees. The net charge is the pool administration cost, which is apportioned to each vessel by calendar days. During the year ended December 31, 2015, we2017, Euronav paid an aggregate of $6.5$7.4 million for the commercial management of ourEuronav’s vessels operating in the TI Pool.
Our Euronav’s Suezmax vessels trading in the spot market are commercially managed by Euronav (UK) Agencies Ltd., our London commercial department. Commercial management services include securing employment for ourEuronav’s vessels.
Our Euronav’s time chartered vessels, both VLCCs and Suezmax vessels,if any, are managed by ourEuronav’s operations department based in Antwerp.
Implications of Being an Emerging Growth Company
We qualify as an "emerging growth company" as defined in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise applicable generally to public companies. These provisions include:
| · | the ability to present only two years of audited financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations in the registration statement for our initial public offering; and |
| · | exemption from the auditor attestation requirement of management's assessment of the effectiveness of the emerging growth company's internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. |
We may take advantage of these provisions until the end of the fiscal year following the fifth anniversary of our initial public offering or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company if we have more than $1.0 billion in "total annual gross revenues" during our most recently completed fiscal year, if we become a "large accelerated filer" with a public float of more than $700 million, or as of any date on which we have issued more than $1.0 billion in non-convertible debt over the three year period prior to such date. We may choose to take advantage of some, but not all, of these reduced reporting requirements. For as long as we take advantage of the reduced reporting obligations, the information that we provide shareholders may be different from information provided by other public companies.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We currently prepare our consolidated financial statements in accordance with IFRS, as issued by the International Accounting Standards Board, which do not have separate provisions for publicly traded and private companies. However, in the event we convert to U.S. GAAP while we are still an emerging growth company, we may be able to take advantage of the benefits of this extended transition period and, as a result, during such time that we delay the adoption of any new or revised accounting standards, our consolidated financial statements may not be comparable to other companies that comply with all public company accounting standards.
Principal Executive Offices
Our principal executive headquarters are located at De Gerlachekaai 20, 2000 Antwerpen, Belgium. Our telephone number at that address is 011-32-3-247-4411. We also have offices located in the United Kingdom, France, Greece, Hong Kong and Singapore. Our website is www.euronav.com.
Competition
The operation of tanker vessels and transportation of crude and petroleum products is extremely competitive. We compete with other tanker owners, including major oil companies as well as independent tanker companies. Competition arises primarily from other tanker owners, including major oil companies as well as independent tanker companies, some of whom have substantially greater resources than we do. We compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on our reputation as an operator. Competition is also affected by the availability of other size vessels to compete in the trades in which we engage. We currently operate our all of our vessels in the spot market, either directly or through the TI Pool, or on time charter. For our vessels that operate in the TI Pool, Tankers International,UK Agencies Ltd. (TUKA), the pool manager, is responsible for their commercial management, including marketing, chartering, operating and purchasing bunker (fuel oil) for the vessels. From time to time, we may also arrange our time charters and voyage charters in the spot market through the use of brokers, who negotiate the terms of the charters based on market conditions.
Seasonality
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, charter rates. Peaks in tanker demand quite often precede seasonal oil consumption peaks, as refiners and suppliers anticipate consumer demand. Seasonal peaks in oil demand can broadly be classified into two main categories: (1) increased demand prior to Northern Hemisphere winters as heating oil consumption increases and (2) increased demand for gasoline prior to the summer driving season in the United States. Unpredictable weather patterns and variations in oil reserves disrupt tanker scheduling. This seasonality may result in quarter-to-quarter volatility in our operating results, as many of our vessels trade in the spot market. Seasonal variations in tanker demand will affect any spot market related rates that we may receive.
Industry and Market Conditions
The International Oil Tanker Shipping IndustryTHE INTERNATIONAL OIL TANKER SHIPPING INDUSTRY
All of the information and data presented in this section, including the analysis of the international oil tanker shipping industry has been provided by Drewry. Drewry has advised us that the statistical and graphical information contained herein is drawn from its database and other sources. In connection therewith, Drewry has advised that: (a)(i) certain information in Drewry'sDrewry’s database is derived from estimates or subjective judgments; (b)(ii) the information in the databases of other maritime data collection agencies may differ from the information in Drewry'sDrewry’s database; (c)(iii) while Drewry has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures. The Company believes and acts as though the industry and market data presented in this section is reliable.
Overview
The maritime shipping industry is fundamental to international trade, as it is the only practicable and cost effective meanseconomic way of transporting large volumes of many essential commodities and finished goods around the world. In turn, the oil tanker shipping industry represents a vital link in the global energy supply chain, in which larger vessels such as VLCCs and Suezmax tankers play an important role, given their availabilitycapability to carry large quantities of crude oil.
The oil tanker shipping industry is primarily divided between crude tankers that carry either crude oil or residual fuel oil and product tankers that carry refined petroleum products. The following review specifically focuses on the crude sector. Revenue in thefor an oil tanker shipping marketcompany is primarily driven by daily freight rates.rates paid for transportation capacity. Freight is paid for the movement of cargo between a load port and a discharge port. The cost of moving the ship from a discharge port to the next load port is not directly compensated by the charterers in the freight payment but is an expense of the owners if not on time charter.
The tanker freight market remained buoyant throughout 2015 and first half of 2016 on account of favorable supply/demand dynamics. However, in the second half of 2016 rising newbuilding deliveries outpaced the growth in tanker demand and hence there was downward pressure on freight rates. A deluge of newbuilding deliveries in 2017 aggravated the situation further and rates fell. For example, the average VLCC spot rate on Arabian Gulf (AG)-Japan route was US$ 22,617 per day in 2017 compared with US$ 42,183 per day in 2016. Oil tanker freight rates have increased recentlydeclined in the second half of 2016 and 2017 due to a number of factors, including:
(i)Increased global A surge in newbuilding deliveries that outpaced the growth in tanker demand for oil drivenin 2016 as well as 2017,
(ii) Oil production cuts announced by emerging marketsOPEC and low oil prices,higher compliance by the member countries,
(ii)Longer voyage distances as a result of changing oil trading patterns,
(iii)Increased Reduced stockpiling activities by major Asian economieseconomies.
Tanker freight rates remained under pressure throughout 2017, and
(iv)Moderate growth in vessel supply as a resultJanuary 2018 VLCCs and Suezmaxes were reported fixed at US$ 20,600 per day on Arabian Gulf (AG)-Japan routes and US$ 7,700 per day on West Africa-United States routes respectively. However, asset prices have stabilized and in January 2018, five-year-old VLCC and Suezmax tankers were valued at US$ 62 and US$ 40 million respectively. Nevertheless, it is worth noting that five year old VLCC and Suezmax tankers were changing hands at prices nearly 30% below their long-term average over the course of a declining tanker orderbook and increased scrapping activity from 2010-13.
2017.In broad terms, demand forthe volume of oil traded by seatrade which is seaborne is primarily affected bydependent on global and regional economic growth, and to a lesser extent other factors such as changes in regional oil prices. One immediate impact of the recent fall in oil prices is that it makes the purchase of oil more attractive and it leads to greater stockpiling activity and increased demand for tankers. Overall, there is a close relationship between changes in the level of economic activity and changes in the volume of oil moved by sea (see the chart below). With continued strong GDP growth in Asia, seaborne oil trade to emerging Asian markets has been growing significantly. Chinese oil consumption grew at a compound average growth rate (CAGR) of 5.1% from 6.62007 to 2017, rising from 7.6 to 12.4 million barrels per day in 2005 to 11.2 million barrels per day in 2015. Conversely, during the same period, oil consumption(mbpd). Oil demand in OECD countries declined from 49.6 to 46.2 million barrels per day. However, in 2015 oil demandEurope and North America has also risen in the United States (U.S.) and some European countries increased for the first time in a decade, as result of lowlast three years primarily due to lower oil prices and rising demand for gasoline.
improving general economic conditions. In 2015,2017, total seaborne trade in crude oil was equivalent to 2.1 billion tons. Given that most forecasts now point to rising global economic growth in 2016 and 2017, there is an expectation that movements of oil by sea will also grow.
World GDP and Crude Oil Seaborne Trade 20002002 to 20152017
(Percent change year on year)
* Provisional estimates for GDP/Trade
Source: Drewry
Changes in regional oil consumption, as well as a shift in global refinery capacity from the developed to the developing world, is also translating into growing seaborne oil trade distances. For example, a VLCC'sVLCC’s voyage from West Africa to the US Gulf takes 35 days, but a trip from West Africa to China (a trade which is expanding) takes 6160 days. The increase in oil trade distances, coupled with increases in world oil demand havehas had positive impact on tanker demand within ton miles (crude and products) growing, which has increased from 10.110.7 to 12.213.1 billion ton miles in the period 20052007 to 2015.2017.
Supply in the tanker sector, as measured by its deadweight (dwt) cargo carrying capacity, is primarily influenced by the rate of deliveries of newbuilds from the shipyards in line with their orderbook, as well as the rate of removals from the fleet via vessel scrapping or conversion. After a period of rapid expansion, supply growth in the tanker sector moderated in 2013-14 and the overall tanker fleet grew by just 0.6% in 2014. However the global fleet of tankers grew at2014, and a relatively modest 2.7% in 2015, mainly on account2015. However, in 2016 the crude oil tanker fleet expanded by 5.8% due to a high level of negligible demolitions, asnewbuilding deliveries during the ship-owners chose to deferyear and lower levels of scrapping. A further round of newbuilding deliveries took place in 2017 and the world tanker fleet grew by another 4.8% despite an increase in scrapping in the second half of older vessels while the freight market was firm. Newyear.
In terms of ordering activity, new tanker orders in the period 2010 to 2014 were limited due to lack of available bank financing and a challenged rate environment, which contributed to the total crude tanker orderbook declining to 13.9% of the existing global tanker fleet capacity as of December 2014, compared with nearly 50% of the existing fleet at its recent peak in 2008.
However, new ordering picked up in the VLCC and Suezmax sectors in late 2014 and 2015 because of the continued strength in the tanker freight market and the exemption from compliance to tier III NOx emission norms for vessels ordered before January 1, 2016. Ordering activity fell substantially in 2016 and only 39 crude tankers were ordered compared with 244 in 2015. However, ordering activity picked up again in 2017 with 93 new contracts placed for crude tankers during the year. Weak newbuilding prices were one of the main factors stimulating new ordering. In February 2016January 2018, the crude tanker orderbook was equivalent to 19.2%12.2% of the existing fleet and supply growth in the tanker sector as a whole is likely to gather momentum in the remainder of 2016 and into 2017.fleet.
In the closing months of 2015, VLCC and Suezmax time charter equivalent (TCE) spot rates increased significantly due to a tight balance between vessel supply and demand. Despite volatility in the opening months of 2016, positive market sentiment has had a beneficial impact on secondhand vessel values. In February 2016, five-year-old VLCC and Suezmax tankers were valued at $75 and $57 million respectively.
World Oil Demand and Production
In 2015,2017, oil accounted for approximately one third of global energy consumption. WorldWith the exception of 2008 and 2009, world oil consumption has increased steadily over the past 15 years, with the exception of 2008 and 2009,two decades, as a result of increasing global economic activity and industrial production. In recent years, growth in oil demand has been largely driven by developing countries in Asia and growing Chinese consumption, but in 2015 countries in the OECD area2015-17 some developed economies also witnessed increases in demand. In 2015,2017, world oil demand increased to 94.597.8 million barrels per day, (bpd), which represents a 3.4%1.6% increase from 20132016 and is 10.5%14.4% higher than the recent low recorded in 2009.
34
2009 following global financial crisis of 2008-09.
World Oil Consumption: 20052007 to 20152017
(Million Barrels Per Day)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2007 |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
| CAGR 07-17 |
North America | 25.5 |
| 24.2 |
| 23.7 |
| 24.1 |
| 24.0 |
| 23.6 |
| 24.0 |
| 24.1 |
| 24.6 |
| 24.7 |
| 24.9 |
| -0.2 | % |
Europe - OECD | 15.3 |
| 15.4 |
| 14.7 |
| 14.7 |
| 14.3 |
| 13.8 |
| 13.6 |
| 13.5 |
| 13.7 |
| 14.0 |
| 14.3 |
| -0.7 | % |
Pacific | 8.4 |
| 8.0 |
| 8.0 |
| 8.1 |
| 8.1 |
| 8.6 |
| 8.4 |
| 8.1 |
| 8.0 |
| 8.1 |
| 8.1 |
| -0.3 | % |
Total OECD | 49.2 |
| 47.6 |
| 46.4 |
| 46.9 |
| 46.4 |
| 46.0 |
| 46.0 |
| 45.7 |
| 46.4 |
| 46.9 |
| 47.3 |
| -0.4 | % |
Former Soviet Union | 4.2 |
| 4.2 |
| 4.0 |
| 4.2 |
| 4.4 |
| 4.5 |
| 4.6 |
| 4.9 |
| 4.6 |
| 4.8 |
| 4.8 |
| 1.4 | % |
Europe - Non OECD | 0.8 |
| 0.7 |
| 0.7 |
| 0.7 |
| 0.7 |
| 0.7 |
| 0.7 |
| 0.7 |
| 0.7 |
| 0.7 |
| 0.7 |
| -0.8 | % |
China | 7.6 |
| 7.9 |
| 7.9 |
| 8.9 |
| 9.2 |
| 9.8 |
| 10.1 |
| 10.6 |
| 11.5 |
| 11.9 |
| 12.4 |
| 5.1 | % |
Asia (exc China) | 9.5 |
| 9.7 |
| 10.3 |
| 10.9 |
| 11.1 |
| 11.4 |
| 11.7 |
| 12.0 |
| 12.5 |
| 12.9 |
| 13.4 |
| 3.5 | % |
Latin America | 5.7 |
| 5.9 |
| 5.7 |
| 6.0 |
| 6.3 |
| 6.4 |
| 6.6 |
| 6.8 |
| 6.8 |
| 6.6 |
| 6.6 |
| 1.4 | % |
Middle East | 6.5 |
| 7.1 |
| 7.1 |
| 7.3 |
| 7.4 |
| 7.7 |
| 8.0 |
| 8.0 |
| 8.4 |
| 8.3 |
| 8.3 |
| 2.4 | % |
Africa | 3.1 |
| 3.2 |
| 3.4 |
| 3.5 |
| 3.4 |
| 3.7 |
| 3.7 |
| 4.0 |
| 4.1 |
| 4.3 |
| 4.4 |
| 3.5 | % |
Total Non-OECD | 37.4 |
| 38.7 |
| 39.1 |
| 41.5 |
| 42.5 |
| 44.2 |
| 45.4 |
| 47.1 |
| 48.5 |
| 49.4 |
| 50.6 |
| 3.1 | % |
| | | | | | | | | | | | |
World Total | 86.6 |
| 86.3 |
| 85.5 |
| 88.4 |
| 88.9 |
| 90.2 |
| 91.4 |
| 92.8 |
| 94.9 |
| 96.3 |
| 97.8 |
| 1.2 | % |
Source: Drewry
Seasonal trends also affect world oil consumption and, consequently, oil tanker demand. While trends in consumption vary with the specific season each year, peaks in tanker demand often precede seasonal consumption peaks, as refiners and suppliers anticipate consumer demand. Seasonal peaks in oil demand can be classified broadly into two main categories: increased demand prior to Northern Hemisphere winters as heating oil consumption increases and increased demand for gasoline prior to the summer driving season in the U.S.United States (U.S.).
Global trends in oil production have naturally followed the growth in oil consumption, allowing for the fact that changes in the level of oil inventories also play an integral role in determining production levels and tie in with the seasonal peaks in demand. WorldChanges in world crude oil production by region in the period 20052007 to 2015 is2017 are shown in the table below.
World Oil Production: 20052007 to 20152017
(Million Barrels Per Day)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2007 |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
| CAGR 07-17 |
| | | | | | | | | | | | |
North America | 14.3 |
| 13.9 |
| 13.6 |
| 14.1 |
| 14.6 |
| 15.8 |
| 17.1 |
| 19.1 |
| 20.0 |
| 19.5 |
| 20.1 |
| 3.45 | % |
FSU* | 12.8 |
| 12.8 |
| 13.3 |
| 13.5 |
| 13.6 |
| 13.7 |
| 13.9 |
| 13.9 |
| 14.0 |
| 14.2 |
| 14.4 |
| 1.17 | % |
OPE | 35.5 |
| 37.0 |
| 34.0 |
| 34.6 |
| 35.6 |
| 37.6 |
| 36.7 |
| 37.5 |
| 38.2 |
| 39.6 |
| 39.4 |
| 1.03 | % |
Asia | 6.4 |
| 6.4 |
| 7.5 |
| 7.8 |
| 7.8 |
| 7.8 |
| 7.7 |
| 7.6 |
| 7.9 |
| 7.6 |
| 7.3 |
| 1.34 | % |
Other | 16.6 |
| 16.4 |
| 17.0 |
| 17.3 |
| 16.8 |
| 16.0 |
| 16.0 |
| 15.8 |
| 16.5 |
| 16.1 |
| 16.3 |
| -0.20 | % |
| | | | | | | | | | | | |
Total | 85.6 |
| 86.5 |
| 85.4 |
| 87.3 |
| 88.4 |
| 90.9 |
| 91.4 |
| 93.8 |
| 96.6 |
| 97.1 |
| 97.4 |
| 1.3 | % |
* Former Soviet Union
Source: Drewry
At the beginning of 2015,2017, proven global oil reserves totaled 1,6561,610 billion barrels, approximately 4745 times current rates of production. These reserves tend to be located in regions far from the major consuming countries separated by large expanses of water, and this geographical barrier creates the demand for crude tanker shipping. However, one important opposite of this situation in recent years, has been the development of light tight oil (LTO) or shale oil reserves in the U.S., which has had a negative impact on the volume of U.S. crude oil imports.imports as well as demand for crude tankers from 2004 to 2014. However, rising U.S. crude export on long-haul routes to China and India is good news for ship owners, as every additional barrel exported from the country will open avenues for equal imports as U.S. is a net importer of the crude oil.
New technologies such as horizontal drilling and hydraulic fracturing have triggered a shale oil revolution in the U.S., and in 2013, for the first time in the previous two decades, the U.S. produced more oil than it imported. In view of the rising surplus in oil production, in 2015 the U.S. Congress lifted a 40 year-old ban on crude oil exports that was put in place after the Arab oil embargo in 1973. Thereby, allowing U.S. oil producers access to international markets.
The first shipments of the U.S. crude were sent to Europe immediately after the lifting of ban, and since then other destinations have already arrivedfollowed. The U.S. exported 0.5 mbpd of crude oil in Europe,2015 and exports to Asia could be the next destination2016. However, 2017 marked a very important development for the U.S. crude producers.producers as the country exported crude to every major importer including China, India, South Korea and several European countries. In October 2017 U.S. crude export surpassed 2 mbpd and on average the country’s crude exports more than doubled in 2017 to 1.1 mbpd. However, since the U.S.this is still a net importerwell below the exports of crude oil, any increase in crude oil exports should lead to an equal increase in crude oil imports.
major exporters such as Saudi Arabia, Russia and other Middle Eastern exporters.
In the meantime, much of the oil from West Africa and the Caribbean that was historically imported by the U.S. is now shipped to China, which has a positive impact on tanker demand due to increased ton miles given the longer distances the oil needs to travel. Production and exports from the Middle East (largely from OPEC suppliers) and West Africa have historically had a significant impact on the demand for tanker capacity, and, consequently, on tanker charter hire rates due to the long distances between these supply sources and demand centers. Oil exports from short-haul regions, such as the North Sea, are significantly closer to ports used by the primary consumers of such exports, which results in shorter average voyages.
Overall, the volume of crude oil moved by sea each year reflects the underlying changes in world oil consumption and production. Driven by increased world oil demand and production, especially in developing countries, seaborne trade in crude oil in 20152017 is provisionally estimated at 2.1 billion tons or 72%67.3% of all seaborne oil trade (crude oil and refined petroleum products). The chart below illustrates changes in global seaborne movements of crude oil between 19801982 and 2015.2017.
Seaborne Crude Oil Trade Development: 19801982 to 20152017
(Million Tons)
Source: Drewry
World seaborne oil trade is the result of geographical imbalances between areas of oil consumption and production. Historically, certain developed economies have acted as the primary drivers of these seaborne oil trade patterns. The regional growth rates in oil consumption shown in the chart below indicate that the developing world is driving recent trends in oil demand and trade. In Asia, the Middle East, Africa and Latin America, oil consumption during the period from 20052007 to 20152017 grew at annual rates in excess of 3%2%, and, at an annual growth rate of 5.4%5.1% in the case of China. Strong demand for oil in these regions is driving both increased volume of seaborne oil trades and increased voyage distances, as more oil is being transported on long haullong-haul routes.
Regional Oil Consumption Growth Rates: 20052007 to 20152017
(CAGR – Percent)
Source: Drewry
Furthermore, consumption on a per capita basis remains low in many parts of the developing world, and as many of these regions have insufficient domestic supplies, rising demand for oil will have to be satisfied by increased imports.
Oil Consumption Per Capita: 20152017
(Tons per Capita)
Source: Drewry
In the case of China and India, seaborne crude oil imports have risen significantly in the last decade to meet an increasing demand for energy (see chart below). During the period from 20052007 to 2015,2017, Chinese crude oil imports increased from 126.8163.2 to 329.6386.2 million tons and Indian imports increased from 96.3110.7 to 196.1214.5 million tons. Conversely, Japanese imports declined from 210.3201.7 to 164.7143.6 million tons over the same period. In the U.S. crude oil imports declined between 2007 and 2015, but in 2016 the trend was reversed and average U.S. crude imports increased by 0.5 mbpd because of declining shale output. In 2017, U.S. imports have also declined as a resultinched up by another 0.9% to 7.9 mbpd, on account of growing domesticrising crude oil supplies.consumption.
Asian Countries – Crude Oil Imports: 20052007 to 20152017
(Million Tons)
* Provisional estimates for 20152017
Source: Drewry
A furthervital factor which is affecting both the volume and pattern of world oil trades is the shift in global refinery capacity from the developed to the developing world, which is increasing the distances from oil production sources to refineries. The distribution of refinery throughput by region in the period 20052007 to 20152017 is shown in the following table.
Oil Refinery Throughput by Region: 20052007 to 20152017
('000 Barrels Per Day)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2007 |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017* |
| CAGR % 07 -17 |
North America | 18,460 |
| 17,879 |
| 17,502 |
| 17,740 |
| 17,707 |
| 17,993 |
| 18,299 |
| 18,734 |
| 19,390 |
| 18,960 |
| 19,290 |
| 0.4 | % |
S. & Cent. America | 5,456 |
| 5,363 |
| 4,889 |
| 4,834 |
| 5,053 |
| 4,657 |
| 4,773 |
| 4,721 |
| 4,760 |
| 4,200 |
| 3,850 |
| -3.4 | % |
Europe & Eurasia | 20,716 |
| 20,635 |
| 19,509 |
| 19,595 |
| 19,491 |
| 19,538 |
| 18,693 |
| 18,858 |
| 19,250 |
| 19,300 |
| 19,510 |
| -0.6 | % |
Middle East | 6,397 |
| 6,396 |
| 6,297 |
| 6,396 |
| 6,517 |
| 6,388 |
| 6,363 |
| 6,656 |
| 6,450 |
| 6,810 |
| 7,160 |
| 1.1 | % |
Africa | 2,372 |
| 2,456 |
| 2,293 |
| 2,449 |
| 2,169 |
| 2,206 |
| 2,182 |
| 2,255 |
| 2,250 |
| 2,090 |
| 2,050 |
| -1.4 | % |
Australasia | 767 |
| 756 |
| 762 |
| 756 |
| 789 |
| 779 |
| 657 |
| 607 |
| 536 |
| 541 |
| 550 |
| -3.3 | % |
China | 6,563 |
| 6,953 |
| 7,488 |
| 8,571 |
| 9,059 |
| 9,199 |
| 9,648 |
| 9,986 |
| 10,400 |
| 11,023 |
| 11,200 |
| 5.5 | % |
India | 3,107 |
| 3,213 |
| 3,641 |
| 3,899 |
| 4,085 |
| 4,302 |
| 4,462 |
| 4,473 |
| 4,660 |
| 4,931 |
| 5,003 |
| 4.9 | % |
Japan | 3,995 |
| 3,946 |
| 3,627 |
| 3,619 |
| 3,410 |
| 3,400 |
| 3,453 |
| 3,289 |
| 3,310 |
| 3,280 |
| 3,165 |
| -2.3 | % |
Other Asia Pacific | 7,493 |
| 7,351 |
| 7,229 |
| 7,434 |
| 7,390 |
| 7,436 |
| 7,252 |
| 7,253 |
| 7,260 |
| 8,535 |
| 8,582 |
| 1.4 | % |
Total World | 75,325 |
| 74,949 |
| 73,234 |
| 75,293 |
| 75,668 |
| 75,899 |
| 75,782 |
| 76,832 |
| 78,266 |
| 79,670 |
| 80,360 |
| 0.6 | % |
*Provisional estimates for 20152017
Source: Drewry
Changes in refinery throughput are largely driven by changes in the location of capacity. Capacity increases are taking place mostly in the developing world, especially in Asia. In response to growing domestic demand Indiancoupled with export ambitions, Chinese refinery throughput has grown at a faster rate than that of any other global region in the last decade, with refinery throughput in China,India, the Middle East and other emerging economies following a similar pattern. The shift in refinery capacity is likely to continue as refinery development plans are heavily focused on areas such as Asia and the Middle East and few new refineries are planned for North America and Europe.
Oil Refinery Throughput by Region: Growth Rates 20052007 to 20152017
(CAGR – Percent)
Source: Drewry
As a result of changes in trade patterns, as well as shifts in refinery locations, average voyage distances in the crude sector have increased. In the period from 20052007 to 20152017 ton mile demand in the crude tanker sector grew from 8.58.6 to 9.39.9 billion ton miles. The table below shows changes in tanker demand expressed in ton miles, which is measured as the product of the volume of oil carried (measured in metric tons) multiplied by the distance over which it is carried (measured in miles).
Crude Oil Tanker Demand: 20052007 to 20152017
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2007 |
| 2008 |
| 2009 |
| 2010 |
| 2011 |
| 2012 |
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
| CAGR % 07 -17 |
| | | | | | | | | | | | |
Seaborne Crude Trade - Mill Tons | 2,008 |
| 2,014 |
| 1,928 |
| 1,997 |
| 1,941 |
| 1,988 |
| 1,918 |
| 1,895 |
| 1,957 |
| 2,042 |
| 2,125 |
| 0.57 | % |
Ton Mile Demand - Bill T M | 8,640 |
| 8,783 |
| 8,442 |
| 8,849 |
| 8,723 |
| 9,130 |
| 8,809 |
| 8,784 |
| 8,983 |
| 9,554 |
| 9,966 |
| 1.44 | % |
Average Voyage Length - Miles | 4,302 |
| 4,362 |
| 4,379 |
| 4,431 |
| 4,494 |
| 4,592 |
| 4,592 |
| 4,636 |
| 4,589 |
| 4,678 |
| 4,690 |
| 0.87 | % |
Source: Drewry
Another aspect which has impacted theon crude tanker demand in recent monthsyears has been the use of tankers for floating storage. In the closing weeks of 2014 and the opening weeks of 2015, commodity traders hired VLCCs in the expectation that profits could be made by storing oil at sea as oil prices curves have moved intoto create a contango, that is, where the current or spot price for the oil was below the price of oil for delivery in the futures market. As a result, several fixtures for long term storage were reported by oil majors and commodity traders for periods up to 12 months in late 2014 and first half of 2015. Floating crude oil storage peakedreached a high of 197 million barrels in May 2015 and thereafter it declined because of a narrowing of the contango and shrinking arbitrage in crude oil futures. But the
The use of largerlarge tankers for offshore storage has rebounded somewhat in the opening weeks of 2016 on account of logistical considerations, marketing issues and marketing issues. Asinventory drawdown. Similar patterns were seen when floating storage peaked in June 2017, when more than 200 million barrels were reported to be stored in crude tankers. Floating storage declined gradually in second half of March 10, 20162017 and as of January 31, 2018, approximately 173.5133 million barrels of oil were reportedlyreported stored on crude oil tankers and the use of vessels for floating storage has further tightened the supply – demand dynamics in tanker market.at sea
Floating Storage of Crude Oil
(Million Barrels)
Source: Drewry
Crude Tanker Fleet Overview
The world crude tanker fleet is generally dividedclassified into three major types of vessel classifications,categories, based on carrying capacity. The main crude tanker vessel types are:
| · | VLCCs, with an oil cargo carrying capacity in excess of 200,000 dwt (typically 300,000 to 320,000 dwt or approximately two million barrels). VLCCs generally trade on long-haul routes from the Middle East and West Africa to Asia, Europe and the U.S. Gulf or the Caribbean. Tankers in excess of 320,000 dwt are known as Ultra Large Crude Carriers (ULCCs), although for the purposes of this report they are included within the VLCC category. |
VLCCs, with an oil cargo carrying capacity in excess of 200,000 dwt (typically 300,000 to 320,000 dwt or approximately two million barrels). VLCCs generally trade on long-haul routes from the Middle East and West Africa to Asia, Europe and the U.S. Gulf or the Caribbean. Tankers in excess of 320,000 dwt are known as Ultra Large Crude Carriers (ULCCs), although for the purposes of this report they are included within the VLCC category.
| · | Suezmax tankers, with an oil cargo carrying capacity of approximately 120,000 to 200,000 dwt (typically 150,000 to 160,000 dwt or approximately one million barrels). Suezmax tankers are engaged in a range of crude oil trades across a number of major loading zones. Within the Suezmax sector, there are a number of product and shuttle tankers (shuttle tankers are specialized ships built to transport crude oil and condensates from offshore oil field installations to onshore terminals and refineries and are often referred to as "floating pipelines"), which do not participate in the crude oil trades. |
Suezmax tankers, with an oil cargo carrying capacity of approximately 120,000 to 200,000 dwt (typically 150,000 to 160,000 dwt or approximately one million barrels). Suezmax tankers are engaged in a range of crude oil trades across a number of major loading zones. Within the Suezmax sector, there are a number of product and shuttle tankers (shuttle tankers are specialized ships built to transport crude oil and condensates from offshore oil field installations to onshore terminals and refineries and are often referred to as “floating pipelines”), which do not participate in the crude oil trades.
| · | Aframax tankers, with an oil cargo carrying capacity of approximately 80,000 to 120,000 dwt (or approximately 500,000 barrels). Aframax tankers are employed in shorter regional trades, mainly in North West Europe, the Caribbean, the Mediterranean and Asia. |
Aframax tankers, with an oil cargo carrying capacity of approximately 80,000 to 120,000 dwt (or approximately 500,000 barrels). Aframax tankers are employed in shorter regional trades, mainly in North West Europe, the Caribbean, the Mediterranean and Asia.
There are also a relatively small number of ships below 80,000 dwt which operate in crude oil trades, but many operate in cabotage type trades and therefore do not form part of the open market. For this reason, the following analysis of supply concentrates on the VLCC, Suezmax and Aframax tonnage.
As of February 29, 2016January 31, 2018, the crude tanker fleet consisted of 1,8211,862 vessels with a combined capacity of 350.8372.5 million dwt.
Crude Oil Tanker Fleet – February 29,2016January 31, 2018
|
| | | | | |
Vessel Type | Deadweight Tons (Dwt) | Number of Vessels | % of Fleet | Capacity (Million Dwt) | % of Fleet |
VLCC | 200,000 + | 735 | 39.5 | 225.8 | 60.6 |
Suezmax | 120-199,999 | 505 | 27.1 | 79.1 | 21.2 |
Aframax | 80-119,999 | 622 | 33.4 | 67.6 | 18.1 |
Total | | 1,862 | 100.0 | 372.5 | 100.0 |
Source: Drewry
The table below shows principal routes for crude oil tankers and where these vessels are deployed.
Crude Oil Tankers – Typical Deployment by Size Category
|
| | | | | | |
Area | | Trade Route | Haul | Vessel Type | | |
| | | | VLCC | Suezmax | Aframax |
| | | | | | |
Inter-Regional | | MEG(1) - Asia | X | X | X |
| | MEG - N. America | X | | |
| | MEG - Europe - Suez(2) | | X | |
| | W.Africa(3) - N. America | X | X | X |
| | W. Africa - Asia | X | X | |
| | US Gulf - Asia | X | X | |
| | MEG - Europe - Cape (4) | X | | |
| | W. Africa - Europe | | X | X |
| | NS(5) - N. America | | | X |
| | MEG - Pacific Rim | | X | X | |
| | | | | | |
Intra-Regional | | North Sea | | X | X |
| | Caribbean | | X | X |
| | Mediterranean | | X | X |
| | Asia - Pacific | | | X | X |
| | | | | | |
| | | | |
(1) Middle East Gulf | | | | |
(2) Suezmax via Suez Canal fully laden | | | | |
(3) West Africa | | | | |
(4) VLCC transit via Cape of Good Hope | | | | |
(5) North Sea | | | | |
Source: Drewry
VLCCs are built to carry cargo parcels of two million barrels, and Suezmax tankers are built to carry cargo parcels of one million barrels, which are the most commonly traded parcel sizes in the crude oil trading markets. Their carrying capacities make VLCCs and Suezmax tankers the most appropriate asset class globally for long and medium haul trades. While traditional VLCC and Suezmax trading routes have typically originated in the Middle East and the Atlantic Basin, increased Asian demand for crude oil has opened up new trading routes for both classes of vessel. The map below shows the main VLCC and Suezmax tanker seaborne trade routes.
Principal VLCC and Suezmax Seaborne Crude Oil Trades
Source: Drewry
VLCC/Suezmax Fleet Development
In 2015,2017, the world crude tanker fleet grew by 2.7%4.8% compared to the marginal growth of 0.6%5.8% in 2014.2016. A total of 10.626.3 million dwt (0.6(5.3 million dwt lowergreater than 2014)2016) of newbuild deliveries were added to the crude fleet in 2015,2017, while there was a sharp decline in scrapping activity from 9.4also picked up in second half of the year. A total of 8.9 million dwt was sent for demolition in 2017 compared with 1.6 million dwt in 2014 to 1.5 million dwt in 2015.2016.
VLCC & Suezmax Fleet Development: 20032005 to 20152017
(Year on Year percentage Growth: Million Dwt)
Source: Drewry
The chart below indicates the volume of new orders placed in the VLCC and Suezmax sectors in the period from 20052007 to 2015.2017. Very few new vessel orders were placed in both sectors during 2011, 2012 and 2013, although the pace of new ordering in the VLCC sector increased in the closing months of 2013 and newbuild orders for VLCCs as well as Suezmax tankers were considerably higher in 2014 and 2015. Tight supply-demand dynamics in tanker market, firm freight rates and exemption from compliance to tier III NOx emission norms for vessels ordered before January 1, 2016, were the reasons for high new ordering activity in 2015 and a total of 62 VLCCs and 51 Suezmaxes contracts were placed during the year. New ordering activity then declined in 2016, when only 14 VLCCs were ordered during the year compared with 62 during 2015. Ordering activity picked up again in 2017 as ship-owners took advantage of low newbuild prices to embark on fleet renewal.
VLCC/Suezmax New Orders 20052007 to 20152017
('000 Dwt)
Source: Drewry
In the last few years, delays in new vessel deliveries often referred to as "slippage,"“slippage,” have become a regular feature of the market. Slippage is the result of a combination of several factors, including cancellations of orders, problems in obtaining vessel financing, owners seeking to defer delivery during weak markets, shipyards quoting over-optimistic delivery times, and, in some cases, shipyards experiencing financial difficulty. A number of Chinese yards, including yards at which crude tankers are currently on order are experiencing financial problems which have led to both cancellations and delays in deliveries. New order cancellations have been a feature of most shipping markets during the market downturn. For obvious reasons, shipyards are reluctant to openly report such events, making the tracking of the true size of the orderbook at any given point in time difficult. The difference between actual and scheduled deliveries reflects the fact that orderbooksorder books are often overstated. Slippage has affected both the VLCC and Suezmax sectors. The table below indicates the relationship between scheduled and actual deliveries for both asset classes in the period 20102011 to 2015.2017. Since slippage has occurred in recent years, it is not unreasonable to expect that some of the VLCC and Suezmax tankers currently on order will not be delivered on time.
VLCC/Suezmax Tankers: Scheduled versus Actual Deliveries
(Million Dwt)
|
| | | | | | | |
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
VLCC | | | | | | | |
Scheduled Deliveries | 26.4 | 22.4 | 17.8 | 9.9 | 8.7 | 20.5 | 16.5 |
Actual Deliveries | 19.1 | 15.4 | 9.5 | 7.6 | 5.7 | 14.3 | 15.2 |
Slippage Rate (%) | 27.6 | 31.4 | 46.5 | 22.7 | 35.1 | 29.9 | 7.8 |
| | | | | | | |
| | | | | | | |
Suezmax | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
Scheduled Deliveries | 10.9 | 11.2 | 10.4 | 4.7 | 2.6 | 6.5 | 10.2 |
Actual Deliveries | 6.6 | 7.4 | 4.6 | 1.3 | 1.7 | 4.1 | 7.8 |
Slippage Rate (%) | 39.1 | 34.1 | 56.1 | 73.2 | 35.5 | 36.7 | 23.4 |
Source: Drewry
In 2015,2017, VLCC and Suezmax deliveries amounted to 5.715.2 and 1.77.8 million dwt, respectively, compared with 7.614.3 and 1.34.1 million dwt, respectively in 2014.2016. As a result of these changes, the VLCC and Suezmax fleets grew by 4%5.6% and 1%8.5% respectively in 2015.2017.
VLCC/Suezmax Tanker Deliveries: 20052007 to 20152017
('000 Dwt)
Source: Drewry
At its peak in 2008, the VLCC and Suezmax tanker orderbooksorder books were each equivalent to 50% of the existing fleets, which led to high levels of new deliveries in both sectors between 2009 and 2012. The orderbook as a percentage of the existing fleet declined in the period 2010-13, due to low levels of new ordering. However, with the upturn in new ordering activity in 2014 and 2015, the VLCC and Suezmax orderbooksorderbook to fleet ratios rose to 19.4% and 24.7% respectively in December 2015. As a result of lower levels of new ordering and deliveries from the orderbook, the orderbook for VLCC and Suezmax vessels as of January 31, 2018 were equivalent to 19.9%12.7% and 21.8%10.2% of the existing fleets respectively, as of February 29, 2016.respectively.
VLCC & Suezmax OrderbookOrderbook:
(Percent Existing Fleet)
* As on February 2016January 2018
Source: Drewry
As of February 29, 2016,January 31, 2018, the total crude tanker orderbook comprised 348237 vessels with aggregate capacity of 67.147.1 million dwt, equivalent to 19.1% of the existing crude tanker fleet.dwt. The orderbook for Suezmax tankers was 10551 vessels representing 16.58.1 million dwt (excluding shuttle tankers), and for VLCCs the orderbook was 13092 vessels representing 40.328.7 million dwt.
Crude Oil Tanker (1) Orderbook February 29, 2016
January 31, 2018
| | | | | | | | | | | | | | | | | | Size Dwt | | Existing Fleet | Scheduled Deliveries | Total Orderbook | % Existing Fleet | | | | | 2018 | 2019 | 2020 | 2021 | | | | | | | No. | m dwt | No. | m dwt | No. | m dwt | No. | m dwt | No. | m dwt | No. | m dwt | No | Dwt | | | | | | | | | | | | | | | | | VLCC | 200,000 + | 735 | 225.8 | 46 | 14.4 | 36 | 11.2 | 8 | 2.5 | 2 | 0.6 | 92 | 28.7 | 12.5% | 12.7% | Suezmax | 120-199,999 | 505 | 79.1 | 34 | 5.4 | 14 | 2.2 | 2 | 0 | 1 | 0.2 | 51 | 8.1 | 10.1% | 10.2% | Aframax | 80-119,999 | 622 | 67.6 | 53 | 6.0 | 20 | 2.3 | 8 | 0.9 | 5 | 0.6 | 86 | 9.7 | 13.8% | 14.4% | | | | | | | | | | | | | | | | | Total | | 1,862 | 372.5 | 133 | 25.7 | 70 | 15.7 | 18 | 3.7 | 8 | 1.4 | 229 | 46.5 | 12.3% | 12.5% |
(1) | Excludes product tankers and in the case of Suezmax shuttle tankers |
Source: Drewry
Tanker supply is also affected by vessel scrapping or demolition. As an oil tanker ages, vessel owners often conclude that it is more economical to scrap a vessel that has exhausted its useful life than to upgrade the vessel to maintain its "in-class"“in-class” status. Often, particularly when tankers reach approximately 25 years of age, the costs of conducting the class survey and performing required repairs become economically inefficient. In recent years, most oil tankers that have been scrapped were between 2518 and 3023 years of age.
In addition to vessel age, scrapping activity is influenced by freight markets.markets as well as steel prices. During periods of high freight rates, scrapping activity will decline and the opposite will occur when freight rates are low. The chart below indicates that vessel scrapping was much higher from 2010 to 2014 than in the preceding five years. Firm freight rates in 2015 and 2016 also encouraged the ship-owners to defer the scrapping of older tonnage and demolitions in these two years were substantially lower compared to that of during 2010-14. However weak freight rates in third quarter of 2017 accelerated demolition and a total of 58 crude tankers totaling 8.9 million dwt were sold to scrapyards in 2017.
Crude Oil Tanker Scrapping: 20052007 to 20162017
('000 Dwt)
* Through to February 2016Source: Drewry
Two other important factors are likely to affect crude tanker supply in the future. The first is the requirement to retrofit ballast water management systems (“BWMS”) to existing vessels. In February 2004, the IMO adopted the International Convention for the Control and Management of Ships' Ballast Water and Sediments. The IMO ballast water management (“BWM”) Convention contains an environmentally protective numeric standard for the treatment of ship's ballast water before it is discharged. This standard, detailed in Regulation "D-2" of the BWM Convention, sets out the numbers of organisms allowed in specific volumes of treated discharge water. The IMO "D-2" standard is also the standard that has been adopted by the U.S. Coast Guard's ballast water regulations and the U.S. EPA's Vessel General Permit. The BWM Convention also contains an implementation schedule for the installation of IMO member state type approved treatment systems in existing ships and in new vessels, requirements for the development of vessel ballast water management plans, requirements for the safe removal of sediments from ballast tanks, and guidelines for the testing and type approval of ballast water treatment technologies. In July 2017 the IMO extended the regulatory requirement of compliance to BWM Convention from September 8, 2017 to September 8, 2019. Vessels trading internationally will have to comply with the BWM Convention upon their next special survey after that date. For a VLCC tanker, the retrofit cost could be as much as $3.0 million per vessel including labor. Expenditure of this kind will be another factor impacting on the decision to scrap older vessels once the BWM convention comes into force in September 2019.
The second factor that is likely to impact on future vessel supply is the drive to introduce low sulfur fuels. For many years heavy fuel oil (“HFO”) has been the main fuel of the shipping industry. It is relatively inexpensive and widely available, but it is “dirty” from an environmental point of view.
The sulfur content of HFO is extremely high and it is the reason that maritime shipping accounts for 8% of global emissions of sulfur dioxide (“SO2”), an important source for acid rain as well as respiratory diseases. In some port cities, such as Hong Kong, shipping is the largest single source of SO2 emissions, as well as emissions of particulate matter (“PM”), which are directly tied to the sulfur content of the fuel.
The IMO, the governing body of international shipping, has made a concerted effort to diversify the industry away from HFO into cleaner fuels with less harmful effects on the environment and human health. Effective in 2015, ships operating within the Emission Control Areas (“ECAs”) covering the Economic Exclusive Zone of North America, the Baltic Sea, the North Sea, and the English Channel are required to use marine gas oil with allowable sulfur content up to 1,000 parts per million (“ppm”). From 2020, ships sailing outside ECAs will switch to marine gas oil with permitted sulfur content up to 5,000 ppm. This will create openings for a variety of new fuels, or major capital expenditure for costly “scrubbers” to be retrofitted on existing ships and, as such, it will be another factor hastening the demise of older ships whose propulsion systems are based on the use of HFO.
Within the context of the wider market, increased vessel scrapping is a positive development, as it helps to counterbalance new ship deliveries and to moderatemoderates the fleet growth.
The Crude Oil Tanker Freight Market
Types of Charter
Oil tankers are employed in the market through a number of different chartering options, described below.
| · | A bareboat charter involves the use of a vessel usually over longer periods of up to several years. All voyage related costs, including vessel fuel, or bunkers, and port dues as well as all vessel operating expenses, such as day-to-day operations, maintenance, crewing and insurance, transfer to the charterer's account. The owner of the vessel receives monthly charter hire payments on a per day basis and is responsible only for the payment of capital costs related to the vessel. |
A bareboat charter involves the use of a vessel usually over longer periods of up to several years. All voyage related costs, including vessel fuel, or bunkers, and port dues as well as all vessel operating expenses, such as day-to-day operations, maintenance, crewing and insurance, transfer to the charterer’s account. The owner of the vessel receives monthly charter hire payments on a per day basis and is responsible only for the payment of capital costs related to the vessel.
42
A time charter involves the use of the vessel, either for a number of months or years or for a trip between specific delivery and redelivery positions, known as a trip charter. The charterer pays all voyage related costs. The owner of the vessel receives monthly charter hire payments on a per day basis and is responsible for the payment of all vessel operating expenses and capital costs of the vessel.A single or spot voyage charter involves the carriage of a specific amount and type of cargo on a load port to discharge port basis, subject to various cargo handling terms. Most of these charters are of a single or spot voyage nature. The cost of repositioning the ship to load the next cargo falls outside the charter and is at the cost and discretion of the owner. The owner of the vessel receives one payment derived by multiplying the tons of cargo loaded on board by the agreed upon freight rate expressed on a per cargo ton basis. The owner is responsible for the payment of all expenses including voyage, operating and capital costs of the vessel.
| · | A time charterA contract of affreightment, or COA, relates to the carriage of multiple cargoes over the same route and enables the COA holder to nominate different ships to perform individual voyages. This arrangement constitutes a number of voyage charters to carry a specified amount of cargo during the term of the COA, which usually spans a number of years. All of the ship’s operating, voyage and capital costs are borne by the shipowner. The freight rate is normally agreed on a per cargo ton basis. involves the use of the vessel, either for a number of months or years or for a trip between specific delivery and redelivery positions, known as a trip charter. The charterer pays all voyage related costs. The owner of the vessel receives monthly charter hire payments on a per day basis and is responsible for the payment of all vessel operating expenses and capital costs of the vessel. |
| · | A single or spot voyage charter involves the carriage of a specific amount and type of cargo on a load port to discharge port basis, subject to various cargo handling terms. Most of these charters are of a single or spot voyage nature. The cost of repositioning the ship to load the next cargo falls outside the charter and is at the cost and discretion of the owner. The owner of the vessel receives one payment derived by multiplying the tons of cargo loaded on board by the agreed upon freight rate expressed on a per cargo ton basis. The owner is responsible for the payment of all expenses including voyage, operating and capital costs of the vessel. |
| · | A contract of affreightment, or COA, relates to the carriage of multiple cargoes over the same route and enables the COA holder to nominate different ships to perform individual voyages. This arrangement constitutes a number of voyage charters to carry a specified amount of cargo during the term of the COA, which usually spans a number of years. All of the ship's operating, voyage and capital costs are borne by the ship-owner. The freight rate is normally agreed on a per cargo ton basis. |
Tanker Freight Rates
Worldscale is the tanker industry'sindustry’s standard reference for calculating freight rates. Worldscale is used because it provides the flexibility required for the oil trade. Oil is a fairly homogenous commodity as it does not vary significantly in quality and it is relatively easy to transport by a variety of methods. These attributes, combined with the volatility of the world oil markets, means that an oil cargo may be bought and sold many times while at sea and therefore, the cargo owner requires great flexibility in its choice of discharge options. If tanker fixtures were priced in the same way as dry cargo fixtures, this would involve the ship-ownershipowner calculating separate individual freights for a wide variety of discharge points. Worldscale provides a set of nominal rates designed to provide roughly the same daily income irrespective of discharge point.
Time charter equivalent (TCE) is the measurement that describes the earnings potential of any spot market voyage based on the quoted Worldscale rate. As described above, the Worldscale rate is set and can then be converted into dollars per cargo ton. A voyage calculation is then performed which removes all expenses (port costs, bunkers and commission) from the gross revenue, resulting in a net revenue which is then divided by the total voyage days, which includes the days from discharge of the prior cargo until discharge of the cargo for which the freight is paid (at sea and in port), to give a daily TCE rate.
The supply and demand for tanker capacity influences tanker charter hire rates and vessel values. In general, time charter rates are less volatile than spot rates as they reflect the fact that the vessel is fixed for a longer period of time. In the spot market, rates will reflect the immediate underlying conditions in vessel supply and demand and are thus more prone to volatility. Small changes in tanker utilization have historically led to relatively large fluctuations in tanker charter rates for VLCCs, with more moderate price volatility in the Suezmax, Aframax and Panamax markets and less volatility in the Handy market, as compared to the tanker market as a whole. The chart below illustrates monthly changes in TCE rates for VLCC and Suezmax tankers during the period from January 20052007 to February 2016.
VLCC/Suezmax Tanker Time Charter Equivalent (TCE) Rates: 20052007 to 2016*2018*
(US$/Day)
* Through to February2016January 2018
Source: Drewry
TankerAfter a weak phase between 2009 and the first half of 2014, tanker freight rates started rising again fromin the second half of 2014, aided bythe main stimulus being the fall in oil prices and rising oil consumption. In addition, key oil-importing countries such as India and China started building Strategic Petroleum Reserves (SPRs).
In the last quarter of 2015, VLCC spot rates surged benefiting from the seasonal demand and no significant increaselow growth in fleet size.
Source: Drewry
44
supply. However, a wave of newbuilding deliveries in 2016 outpaced demand and average TCE rates in 2016 were approximately 40% lower than 2015. A spate of newbuilding deliveries in 2017 aggravated the situation further and average TCE rates dropped by a further 45% in 2017.
VLCC/Suezmax 1 Year Time Charter Rates: 20052007 to 2016*2018*
(US$/Day Period Averages)
* Through to February2016January 2018
Source: Drewry
In the tanker market, independent ship owners have two principal employment options –- either the spot or time charter markets or a combination of both. How tankers are deployed varies from operator to operator, and also influenced by the market conditions. In a buoyant market, the companies that prefer to deploy vessels on the sportspot market will gain more as they will benefit from the rise in freight rates. Broadly speaking, a ship owner with an operating strategy, which is focused on the time charter market, will experience a more stable income stream and they will be relatively insulated against the volatility in spot rates.
Newbuilding Prices
Global shipbuilding is concentrated in South Korea, China and Japan. This concentration is the result of economies of scale, construction techniques and the prohibitive costs of building ships in other parts of the world. Collectively, these three countries account for approximately 90% of global shipbuilding output.
Vessels constructed at shipyards are of varying size and technical sophistication. Drybulk carriers generally require less technical know-how to construct, while oil tankers, container vessels and LNG carriers require technically advanced manufacturing processes.
The actual construction of a vessel can take place in 9 to 12 months and can be partitioned into five stages: contract signing, steel cutting, keel laying, launching and delivery. The amount of time between signing a newbuilding contract and the date of delivery is usually at least 16-20 months, but in times of high shipbuilding demand, it can extend to two to three years.
Newbuilding prices for tankers of all sizes rose steadily between 2004 and mid-2008. This was due to a number of factors, including high levels of new ordering, a shortage in newbuilding capacity during a period of high charter rates, and increased shipbuilders'shipbuilders’ costs as a result of strengthening steel prices and the weakening U.S. dollar. Prices weakened in 2009 however, as a result of a downturn in new ordering and remained weak until the second half of 2013, when they slowly started to rise.
Newbuild prices increased by an average of 10% across vessel class in 2014, but they declined marginally in 2015 because of weaker steel prices and spare capacity at shipyards on account of negligible activity in other sectors of maritime industry. Average new building prices for VLCCs in 2015 dropped by 2.4% year on year, while for Suezmax tankers, prices were flat between 2014 and 2015.
Spare capacity at shipyards coupled with low ordering in 2016 led to further decline of 10% to 12% in newbuilding prices of crude tankers. However, newbuild price data for last twelve months suggest that prices have stabilized; as of January 2018, indicative VLCC and Suezmax newbuild prices were estimated at US$ 82m and US$ 55m respectively.
VLCC/Suezmax Tanker Newbuilding Prices: 20052007 to 2016*2018*
(US$ Million)
* Through to February 2016January 2018
Source: Drewry
Secondhand Prices
Secondhand prices are generally influenced by potential vessel earnings, which in turn are influenced by trends in the supply of and demand for shipping capacity. The secondhand vessel prices follow the prevailing freight rates and they provide a better assessment of the existing supply and demand situation in the market. Vessel values are also dependent on other factors including the age of the vessel. Prices for young vessels, those approximately five years old or under are also influenced by newbuilding prices. Prices for old vessels, those that are in excess of 25 years old and near the end of their useful economic lives, are swayed by the value of scrap steel. In addition, values for younger vessels tend to fluctuate less on a percentage basis than values for older vessels. This is attributed to the finite useful economic life of older vessels that makes the price of younger vessels less sensitive to freight rates in the short term.
Vessel values are determined on a daily basis in the sale and purchase (S&P) market, where vessels are sold and bought through specialized sale and purchase brokers who regularly report these transactions to participants in the seaborne transportation industry. The S&P market for oil tankers is transparent and quite liquid with a large number of vessels changing hands on a regular basis.
The chart below illustrates the movements of prices (in US$ million) for secondhand (5 year old) oil tankers between 20052007 and 2016.2018. After remaining range bound between 2010 and 2013, secondhand vessel prices started recovering in 2014,2014-15, but a sharp decline in earning capabilities of vessels in 2016 reversed the trend and secondhand prices plunged by 25-30% during the year. However, it is evident from the data available that second hand prices were stable for much of 2017. That said, second hand prices of crude tankers are still clearlywell below the last peak witnessed in 2008.
As of January 2018, five year old VLCC and Suezmax vessels were changing hands at US$ 62m and US$ 40m respectively.
VLCC/Suezmax Tanker Secondhand Prices – 5 Year Old Vessels: 20052007 to 2016*2018*
(US$ Million)Millions)
* Through to February 2016January 2018
Source: Drewry
Overview of the Offshore Oil and Gas IndustryOVERVIEW OF THE OFFSHORE OIL AND GAS INDUSTRY
All the information and data in this prospectusannual report about the offshore oil industry has been provided by Energy Maritime Associates (EMA), an independent strategic planning and consulting firm focused on the marine and offshore sectors. EMA has advised that the statistical and graphical information contained herein is drawn from its database and other sources. In connection therewith, EMA has advised that: (a) certain information in EMA'sEMA’s database is derived from estimates or subjective judgments; (b) the information in the databases of other maritime data collection agencies may differ from the information in EMA'sEMA’s database; (c) while EMA has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures. The Company believes and acts as though the industry and market data presented in this section is reliable.
Brief History of the Offshore Industry
Over the past 20 years global oil demand has grown at an average annual rate of 1.4%1.2%. With the exception of two years during the global financial crisis in 2008 and 2009, oil demand has increased year after year during this period. The Energy Information Administration (EIA) forecasts world oil production will grow to 121113 million barrels per day (b/d) by 2040.
Increasingly, oil is being produced offshore. According to the International Energy Agency, despite the rapid pace of growth in onshore oil production in North America, offshore oil production is expected to account for 30% of the growth in global oil production capacity of 9.3 million b/d between 2011 and 2017.
The offshore oil and gas industry can generally be defined as the extraction and production of oil and gas offshore. From a more nuanced perspective, it is a highly technical industry with significant risks, but whose rewards are high. Unlike on-shore developments, where drilling and processing equipment can be constructed onsite, often with access to existing infrastructure, offshore developments have additional engineering and logistical requirements in designing, transporting, installing and operating facilities in remote offshore environments. Because of this, each production unit is unique and designed for the specific field'sfield’s geological and environmental characteristics including hydrocarbon specifications, reservoir requirements (water/gas/chemical injection), well/subsea configuration, water depth, and weather conditions (above and below the water).
The water depth of offshore developments has increased dramatically since its start from piers extended from shore in just a few meters of water. In 1947, Kerr-McGee drilled the first well beyond the sight of land. This well was in only 5.5 meters of water, but was 17 kilometers off the Louisiana coast. Offshore developments have continued to move further from land and into increasingly deeper waters using fixed platforms that extended from the seabed to the surface.
Floating Production and Storage (or FPS) and Floating, Production, Storage and Offloading unit (or FPSO) units emerged in the 1970s. Since that time, FPS units have been installed in increasing water depths, with the deepest units on orderunit now designed foroperating in 2,900 meters of water. Water depths are currently defined as shallow (shallower(less than 1,000 meters), deepwater (between 1,000 meters and 1,500 meters), and ultra-deepwater (deeper(greater than 1,500 meters). Units installed before 2000 were almost all shallow water. In the decade that followed, 40%Since 2000, 35% of units werehave been installed in deepwater.deepwater including 15% in ultra-deepwater. For units installed since 2010, over 50%currently on order, 56% are in deepwater, including 30%50% in ultra-deepwater. Other types of FPS units include Spar, Tension-Leg Platform (TLP), and Semi-submersible (Semi), which are well suited to deepwater. For liquefying gas and then converting it back to gas, Floating Liquefied Natural Gas and Floating Storage Regas Unit (FSRU) can be used. Mobile Offshore Production Units (MOPU), and Floating Storage Offloading Units (FSO) are popular for shallow water developments.
The geographical range of the FPS industry has also changed over the years. For the first few decades of industry activity, projects were concentrated in the Gulf of Mexico and the North Sea. However, with discoveries of new hydrocarbon basins, the location of offshore developments expanded to include most parts of the world, with Brazil, West Africa, and Southeast Asia now leading the way.
Source: Energy Maritime Associates, January 2016
December 2017
Along with increasing water depth, the size and complexity of these offshore developments havehas also grown, which in turn has increased the size and complexity of the FPS units. Project development cycles have increased in time, complexity, and cost. In particular, the time between initial discovery and starting production is now five to seventen years. However, over the past few years there has been a concerted effort to reduce field development costs by reducing the number of interfaces and increasing.
This lengthening of project time is duere-using standardized designs as much as possible. It remains to a combination of factors, including the complexity of the field itself, as well as increased front-end engineeringbe seen how sustainable and design, expanded internal company review processes and compliance with local regulations. This additional planning and scrutiny is largely a response to past projects that did not meet the planned budget, schedule and/or operational expectations.
lasting these changes will be.
Contract Awards and Orderbook
Production from floating production systems has been increasing over the past 1920 years, but not in a consistent manner. Approval of these projects depends largely on the oil price expectation at the time and the related production potential associated with the specific project. As a result, the orders for FPS units generally follow the price of oil. However, oil price is not the only factor. Development costs also play a major role in determining the economic viability of a project. After the price of Brent crude dropped to $34 per barrel in 2008, only 10 FPS units were awarded in 2009. As the price of Brent crude recovered to over $120$100 per barrel, in 2012, 30 or more25-33 FPS units were awarded each year from 2010 to 2012. 25 units were ordered in 2013, increasing to 28 units in 2014. With2010-2014. Following the sharp decline in oil prices, throughout 2015, onlyFPS orders dropped to 15 units in 2015 and 17 in 2016. With the oil price recovery, by 2017 there were awarded last27 awards, ten more than the previous year similarand back to the level in 2004.before the oil price crash.
Source: Energy Maritime Associates, January 2016
December 2017
Currently Installed Units
As of January 2016,December 2017, there are 277289 FPS systems in service worldwide comprised of FPSOs (60%) of the current total, Production Semis (14%(12%), TLPs (9%), Production Spars (8%(7%), FSRU (6%FSRUs (7%) and, Production Barges (3%), and FLNGs (1%). This does not include 2235 production units and threesix floating storage/offloading units that are available for re-use. Another 96104 floating storage/offloading units (without production capability) are in service.
Source: Energy Maritime Associates, January 2016
December 2017
Global Distribution of Installed Units by Type:
Source: Energy Maritime Associates, January 2016December 2017
Source: Energy Maritime Associates, January 2016
December 2017
Markets
The top five regions for floating production systems are Southeast Asia (SEA) (21%(23%), Africa (18%), Brazil (17%), Africa (16%), Gulf of Mexico (GOM) (15%(“GOM”) (13%), and Northern Europe (NE) (13%(“NE”) (12%). The patterntype of floating production system usesystems varies widely from region to region:region - FSOs are the dominant type in Southeast Asia (“SEA”) due to the relatively shallow water depths and lack of infrastructure. In this type of environments, a fixed production platform and FSO is often the most economic development option.
The current order backlog consists of 6349 production floaters, nineseven FSOs (four Oil and seventhree LNG) and four Mobile Offshore Production Units, or MOPUs. Within the backlog, 3629 units are utilizing purpose-built hulls and 2720 units are based on converted hulls. Of the production floaters being built, 3324 are owned by field operators, 3025 by leasing contractors.
Since 1996,1997, the production floater order backlog has ranged from a low of 17 units in 1999 to a peak of 7170 units in the first half of 2013. Within this period, there have been threemultiple cycles: a downturn in 1998 and 1999 followed by an upturn from 2000 to 2002 of 17 to 39 units, followed by relative stability in 2003 and 2004;2004, an upturn from 2005 to 2007 from 35 to 67 units followed by a downturn from 2008 to 2009 down to 32 units; andunits, an upturn between 2010 and 2013 to 71 units.70 units, and a gradual decline to near 50 units by the end of 2016.
The leading destinations for the oil FSOs currently on order are Northern Europe and Southeast Asia.
Source: Energy Maritime Associates, January 2016December 2017
Most Attractive Growth Regions
Between 20202023 and 2025,2028, Brazil and West Africa are expected to continue to be the most attractive areas for offshore projects and present ample investment opportunities according to respondents of EMA's 2016EMA’s 2018 industry sentiment survey. As of January 2016,December 2017, these two regions account for 37% (8933% (80 out of 241) potential floating production projects in the planning process. Other industry participants believe that Southeast Asia and GOM-Mexico present the next largest growth opportunities globally. New shallow and deep water projects requiring FPSOs and FSOs are expected to increase dramatically following reforms in Mexico to allow foreign investment. East Africa mayis also be a growth region,expected to see new floating production units, following large gas discoveries in Mozambique and Tanzania.
Source: Energy Maritime Associates, January 2016
December 2017
The FSO Market
FSOs provide field storage and offloading in a variety of situations. FSOs are primarily used in conjunction with fixed platforms, MOPUs and production floaters (Semis, TLPs, Spars) to provide offshore field storage of oil and condensate. They are also used as offshore storage/export facilities for onshore production fields and as storage/blending/transhipmenttransshipment terminals for crude oil or refined products. Most FSOs store oil, although there are a few FSOs that store liquefied natural gas (LNG) or liquefied petroleum gas.gas (LPG).
FSOs range from simple tankers with few modifications to purpose-builtpurpose built and extensively modified tankers with significant additional equipment at a total cost ranging between $250 and $300 million. Oil storage capacity on FSOs varies from 60,000 barrels to 3 million barrels. The FSO Asia and the FSO Africa,, which are co-owned by Euronav, are among the largest and most complex FSOs in operation. Water depth ranges from 15 meters to 380 meters with the exception of an FSO located in Brazil'sBrazil’s Marlim Sul field (1,180 meters). There is no inherent limitation on water depth for FSOs.
Most FSOs currently in operation are older single-hull tankers modified for storage/offloading use. Approximately 25%60% of the FSOs now operating are 15at least 20 years old, with almost 30% over 30 years old. Production continues on many of these fields, therefore requiring life extension or older.replacement of these older hulls. Around 40% of the FSOs in service are Aframax or Suezmax sizeSuezmax-size (600,000 to 1 million barrels). Around another 30% are VLCC-VLCC or ULCC-sizeULCC size units (up to 3 million barrels) account for another 40%. The remaining 30%20% of FSOs is comprised of smaller units.
Around 45%Approximately 50% of FSOs in service are positioned in Southeast Asia. Approximately 20%Around another 15% are in West Africa. The others are spread over the Middle East, India, Northern Europe, Mediterranean, Brazil, and elsewhere.
Large storage capacity and ability to be moored in almost any water depth makes FSOs ideal for areas without pipeline infrastructure and where the production platform has no storage capabilities (fixed platforms, MOPU, Spar, TLP, Semi)Semi-submersible platform). FSOs have no or limited process topsides, which make them relatively simple to convert from old tankers, as compared to an FPSO. FSOs can be relocated to other fields and some have also later been converted to FPSOs.
The Key Components of an FSO
Unlike other FPS systems, the hull is the primary component of an FSO. Topsides are normally simple and feature primarily accommodation, helicopter landing facilities, crude metering equipment, and sometimes power generation. However some FSOs, including the FSO Asia and the FSO Africa,, which are co-owned by Euronav, have more sophisticated topsides (described(which are described below). Mooring systems are the same as for an FPSO: spread-mooring or turret-moored (internal and external). In addition, some simple storage units are moored by their own anchor or alongside a jetty. In benign environments, an FSO can be moored to a Catenary Anchor Leg Mooring buoy (soft mooring), where the buoy is fixed to the seabed and attached to the FSO by mooring ropes.
Some FSOs, such as FSO Asia and FSO Africa,, include a small part of the production process, particularly water separation/treatment and chemical injection. For example, after initial processing on the platform, the FSO Asia and FSO Africa may provide additional processing of the platform fluids and separate the water from the crude oil. The oil and water are usually heated, accelerating the separation of the two organic compounds. Once separated, oil is transferred to separate storage cargo tanks and then offloaded to export vessels. Water is treated, purified and returned to the underwater source reservoir or directly to the sea.
Trends in FSO orders
Approximately 3530 orders for FSOs have been placed over the past five years, with an average of 7.06.0 annually. While the majority of FSOs were converted from oil tankers, approximately 20%25% of these units were purpose-built as FSOs. This is in line with the currently installed fleet profile.
Forecast Summary
EMA is tracking 3225 potential projects in the planning stage that may require an FSO. The number of FSO projects has increased overin the past five years.planning pipeline is down slightly from last year. In 2008,2013 there were 2229 FSO projects. In 2011 there were 24 projects.projects visible. FSO projects can typically be developed more quickly than other FPS developments and therefore there are a number of projects to be awarded in the next five years that are not yet visible.
Between 2016 and 2020, orders for 25 to 35 FSOs are expected with a total capital cost between $3.2 and $4.4 billion, with the base case being 30 units. Around 75 percent will be based on converted tanker hulls. The remainder will be purpose-built units.
The prospects for the FSO sector remain good, despitesupported by the lowrising oil price environment. There remains a large numberenvironment and drilling activity. Utilization of visible offshore energy development projectsjack-up drilling rigs increased dramatically from 40% in the planning stage, as well as activity in the drilling market. Since January 2015, the average drillingbeginning of 2017 to over 70% by mid-year, although rates for jack-up rigs have decreased by over 30% inremained extremely low due to competition. In Southeast Asia, and Northern Europe. In these areas the most popular development option is an FSO, in conjunction with a fixed platform or MOPU.
The vast majority of FSO orders will continue to go to Southeast Asian countries including Thailand, Vietnam, Indonesia, and Malaysia, but there has been increased activity in the North Sea and Mediterranean as well. Mexico is also a large potential market for FSO solutions, which would be ideal for many shallow water developments.
Over the next five years,From 2018-2022, converted oil tankers will remain the dominant choice for FSOs. Newbuilt units will be used for some development projects in the North Sea as well as for condensate FSOs on gas fields. Between 2016We expect between 14-20 conversion and 2020, 18 to 26 conversions and seven to nine3-7 newbuilding orders over the next five years. In addition, we expect 3-8 FSO orders to be filled by redeployed units. Currently there are expected. 21 idle FPSOs and 6 idle FSOs, with 20 more potential units coming off contract over the next five years.
Between $2.1 and $4.1 billion is expected to be spent on FSO orders over the next five years, with the mid-case being $3.1 billion. Around 60% will be spent on conversions, 25% on newbuildings, and 15% on redeployments. The purpose-built units will cost in the range of $125 to $200 million. Converted units will cost an average of around $100 million. Capital cost for redeployed units would depend on the value assigned to the existing asset, but should be lower than a converted unit. Where the capex falls in this range depends on the hull size, design life and mooring/ offloading system needed.
In the past, the majority of vessels chosen for conversion were between 20 and 25 years old. However, this trend is changing as companies increasingly scrutinize the quality and hull fatigue of the units earmarked as conversion candidates. Some recent FPSO conversion projects have selected newbuilt or units as young as five5 years old.
Increasingly, FSO conversion work is being carried out in Chinese yards, but some of the more complex FSO projects will be continue to be performed in Singapore and Malaysia. NewbuiltMost newbuilt units will behave been constructed by the Chinese and Korean yards, with higher specification FSOs going to Korea and the rest to China.yards. However JurongSembcorp shipyard in Singapore was awarded a contract in 2015 for a high spec unit destined for the UK’s Culzean field in the UK.field.
Competition
Competition in the FSO market includes tanker owners, specialized FSO/FPSO contractors, and engineering/construction companies in the floating production sector. Tanker owners tend to compete for projects thatwhich require less modification and investment. Companies such as Teekay Offshore Partners L.P., Knutsen NYK Offshore Tankers AS, Malaysia International Shipping Corporation Berhad, and Omni Offshore Terminals Pte Ltd target more complex FSO projects with higher specifications and client requirements. FPSO contractors such as MODEC Inc, SBM Offshore N.V., SBM and BW Offshore Limited had competed in the FSO market in the past, but are now primarily focused on large FPSO projects.
Most clients conduct a detailed pre-qualification screening before accepting proposals. Pre-qualification requirements include: FSO conversion and operation experience, health, safety, environment systems and procedures, access to tanker for conversion, and financial resources.
Contract Structure
As part of the overall offshore field development, most FSOs are leased on long-term (five(5 to 15 years), fixed rate service contracts (normally structured as either a time charter or a bareboat contract). The FSO is essential to the field production as oil is exported via the FSO. Typically, the FSO contract has a fixed period as well as additional extension periods (at the charterer'scharterer’s option) depending on the projected life of the development project. The FSO is designed to remain offshore for the duration of the contact, as opposed to conventional tankers, which have scheduled drydocking repairs every two2 to three3 years. Depending on tax treatment and local regulations, some oil companies elect to purchase the FSO rather than lease it, particularly when the unit is expected to remain on site for over 20 years. However, there have been FSO lease contracts for 20 or even 25 years.
Environmental and Other Regulations
Government laws and regulations significantly affect the ownership and operation of our vessels. We are subject to various international conventions, laws and regulations in force in the countries in which our vessels may operate or are registered. Compliance with such laws, regulations and other requirements entailsmay entail significant expenses,expense, including vessel modification and implementation costs.
A variety of governmental, quasi-governmental and private organizations subject our vessels to both scheduled and unscheduled inspections. These organizations include the local port authorities, national authorities, harbor masters or equivalent entities, classification societies, relevant flag state (country of registry) and charterers, particularly terminal operators and oil companies. Some of these entities require us to obtain permits, licenses, certificates and approvals for the operation of our vessels. Our failure to maintain necessary permits, licenses, certificates or approvals could require us to incur substantial costs or temporarily suspend operation of one or more of the vessels in our fleet, or lead to the invalidation or reduction of our insurance coverage.
We believe that the heightened levels of environmental and quality concerns among insurance underwriters, regulators and charterers have led to greater inspection and environmental safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Increasing environmental concerns have created a demand for tankers that conform to stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with applicable local, national and international environmental laws and regulations. We believeare confident that the operation of our vessels is in substantialfull compliance with applicable environmental laws and regulations and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations; however, because such laws and regulations are frequently changed and may impose increasingly strict requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, a future serious marine incident that results in significant oil pollution or otherwise causes significant adverse environmental impact, such as the 2010 Deepwater Horizon oil spill in the Gulf of Mexico, could result in additional legislation or regulation that could negatively affect our profitability.
International Maritime Organization
The International Maritime Organization, or the IMO, is a specialized agency of the United Nations responsible for setting global standards for the safety, security and environmental performance of vessels engaged in international shipping. The IMO primary objective is to create a regulatory framework for the shipping industry that is fair and effective, and universally adopted and implemented. The IMO has adopted several international conventions that regulate the international shipping industry, including but not limited to the International Convention on Civil Liability for Oil Pollution Damage of 1969, generally referred to as amended by different Protocols in 1976, 1984 and 1992, and amended in 2000, or the CLC, the International Convention on Civil Liability for Bunker Oil Pollution Damage of 2001, and the International Convention for the Prevention of Pollution from Ships of 1973, or the Bunker Convention and MARPOL. MARPOL Convention. The MARPOL Convention is broken into six Annexes, each of which establishes environmental standards relating to different sources of pollution: Annex I relates to the prevention of pollution by oil; Annexes II and III relate to the prevention of pollution by noxious liquid substances carried in bulk and harmful substances carried by sea in packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI, adopted by the IMO in September of 1997, relates to air pollution by ship emissions, including greenhouse gases.
In 2013, the IMO’s Marine Environmental Protection Committee, or the “MEPC,” adopted a resolution amending MARPOL Annex I Condition Assessment Scheme, or “CAS.” These amendments became effective on October 1, 2014, and require compliance with the 2011 International Code on the Enhanced Programme of Inspections, or "2011 ESP Code" during Surveys of Bulk Carriers and Oil Tankers, which provides for enhanced inspection programs. We may need to make certain financial expenditures to comply with these amendments.
Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address air pollution. Effective May 2005, Annex VI sets limits on nitrogen oxide emissions from ships whose diesel engines were constructed (or underwent major conversions) on or after January 1, 2000. It also prohibits "deliberate emissions" of "ozone depleting substances," defined to include certain halons and chlorofluorocarbons. "Deliberate emissions" are not limited to times when the ship is at sea; they can for example include discharges occurring in the course of the ship's repair and maintenance. Emissions of "volatile organic compounds" from certain tankers and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls) are also prohibited and the emission of Volatile Organic Compounds is controlled. Annex VI also includes a global cap on the sulfur content of fuel oil (see below).
The amended Annex VI will reduce air pollution from vessels by, among other things, (i) implementing a reduction of sulfur oxide emissions from ships by reducingships. At MEPC 70, it was agreed to implement the global sulfur fuel cap0.5% sulphur limit from 1 January 2020. At MEPC 71, to 3.50%, which became effectiveimplement the global 0.5% sulphur limit, additional measures to promote an appropriate implementation of the global limit were considered. It was agreed that the consideration on January 1, 2012, andthis matter will be progressively reducedmade at Sub-Committee on Pollution Prevention and Response (PPR), and the completion of this work item should be in 2019. By 2020 ships will now have to 0.50%, which will become effective globally aseither remove sulfur from emissions through the use of January 1, 2020, subject to a feasibility review to be completed no later than 2018; and (ii) establishingemission scrubbers or buy fuel with low sulfur content. Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. At MEPC 70 & 71, MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxides, effective January 1, 2021. It is expected that these areas will be formally designated after draft amendments are presented at MEPC's next session. The United StatesU.S. ratified the Annex VI amendments in October 2008, and the United StatesU.S. Environmental Protection Agency, or EPA, promulgated equivalent emissions standards in late 2009.
Sulfur content standards are even stricter within certain Emission Control Areas, or ECAs. As of January 1, 2015, ships operating within an ECA were not permitted to use fuel with sulfur content in excess of 0.10%. Amended Annex VI establishes procedures for designating new ECAs, and the Baltic Sea, the North Sea, certain coastal areas of North America, and the United StatesU.S. Caribbean Sea are all within designated ECAs where the 0.10% fuel sulfur content applies. Ocean-going vessels in these areas will be subject to stringent emissions controls and may cause us to incur additional losses. Effective September 1, 2015, amendmentsAmendments to Annex VI imposed stricter nitrogen oxide standards on marine diesel engines installed on ships built on or after January 1, 2016 which operate in North American and U.S. Caribbean ECAs. The EPA promulgated equivalent (and in some senses stricter) emissions standards in late 2009. As a result of these designations or similar future designations, we may be required to incur additional operating or other costs.
54As determined at the MEPC 70 as well as MEPC71, the new Regulation 22A of MARPOL Annex VI is effective as of March 1, 2018 and requires ships above 5,000 gross tonnage to collect and report annual data on fuel oil consumption to an IMO database, with the first year of data collection commencing on January 1, 2019.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. All ships are now required to develop and implement Ship Energy Efficiency Management Plans (“SEEMP”), and new ships must be designed in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy Efficiency Design Index. Under these measures, by 2025, all new ships built will be 30% more energy efficient than those built in 2014.
If other ECAs are approved by the IMO or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the EPA or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations. As of the date of this annual report, we are in compliance with applicable requirements under Annex VI, as amended.
Safety Management System Requirements
The IMO also adopted SOLAS and the International Convention on Load Lines, or LL Convention, which impose a variety of standards that regulate the design and operational features of ships. The IMO periodically revises the SOLAS and LL standards. May 2012 amendments to SOLAS that relateamongst others address issues related to the safe manning of vessels entered into force on January 1, 2014.and emergency preparedness, training and drills. The Convention onof Limitation of Liability for Maritime Claims was recently amended and the amendments went into effect on June 8, 2015. The amendments alter the limits(the “LLMC”) sets limitations of liability for a loss of life or personal injury claim or a property claim against ship owners. We are confident that all of our vessels are in full compliance with SOLAS and property claims against shipowners.LL Convention standards.
Our operations are also subject to environmental standards and requirements contained inChapter IX of the SOLAS Convention, introduces the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention or ISM Code, promulgated by the IMO under Chapter IX of SOLAS(the “ISM Code”). Our operations are also subject to provide an international standard for the safe managementenvironmental standards and operation of ships and for pollution prevention.requirements (i.e. ISO 14001, EPA, OPA 90, EU Directives). The ISM Code requires the owner of a vessel, or any person who has taken responsibility for operationparty with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety management system that has beenwe and our technical management team have developed for our vessels for compliance with the ISM Code. The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.
The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel'svessel’s management with codethe ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. We have obtained applicable documents of compliance for our offices and safety management certificates for all of our vessels for which the certificates are required by the ISM Code. These documentsIMO. The document of compliance and safety management certificatescertificate are renewed as required.
Noncompliance withChapter II-1 of the ISM CodeSOLAS Convention governs ship construction and other IMO regulations may subjectstipulates that ships over 150 meters in length must have adequate strength, integrity and stability to minimize risk of loss or pollution. SOLAS regulation II-1/3-10 Goal-based ship construction standards as amended, set for application to new oil tankers and bulk carriers., in order to satisfy applicable structural requirements.
Amendments to the shipowner or bareboat chartererSOLAS Convention Chapter VII apply to increased liability, may lead to decreases in, or invalidation of, available insurance coverage for affected vessels transporting dangerous goods and may result in the denial of access to, or detention in, some ports. The U.S. Coast Guard, or the USCG, and E.U. authorities have indicated thatrequire those vessels notbe in compliance with the ISMInternational Maritime Dangerous Goods Code will(“IMDG Code”). Latest IMDG Code includes (1) updates to the provisions for radioactive material, reflecting the latest provisions from the International Atomic Energy Agency, (2) new marking, packing and classification requirements for dangerous goods, and (3) new mandatory training requirements.
The IMO has also adopted the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (“STCW”). All seafarers are required to meet the STCW standards and be prohibited from trading in U.S.possession of a valid STCW certificate. Flag states that have ratified SOLAS and E.U. ports.STCW generally employ the classification societies, which have incorporated SOLAS and STCW requirements into their class rules, to undertake surveys to confirm compliance.
The Maritime Labour Convention, 2006 (MLC, 2006), adopted by the International Labour Organization, is the fourth pillar of the international maritime regulatory regime. It both fills a gap in the 1982 United Nations Convention on the Law of the Sea and complements the International Maritime Organization’s core conventions. The MLC has two pripary purposes: (1) to bring the system of protection contained in existing labour standards closer to the workers concerned, in a form consistent with the rapidly developing, globalized sector (ensuring “decent work), and (2) to improve the applicability of the system so that shipowners and governments interested in providing decent conditions of work do not have to bear an unequal burden in ensuring protection (“level-plying field” - fair competition).
MLC often called the “fourth pillar” of International maritime regulatory regime, because it stands besides the key IMO Conventions (SOLAS, MARPOL & STCW) that support quality shipping and held to eliminate substandard shipping. The MLC requires that vessel operators obtain an MLC Compliance certificate for each vessel they operate. We are confident that all of our vessels are in full compliance with MLC Convention.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatory nationssignatories to such conventions. For example, many countries have ratified and follow the liability plan adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocols in 1976, 1984, and 1992, and amended in 2000, or the CLC. Under the CLC and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel's registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain exceptions and limitations. The 1992 Protocol changed certain limits on liability, expressed using the International Monetary Fund currency unit of Special Drawing Rights. The limits on liability have since been amended so that compensation limits on liability were raised. The right to limit liability is forfeited under the CLC where the spill is caused by the shipowner's actual fault and under the 1992 Protocol where the spill is caused by the shipowner's intentional or reckless act or omission where the shipowner knew pollution damage would probably result. The CLC also covers bunker oil pollution by tankers but only when loaded or when cargo residues remain on board. The CLC requires ships covered by it to maintain insurance covering the liability of the owner in a sum equivalent to the vessel's limitation fund for a single incident. Our protection and indemnity insurance covers the liability under the plan adopted by the IMO subject to the rules and conditions of entry.
The IMO adopted the International Convention on Civil Liability for Bunker Oil Pollution Damage, or the Bunker Convention of 2001, to impose strict liability on shipowners for pollution damage in jurisdictional waters of ratifying states caused by discharges of bunker fuel. The Bunker Convention requires registered owners of ships over 1,000 gross tons to maintain insurance for pollution damage in an amount equal to the limits of liability under the applicable national or international limitation regime (but not exceeding the amount calculated in accordance with the Convention on Limitation of Liability for Maritime Claims of 1976, as amended). With respect to tankers, this Convention is only applicable to vessels without cargo or residues thereof on board.
With respect to non-ratifying states, liability for spills or releases of oil carried as cargo or fuel in ships' bunker tanks typically is determined by the national or other domestic laws in the jurisdiction where the events or damages occur. Our protection and indemnity insurance covers the liability for pollution as established by a competent court, subject to the rules and conditions of entry.
In addition, the IMO adopted an International Convention for the Control and Management of Ships'Ships’ Ballast Water and Sediments or the BWM Convention,(the “BWM Convention”) in February 2004. The BWM Convention'sConvention entered into force on September 9, 2017. The BWM Convention requires ships to manage their ballast water to remove, render harmless, or avoid the uptake or discharge of new or invasive aquatic organisms and pathogens within ballast water and sediments. The BWM Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits. The BWM Convention will not become effective until 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world's merchant shipping. As of March 2016, 48 states had adopted the BWM Convention, approaching the 35% threshold. The BWM Convention has not yet been ratified but proposals regarding implementation have recently been submittedlimits, and require all ships to the IMO but we cannot predict the ultimate timing for ratification. Many of the implementation dates in the BWM Convention have already passed, so that once the BWM Convention enters into force, the period of installation of mandatorycarry a ballast water exchange requirements would be extremely short, with several thousand ships a year needing to installrecord book and an international ballast waterWater management systems, or BWMS. For this reason, oncertificate.
On December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that theythe dates are triggered by the entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels constructeddelivered before the entry into force date "existing vessels"“existing vessels” and allows for the installation of a BWMSballast water management systems on such vessels at the first International Oil Pollution Prevention (IOPP) renewal survey following entry into force of the convention. Furthermore, in October 2014The MEPC adopted updated guidelines for approval of ballast water management systems (G8) at MEPC 70. At MEPC 71, the MEPC met and adopted additional resolutions concerningschedule regarding the BWM Convention's implementation. Convention’s implementation dates was also discussed and amendments were introduced to extend the date existing vessels are subject to certain ballast water standards. Ships over 400 gross tons generally must comply with a “D-1 standard,” requiring the exchange of ballast water only in open seas and away from coastal waters. The “D-2 standard” specifies the maximum amount of viable organisms allowed to be discharged, and compliance dates vary depending on the IOPP renewal dates. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D2 standard on or after September 8, 2019. For most ships, compliance with the D2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Costs of compliance may be substantial.
Once mid-ocean ballast exchange or ballast water treatment requirements become mandatory under the BWM Convention, the cost of compliance could increase for ocean carriers and the costs of ballast water treatments may be material. However, many countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The United States,U.S., for example, requires vessels entering its waters from another country to conduct mid-ocean ballast exchange, or undertake some alternate measure, and to comply with certain reporting requirements. Although we do not believe that theThe costs of such compliance wouldwith a mandatory mid-ocean ballast exchange could be material, and it is difficult to predict the overall impact of such requirementsa requirement on our operations.
The IMO adopted the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocols in 1976, 1984, and 1992, and amended in 2000 (“the CLC”). Under the CLC and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel’s registered owner may be strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain exceptions. The 1992 Protocol changed certain limits on liability expressed using the International Monetary Fund currency unit, the Special Drawing Rights. The limits on liability have since been amended so that the compensation limits on liability were raised. The right to limit liability is forfeited under the CLC where the spill is caused by the shipowner’s actual fault and under the 1992 Protocol where the spill is caused by the shipowner’s intentional or reckless act or omission where the shipowner knew pollution damage would probably result. The CLC requires ships over 2,000 tons covered by it to maintain insurance covering the liability of the owner in a sum equivalent to an owner’s liability for a single incident. We have protection and indemnity insurance for environmental incidents.
The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
U.S. Regulations
The U.S. Oil Pollution Act of 1990, or OPA, establishedestablishes an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all "owners and operators" whose vessels trade in the U.S., its territories and possessions or whose vessels operate in U.S. waters, which includes the U.S. territorial sea and its 200 nautical mile exclusive economic zone. The U.S. has also enacted the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, which applies to the discharge of hazardous substances (including certain forms of oil) whether on land or at sea. OPA and CERCLA both define "owner and operator" in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Accordingly, both OPA and CERCLA impact our operations.
Under OPA, vessel owners and operators are "responsible parties" and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third-party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels. OPA defines these other damages broadly to include:
| · | injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs; |
| · | injury to, or economic losses resulting from, the destruction of real and personal property; |
| · | net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources; |
| · | loss of subsistence use of natural resources that are injured, destroyed or lost; |
| · | lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and |
injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs; | · | injury to, or economic losses resulting from, the destruction of real and personal property; net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property, or natural resources; loss of subsistence use of natural resources that are injured, destroyed or lost; lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources. |
OPA contains statutory caps on liability and damages; such caps do not apply to direct cleanup costs. Effective December 21, 2015, the USCG adjusted the limits of OPA liability to the greater of $2,200 per gross ton or $18,796,800 for any double-hull tanker that is over 3,000 gross tons (subject to periodic adjustment for inflation), for tank vessels greater than 3,000 gross tons other than a single hull tank vessel, such as double hull tankers and our fleet is entirely composed of vessels of this size class. These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship), or a responsible party's gross negligence or willful misconduct. The limitation on liability similarly does not apply if the responsible party fails or refuses to (i) report the incident where the responsibility party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.
OPA permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA. Some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, however, in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining tanker owners' responsibilities under these laws.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico may also result in additional regulatory initiatives or statutes, including the raising of liability caps under OPA. For example, effective October 22, 2012, the U.S. Bureau of Safety and Environment Enforcement, or the BSEE, implemented a final drilling safety rule for offshore oil and gas operations that strengthens the requirements for safety equipment, well control systems, and blowout prevention practices. In December 2015, the BSEE announced a new pilot inspection program for offshore facilities. On February 24, 2014, the U.S. Bureau of Ocean Energy Management, or the BOEM, proposed a rule increasing the limits of liability of damages for offshore facilities under the OPA based on inflation. Furthermore, in April 2015, it was announced that new regulations are expected to be imposed in the U.S. regarding offshore oil and gas drilling.drilling and the BSEE announced a new Well Control Rule in April 2016. Compliance with any new requirements of OPA may substantially impact our cost of operations or require us to incur additional expenses to comply with any new regulatory initiatives or statutes.
CERCLA, which applies to owners and operators of vessels, contains a similar liability regime whereby owners and operators of vessels are liable for cleanup, removal and remedial costs, as well as damage for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third-party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refuses to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA. OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law.
OPA and CERCLA both require owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We have provided such evidence and received certificates of financial responsibility from the USCG's for each of our vessels as required to have one.
Through our P&I Club membership with Gard, West of England and Brittania, we expect to maintain pollution liability coverage insurance in the amount of $1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The U.S. Clean Water Act, or the CWA, prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. Furthermore, many U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law.
The EPA and the USCG have also enacted rules relating to ballast water discharge, compliance with which could requirerequires the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, costs, and/or which may otherwise restrict our vessels from entering U.S. waters.
Waters. The EPA regulates the discharge ofrequires a permit regulating ballast and bilge water and other substances in U.S. waters under the CWA. EPA regulations require vessels 79 feet in length or longer (other than commercial fishing vessels and recreational vessels) to comply with a Vessel General Permit, or VGP, authorizing ballast and bilge water discharges and other discharges incidental to the normal operation of vessels. For a new vessel deliveredcertain vessels within United States waters under the Vessel General Permit for Discharges Incidental to an owner or operator after September 19, 2009 to be covered by the VGP, the owner must submit a NoticeNormal Operation of Intent at least 30 days before the vessel operates in U.S. waters. The VGP imposes technology and water-quality based effluent limits for certain types of discharges and establishes specific inspection, monitoring, record-keeping and reporting requirements to ensure the effluent limits are met.Vessels (the “VGP”). On March 28, 2013, the EPA re-issued the VGP for another five years from the effective fromdate of December 19, 2013. The new2013 VGP focuses on authorizing discharges incidental to operations of commercial vessels, and contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in U.S. waters, more stringent requirements for exhaust gas scrubbers, and requirements for the use of environmentally acceptable lubricants.
In addition, under Section 401 of the CWA, For a new vessel delivered to an owner or operator after December 19, 2013 to be covered by the VGP, the owner must be certified bysubmit a Notice of Intent (“NOI”) at least 30 days (or 7 days for eNOIs) before the statevessel operates in United States waters. We have submitted NOIs for our vessels where the discharge is to take place. Certain states have enacted additional discharge standards as conditions to their certification of the VGP. These local standards bring the VGP into compliance with more stringent state requirements, such as those further restricting ballast water discharges and preventing the introduction of non-indigenous species considered to be invasive. The VGP and its state-specific regulations and any similar restrictions enacted in the future will increase the costs of operating in the relevant waters.required.
The USCG regulations adopted under the U.S. National Invasive Species Act or NISA, also(“NISA”) impose mandatory ballast water management practices for all vessels equipped with ballast water tanks entering or operating in U.S. waters, which require the installation of certain engineering equipment and water treatment systems to treat ballast water before it is discharged in U.S. waters or in the alternative, the implementation of other port facility disposal arrangements or procedures. Vessels not complying with these regulations are restrictedprocedures, and/or may otherwise restrict our vessels from entering U.S. waters. The USCG has implemented revised regulations on ballast water management by establishing standards on the allowable concentration of living organisms in ballast water discharged from ships in U.S. waters. As of January 1, 2014, vessels were technically subject to the phasing-in of these standards, and the USCG must approve any technology before it is placed on a vessel, but has not yetvessel. The USCG first approved thesaid technology necessary for vesselsin December 2016, and continues to meet these standards. Compliance with these regulations could have an adverse impact on the commercial operation of the vessels.
Notwithstanding the foregoing, as of January 1, 2014, vessels are technically subject to the phasing-in of these standards. As a result, thereview ballast water management systems. The USCG has providedmay also provide waivers to vessels whichthat demonstrate why they cannot install the as-yet unapprovednew technology. The USCG has set up requirements for ships constructed before December 1, 2013 with ballast tanks trading with exclusive economic zones of the U.S. to install water ballast treatment systems as follows: (1) ballast capacity 1,500-5,000m3-first scheduled drydock after January 1, 2014; and (2) ballast capacity above 5,000m3-first scheduled drydock after January 1, 2016. All of our vessels have ballast capacities over 5,000m3, and those of our vessels trading in the U.S. will have to install water ballast treatment plants at their first drydock after January 1, 2016, unless an extension is granted by the USCG.
The EPA, on the other hand, has taken a different approach to enforcing ballast discharge standards under the VGP. On December 27, 2013, the EPA issued an enforcement response policy in connection with the new VGP in which the EPA indicated that it would take into account the reasons why vessels do not have the requisite technology installed, but will not grant any waivers. In addition, through the CWA certification provisions that allow U.S. states to place additional conditions on the use of the VGP within state waters, a number of states have proposed or implemented a variety of stricter ballast requirements including, in some states, specific treatment standards. Compliance with the EPA, USCG and state regulations could require the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial cost, or may otherwise restrict our vessels from entering U.S. waters.
ItTwo recent United States court decisions should also be noted thatnoted. First, in October 2015, the Second Circuit Court of Appeals issued a ruling that directed the EPA to redraft the sections of the 2013 VGP that address ballast water. However, the Second Circuit stated that 2013 VGP will remainremains in effect until the EPA issues a new VGP. It presentlyThe effect of such redrafting remains unclear howunknown. Second, on October 9, 2015, the ballast water requirements set forthSixth Circuit Court of Appeals stayed the Waters of the United States rule (WOTUS), which aimed to expand the regulatory definition of “waters of the United States,” pending further action of the court. In response, regulations have continued to be implemented as they were prior to the stay on a case-by-case basis. In February 2017, the U.S. President issued an executive order directing the EPA and U.S. Army Corps of Engineers to publish a proposed rule rescinding or revising the WOTUS rule. In January 2018, the EPA and Army Corps of Engineers issued a final rule pursuant to the President’s order, under which the Agencies will interpret the term “waters of the United States” to mean waters covered by the EPA,regulations, as they are currently being implemented, within the USCG,context of the Supreme Court decisions and IMO BWM Convention, someagency guidance documents, until February 6, 2020. Litigation regarding the status of which arethe WOTUS rule is currently underway, and the effect of future actions in effect and some which are pending, will co-exist.these cases upon our operations is unknown.
The U.S. Clean Air Act, or the CAA, requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in each state. SIPs may include regulations concerning emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment.
European Union Regulations
In October 2009, the E.U. amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. Member States were required to enact laws or regulations to comply with the directive by the end of 2010. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims.
The E.U. has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as determined by type, age, and flag as well as the number of times the ship has been detained. The E.U. also adopted and then extended a ban on substandard ships and enacted a minimum ban period and a definitive ban for repeated offenses. The regulation also provided the E.U. with greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply. Furthermore, the EU has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines. The EU Directive 2005/33/EC (amending Directive 1999/32/EC) introduced requirements parallel to those in Annex VI relating to the sulfur content of marine fuels. In addition, the EU imposed a 0.1% maximum sulfur requirement for fuel used by ships at berth in EU ports.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol toof the United Nations Framework Convention on Climate Change, which entered into force in 2005 and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions with targets extended through 2020. International negotiations are continuing with respect to a successor to the Kyoto Protocol, and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and China, signed the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. The 2015 United Nations Convention on Climate Change Conference in Paris didresulted in the Paris Agreement, which entered into force on November 4, 2016 and does not result in an agreement that directly limitedlimit greenhouse gas emissions forfrom ships. On JanuaryJune 1, 2013, two new sets2017, the U.S. president announced that the U.S. is withdrawing from the Paris Agreement. The timing and effect of mandatory requirementssuch action has yet to addressbe determined.
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction of greenhouse gas emissions from ships adopted by the Marine Environment Protection Committee, or MEPC, entered into force. Currently operating ships are now required to develop and implement Ship Energy Efficiency Management Plans and the new shipswas approved. In accordance with this roadmap, an initial IMO strategy for reduction of greenhouse gas emissions is expected to be designedadopted at MEPC 72 in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy Efficiency Design Index. These requirements could cause us to incur additional compliance costs.second quarter of 2018. The IMO is planning tomay implement market-based mechanisms to reduce greenhouse gas emissions from ships at anthe upcoming MEPC session.
The E.U. has indicated that it intends to propose an expansion of the existing E.U. emissions trading scheme to include emissions of greenhouse gases from marine vessels, and in January 2012 the E.U. launchedEU made a public consultation on possible measuresunilateral commitment to reduce overall greenhouse gas emissions from ships. In April 2015 a regulation was adopted requiring thatits member states from 20% of 1990 levels by 2020. The EU also committed to reduce its emissions by 20% under the Kyoto Protocol’s second period from 2013 to 2020. Starting in January 2018, large ships (over 5,000 gross tons) calling at E.U.EU ports from January 2018are required to collect and publish data on carbon dioxide emissions and other information.
In the U.S.,United States, the EPA has issued a finding that greenhouse gases endanger the public health and safety, and has adopted regulations to limit greenhouse gas emissions from certain mobile sources, and proposed regulations to limit greenhouse gas emissions from certain large stationary sources. However, in March 2017, the U.S. President signed an executive order to review and possibly eliminate the EPA’s plan to cut greenhouse gas emissions. The outcome of this order is not yet known. Although the mobile source emissions regulations do not apply to greenhouse gas emissions from vessels, the EPA enforces both the CAA and the international standards found in Annex VI of the MARPOL concerning marine diesel engines, theiror individual U.S. states could enact environmental regulations that would affect our operations. For example, California has introduced a cap-and-trade program for greenhouse gas emissions, and the sulfur content in marine fuel. aiming to reduce emissions 40% by 2030.
Any passage of climate control legislation or other regulatory initiatives by the IMO, E.U.,the EU, the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol or Paris Agreement, that restrictrestricts emissions of greenhouse gases from marine vessels could require us to make significant financial expenditures including capital expenditures to upgrade our vessels, which we cannot predict with certainty at this time. Even in the absence of climate control legislation, and regulations, our business may be materiallyindirectly affected to the extent that climate change may result in sea level changes or more intense weather events.events (see risk factor on climate change).
International Labour Organization
The International LabourLabor Organization or the ILO(the “ILO”) is a specialized agency of the UN with headquarters in Geneva, Switzerland. The ILOthat has adopted the Maritime Labor Convention 2006 or the (“MLC 2006.2006”). A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance will beis required to ensure compliance with the MLC 2006 for all ships above 500 gross tons in international trade. The MLC 2006 entered into force one year after 30 countries with a minimum of 33% of the world's tonnage have ratified it. On August 20, 2012, the required number of countries was met and MLC 2006 entered into force on August 20, 2013. Following the ratification of MLC 2006 we have developed certain new procedures to ensure fullWe believe that all our vessels are in substantial compliance with its requirements.and are certified to meet MLC 2006.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the U.S. Maritime Transportation Security Act of 2002, or the MTSA, came into effect. To implement certain portions of the MTSA, in July 2003, the U.S. Coast GuardUSCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States.U.S. The regulations also impose requirements on certain ports and facilities, some of which are regulated by the EPA.
Similarly, in December 2002, amendments to SOLAS created a new chapter of the convention dealing specifically with maritime security. The new Chapter VXI-2 became effective in July 2004 and imposes various detailed security obligations on vessels and port authorities, and mandates compliance with the ISPS Code. The ISPS Code is designed to enhance the security of ports and ships against terrorism. Amendments to SOLAS Chapter VII, made mandatory in 2004, apply to vessels transporting dangerous goods and require those vessels be in compliance with the International Maritime Dangerous Goods Code, or the IMDG Code).Code.
To trade internationally, a vessel must attain an International Ship Security Certificate, or ISSC, from a recognized security organization approved by the vessel's flag state. AmongThe following are among the various requirements, are:some of which are found in SOLAS:
| · | onboard installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship's identity, position, course, speed and navigational status; |
| · | onboard installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore; |
| · | the development of vessel security plans; |
| · | ship identification number to be permanently marked on a vessel's hull; |
| · | a continuous synopsis record kept onboard showing a vessel's history, including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship's identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and |
| · | compliance with flag state security certification requirements. |
Ships operating without a valid certificate may be detained at port until it obtains an ISSC, or it may be expelled from port, or refused entry at port.
The U.S. Coast GuardUSCG regulations, intended to align with international maritime security standards, exempt from MTSA vessel security measures non-U.S. vessels provided that such vessels have on board a valid ISSC that attests to the vessel's compliance with SOLAS security requirements and the ISPS Code. We have implemented the various security measures addressed by MTSA, SOLAS and the ISPS Code, and our fleet is in compliance with applicable security requirements.
Inspection by Classification Societies
Every seagoing vessel must be "classed" by a classification society. The classification society certifies that the vessel is "in class,'' signifying that the vessel has been built and maintained in accordance with the rules of the classification society. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned and will certify that such vessel complies with applicable rules and regulations of the vessel's country of registry and the international conventions of which that country is a member.
The classification society also undertakes on request other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned.
For maintenance of the class, regular and extraordinary surveys of hull, machinery, including the electrical plant, and any special equipment classed are required to be performed as follows:
| · | Annual Surveys. For seagoing ships, annual surveys are conducted for the hull and the machinery, including the electrical plant, and where applicable for special equipment classed, within three months before or after each anniversary date of the date of commencement of the class period indicated in the certificate.For seagoing ships, annual surveys are conducted for the hull and the machinery, including the electrical plant, and where applicable for special equipment classed, within three months before or after each anniversary date of the date of commencement of the class period indicated in the certificate. |
| · | Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and are to be carried out either at or between the second and third Annual Surveys after Special Periodical Survey No. 1 and subsequent Special Periodical Surveys. Those items which are additional to the requirements of the Annual Surveys may be surveyed either at or between the second and third Annual Surveys. After the completion of the No.3 Special Periodical Survey the following Intermediate Surveys are of the same scope as the previous Special Periodical Survey. |
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Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and are to be carried out either at or between the second and third Annual Surveys after Special Periodical Survey No. 1 and subsequent Special Periodical Surveys. Those items which are additional to the requirements of the Annual Surveys may be surveyed either at or between the second and third Annual Surveys. After the completion of the No.3 Special Periodical Survey the following Intermediate Surveys are of the same scope as the previous Special Periodical Survey.Special Periodical Surveys (or Class Renewal Surveys). Class renewal surveys, also known as Special Periodical Surveys, are carried out for the ship's hull, machinery, including the electrical plant, and for any special equipment classed, and should be completed within five years after the date of build or after the crediting date of the previous Special Periodical Survey. At the special survey, the vessel is thoroughly examined, including ultrasonic-gauging to determine the thickness of the steel structures. Should the thickness be found to be less than the minimum class requirements, the classification society would prescribe steel renewals. A Special Periodical Survey may be commenced at the fourth Annual Survey and be continued with completion by the fifth anniversary date. Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear.
| · | Special Periodical Surveys (or Class Renewal Surveys). Class renewal surveys, also known as Special Periodical Surveys, are carried out for the ship's hull, machinery, including the electrical plant, and for any special equipment classed, and should be completed within five years after the date of build or after the crediting date of the previous Special Periodical Survey. At the special survey, the vessel is thoroughly examined, including ultrasonic-gauging to determine the thickness of the steel structures. Should the thickness be found to be less than the minimum class requirements, the classification society would prescribe steel renewals. A Special Periodical Survey may be commenced at the fourth Annual Survey and be continued with completion by the fifth anniversary date. Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear. |
As mentioned above for vessels that are more than 15 years old, the Intermediate Survey may also have a considerable financial impact.
At an owner's application, the surveys required for class renewal (for tankers only the ones in relation to machinery and automation) may be split according to an agreed schedule to extend over the entire five year period. This process is referred to as continuous survey system. All areas subject to survey as defined by the classification society are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years.
Most vessels are subject also to a minimum of two examinations of the outside of a vessel's bottom and related items during each five-year special survey period. Examinations of the outside of a vessel's bottom and related items is normally to be carried out with the vessel in drydock but an alternative examination while the vessel is afloat by an approved underwater inspection may be considered. One such examination is to be carried out in conjunction with the Special Periodical Survey and in this case the vessel must be in drydock. For vessels older than 15 years (after the third Special Periodical Survey) the bottom survey must always be in the drydock. In all cases, the interval between any two such examinations is not to exceed 36 months.
In general during the above surveys if any defects are found, the classification surveyor will require immediate repairs or issue a ''recommendation'' which must be rectified by the shipowner within prescribed time limits.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as "in-class" by a classification society which is a member of the International Association of Classification Societies, or the IACS. All our vessels are certified as being "in-class" by American Bureau of Shipping, Lloyds Register or Bureau Veritas who are all members of IACS. All new and secondhand vessels that we purchase must be certified prior to their delivery under our standard purchase contracts and memoranda of agreement. If the vessel is not certified on the scheduled date of closing, we have no obligation to take delivery of the vessel.
In addition to the classification inspections, many of our customers regularly inspect our vessels as a precondition to chartering them for voyages. We believe that our well-maintained, high-quality vessels provide us with a competitive advantage in the current environment of increasing regulation and customer emphasis on quality.
Risk of Loss and Liability Insurance
General
The operation of any cargo vessel includes risks such as mechanical failure, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. OPA, which in certain circumstances imposes virtually unlimited liability upon owners, operators and demise charterers of any vessel trading in the United States exclusive economic zone for certain oil pollution accidents in the United States, has made liability insurance more expensive for shipowners and operators trading in the United States market. While we believe that our present insurance coverage is adequate, not all risks can be insured against, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.
Marine and War Risks Insurance
We have in force marine and war risks insurance for all of our vessels. Our marine hull and machinery insurance covers risks of particular and general average and actual or constructive total loss from collision, fire, grounding, engine breakdown and other insured named perils up to an agreed amount per vessel. Our war risks insurance covers the risks of particular and general average and actual or constructive total loss from acts of war and civil war, terrorism, piracy, confiscation, seizure, capture, vandalism, sabotage, and other war-related named perils. We have also arranged coverage for increased value for each vessel. Under this increased value coverage, in the event of total loss of a vessel, we will be able to recover amounts in excess of those recoverable under the hull and machinery policy in order to compensate for additional costs associated with replacement of the loss of the vessel. Each vessel is covered up to at least its fair market value at the time of the insurance attachment and subject to a fixed deductible per each single accident or occurrence, but excluding actual or constructive total loss. As of the date of this annual report, nil deductible applies under the war risks insurance.
Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Associations, and covers our contractual and third-party liabilities in connection with our shipping activities in accordance with the Rules of the P&I Association. This covers third-party liability and other related expenses including but not limited to those resulting from injury or death of crew, passengers and other third-parties, loss of or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances, and mandatory wreck removal (not including towage costs, which is covered by marine or war risk insurance). Protection and indemnity insurance is a form of mutual indemnity insurance, extended by mutual protection and indemnity associations, or "clubs."
As a member of a P&I Club that is a member of the International Group of P&I Clubs, or the International Group, we carry protection and indemnity insurance coverage capped at $1 billion for oil pollution claims and at $3.0 billion for other claims per vessel per incident. The P&I Clubs that comprise the International Group insure approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each association's liabilities in excess of their own retention (presently $9.0 million). Although the P&I Clubs compete with each other for business, they have found it beneficial to pool their larger risks under the auspices of the International Group. This pooling is regulated by a contractual agreement which defines the risks that are to be pooled and exactly how these risks are to be shared by the participating P&I Clubs. We are subject to calls payable to the associations based on our claim records as well as the claim records of all other members of the individual associations and members of the pool of P&I Clubs comprising the International Group.
Permits and Authorizations
We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our vessels. The kinds of permits, licenses and certificates required depend upon several factors, including the commodity transported, the waters in which the vessel operates, the nationality of the vessel's crew and the age of the vessel. We have been able to obtain all permits, licenses and certificates currently required to permit our vessels to operate. Additional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business or increase the cost of us doing business.
C. | Organizational Structure |
C.Organizational Structure
We were incorporated under the laws of Belgium on June 26, 2003. We own our vessels either directly at the parent level, indirectly through our wholly-owned vessel owning subsidiaries, or jointly through our 50%-owned subsidiaries. We conduct our vessel operations through our wholly-owned subsidiaries Euronav Ship Management SAS, Euronav SAS and Euronav Ship Management (Hellas) Ltd., and also through the TI Pool. Our subsidiaries are incorporated under the laws of Belgium, France, United Kingdom, Liberia, Luxembourg, Cyprus, Hong Kong, Singapore and the Marshall Islands. Our vessels are flagged in Belgium, the Marshall Islands, France, Panama and Greece.
Please see Exhibit 8.1 to this annual report for a list of our subsidiaries.
D. | Property, Plants and Equipment |
D.Property, Plants and Equipment
For a description of our fleet, please see "Item 4. Information on the Company—B. Business Overview—Our Fleet."
We own no properties other than our vessels. We lease office space in various jurisdictions, and have the following material leases in place for such use as of January 1, 2016:2018:
| · | Belgium, located at Belgica Building, De Gerlachekaai 20, Antwerp, Belgium, for a yearly rent of $172,562. |
Belgium, located at Belgica Building, De Gerlachekaai 20, Antwerp, Belgium, for a yearly rent of $197,303. | · | Greece, located at 69 Akti Miaouli, Piraeus, Greece 185 37, for a yearly rent of $219,128. |
Greece, located at 31-33 Athinon Avenue, Athens, Greece 10447, for a yearly rent of $358,704. | · | France, located at Quai Ernest Renaud 15, CS20421, 44104 Nantes Cedex 1, France, for a total yearly rent of $29,424. |
France, located at Quai Ernest Renaud 15, CS20421, 44104 Nantes Cedex 1, France, for a total yearly rent of $32,733. | · | United Kingdom, London, located at Moreau House, 3rd Floor, 116 Brompton Road, London SW3 1JJ for a yearly rent of $333,986 (our former London office) through January 2018, which we partly sublease to a third party for the remaining term and received a total yearly rent of $151,180. |
United Kingdom, London, located at Moreau House, 3rd Floor, 116 Brompton Road, London SW3 1JJ for a yearly rent of $10,524 (our former London office) through January 2018.62United Kingdom, London, located at 81-99 Kings Road, Chelsea, London SW3 4PA, 1-3 floor, for a yearly rent of $1,010,366. We sublease part of this office space to third parties and received a total yearly rent of $749,871 (our new London office).
Singapore, located at 10 Hoe Chiang Road # 10-04, Keppel Tower, Singapore 089315, for a yearly rent through June 2018 of $28,424.
| · | United Kingdom, London, located at 81-99 Kings Road, Chelsea, London SW3 4PA, 1-3 floor, for a yearly rent of $1,068,651. We sublease part of this office space to certain unrelated parties and certain related parties, and received a total yearly rent of $796,331 (our new London office). |
| · | Singapore, located at 10 Hoe Chiang Road # 10-04, Keppel Tower, Singapore 089315, for a yearly rent of $53,642. |
Hong Kong, located at Room 2503-05 25th Floor Harcourt House 39 Gloucester Road Wanchai Hong Kong, for a yearly rent of $14,046.Please see "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions" for further information on leases we have entered into with related parties.
ITEM 4A. | ITEM 4A. UNRESOLVED STAFF COMMENTS |
None.
ITEM 5. | ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
The following management's discussion and analysis of the results of our operations and financial condition should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this annual report. This discussion includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, such as those set forth in "Item 3. Key Information—D. Risk Factors" and elsewhere in this report.
Factors Affecting Our Resultsaffecting our results of Operationsoperations
The principal factors which have affected our results of operations and are expected to affect our future results of operations and financial position include:
| · | The spot rate and time charter market for VLCC and Suezmax tankers; |
| · | The number of vessels in our fleet; |
| · | Utilization rates on our vessels, including actual revenue days versus non-revenue ballast days; |
The number of vessels in our fleet; | · | Our ability to maintain and grow our customer relationships; |
Utilization rates on our vessels, including actual revenue days versus non-revenue ballast and off-hire days; | · | Economic regulatory, political and government conditions that affect the tanker shipping industry; |
Our ability to maintain and grow our customer relationships; | · | The earnings on our vessels; |
Economic, financial, regulatory, political and government conditions that affect the tanker shipping industry; | · | Gains and losses from the sale of assets and amortization of deferred gains; |
The earnings on our vessels; | · | Vessel operating expenses, including in some cases, the fluctuating price of fuel expenses when our vessels operate in the spot or voyage market; |
Gains and losses from the sale of assets and amortization of deferred gains; | · | Impairment losses on vessels; |
Vessel operating expenses, including in some cases, the fluctuating price of fuel expenses when our vessels operate in the spot or voyage market; | · | Administrative expenses; |
Impairment losses on vessels; | · | Acts of piracy or terrorism; |
Administrative expenses;Acts of piracy or terrorism; | · | Drydocking and special survey days, both expected and unexpected; |
Depreciation; | · | Our overall debt level and the interest expense and principal amortization; and |
Drydocking and special survey days, both expected and unexpected; | · | Our overall debt level and the interest expense and principal amortization; and Equity gains (losses) of unconsolidated subsidiaries and associated companies. |
Lack of Historical Operating Data for Vessels Before Their Acquisition
Consistent with shipping industry practice, other than inspection of the physical condition of the vessels and examinations of classification society records, there is no historical financial and/or operational due diligence process when we acquire vessels. Accordingly, we do not obtain the historical operating data for the vessels from the sellers because that information is not material to our decision to make acquisitions, nor do we believe it would be helpful to potential investors in assessing our business or profitability. Most vessels are sold under a standardized agreement, which, among other things, provides the buyer with the right to inspect the vessel and the vessel's classification society records. The standard agreement does not give the buyer the right to inspect, or receive copies of, the historical operating data of the vessel. Prior to the delivery of a purchased vessel, the seller typically removes from the vessel all records, including past financial records and accounts related to the vessel. In addition, the technical management agreement between the seller's technical manager and the seller is automatically terminated and the vessel's trading certificates are revoked by its flag state following a change in ownership.
Consistent with shipping industry practice, we treat the acquisition of a vessel (whether acquired with or without charter) as the acquisition of an asset rather than a business. Although the vessels we acquire generally do not have a charter attached, we have agreed to acquire (and may in the future acquire) some vessels with time charters attached. Where a vessel has been under a voyage charter, the vessel is delivered to the buyer free of charter. It is rare in the shipping industry for the last charterer of the vessel in the hands of the seller to continue as the first charterer of the vessel in the hands of the buyer. In most cases, when a vessel is under time charter and the buyer wishes to assume that charter, the vessel cannot be acquired without the charterer's consent and the buyer's entering into a separate direct agreement with the charterer to assume the charter. The purchase of a vessel itself does not transfer the charter, because it is a separate service agreement between the vessel owner and the charterer. For example, we acquired 15 modern VLCCs from Maersk Tankers in January 2014, or the 2014 Fleet Acquisition Vessels, charter-free under industry standard agreements. When we acquire a vessel and assume a related time charter, we take the following steps before the vessel will be ready to commence operations:
| · | obtain the charterer's consent to us as the new owner; |
| · | obtain the charterer's consent to a new technical manager; |
| · | in some cases, obtain the charterer's consent to a new flag for the vessel; |
| · | arrange for a new crew for the vessel; |
| · | replace most if not all hired equipment on board, such as computers and communication equipment; |
| · | negotiate and enter into new insurance contracts for the vessel through our own insurance brokers; |
| · | register the vessel under a flag state and perform the related inspections in order to obtain new trading certificates from the flag state; |
negotiate and enter into new insurance contracts for the vessel through our own insurance brokers; | · | implement a new planned maintenance program for the vessel; and |
register the vessel under a flag state and perform the related inspections in order to obtain new trading certificates from the flag state; | · | ensure that the new technical manager obtains new certificates for compliance with the safety and vessel security regulations of the flag state. |
implement a new planned maintenance program for the vessel; andensure that the new technical manager obtains new certificates for compliance with the safety and vessel security regulations of the flag state.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with IFRS, which requires us to make estimates in the application of accounting policies based on the best assumptions, judgments and opinions of management.
The following is a discussion of our accounting policies that involve a higher degree of judgment and the methods of their application. For a description of all of our material accounting policies, please see Note 1—General Information andSummary of Significant Accounting Policies to our consolidated financial statements included herein.
Revenue Recognition
We generate a large part of our revenue from voyage charters, including vessels in pools that predominantly perform voyage charters. Within the shipping industry, there are two methods used to account for voyage charter revenue: (1) ratably over the estimated length of each voyage and (2) completed voyage. The recognition of voyage revenues ratably over the estimated length of each voyage is the most prevalent method of accounting for voyage revenues in the shipping industry and the method we use. Under each method, voyages may be calculated on either a load-to-load or discharge-to-discharge basis. In applying its revenue recognition method, management believes that the discharge-to-discharge basis of calculating voyages more accurately estimates voyage results than the load-to-load basis. Since, at the time of discharge, management generally knows the next load port and expected discharge port, the discharge-to-discharge calculation of voyage revenues can be estimated with a greater degree of accuracy. We do not begin recognizing voyage revenue until a charter has been agreed to by both us and the customer, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage, because it is only at this time the charter rate is determinable for the specified load and discharge ports and collectability is reasonably assured.
Revenues from time charters are accounted for as operating leases and are thus recognized ratably over the rental periods of such charters, as service is performed. The board will, however, analyze each contract before deciding on its accounting treatment between operating lease and finance lease. We do not recognize time charter revenues during periods that vessels are off-hire.
For our vessels operating in the TI Pool, revenues and voyage expenses are pooled and allocated to the pool's participants on a TCE basis in accordance with an agreed-upon formula. The formulas in the pool agreements for allocating gross shipping revenues net of voyage expenses are based on points allocated to participants' vessels based on cargo carrying capacity and other technical characteristics, such as speed and fuel consumption. The selection of charterers, negotiation of rates and collection of related receivables and the payment of voyage expenses are the responsibility of the pool. The pool may enter into contracts that earn either voyage charter revenue or time charter revenue. The pool follows the same revenue recognition principles, as applied by us, in determining shipping revenues and voyage expenses, including recognizing revenue only after a charter has been agreed to by both the pool and the customer, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.
The following table presents our average TCE rates (in U.S. dollars) and vessel operating days, which are the total days the vessels were in our possession for the relevant period, net of scheduled off-hire days associated with major repairs, drydockings or special or intermediate surveys for the periods indicated:
| | Year ended December 31, 2015 | | | Year ended December 31, 2014 | | | Year ended December 31, 2013 | |
| | REVENUE | | | REVENUE | | | REVENUE | |
| | Fixed | | | Spot | | | Pool | | | Fixed | | | Spot | | | Pool | | | Fixed | | | Spot | | | Pool | |
TANKER SEGMENT* | | | | | | | | | | | | | | | | | | | | | | | | | | | |
VLCC | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Average rate | | $ | 41,981 | | | $ | 30,734 | | | $ | 55,055 | | | $ | 38,538 | | | $ | 14,120 | | | $ | 27,625 | | | $ | 42,813 | | | $ | 21,583 | | | $ | 20,437 | |
Vessel Operating days | | | 954 | | | | 380 | | | | 8,311 | | | | 687 | | | | 791 | | | | 5,816 | | | | 946 | | | | 380 | | | | 2,710 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SUEZMAX | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Average rate | | $ | 35,790 | | | $ | 41,686 | | | | - | | | $ | 25,929 | | | $ | 23,382 | | | | - | | | $ | 21,305 | | | $ | 16,575 | | | | - | |
Vessel Operating days | | | 2,297 | | | | 4,483 | | | | | | | | 2,949 | | | | 3,825 | | | | - | | | | 3,814 | | | | 2,847 | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
FSO SEGMENT** | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
FSO | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Average rate | | $ | 178,778 | | | | - | | | | - | | | $ | 175,426 | | | | - | | | | - | | | $ | 175,394 | | | | - | | | | - | |
FSO Operating days | | | 365 | | | | | | | | | | | | 365 | | | | - | | | | - | | | | 365 | | | | - | | | | - | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2017 | | Year ended December 31, 2016 | | Year ended December 31, 2015 |
| | REVENUE | | REVENUE | | REVENUE |
| | Fixed |
| | Spot |
| | Pool |
| | Fixed |
| | Spot |
| | Pool |
| | Fixed |
| | Spot |
| | Pool |
|
TANKER SEGMENT* | | | | | | | | | | | | | | | | | | |
VLCC | | | | | | | | | | | | | | | | | | |
Average rate | | $ | 39,629 |
|
| $ | — |
|
| $ | 27,773 |
|
| $ | 42,618 |
|
| $ | 47,384 |
|
| $ | 41,863 |
|
| $ | 41,981 |
|
| $ | 30,734 |
|
| $ | 55,055 |
|
Vessel Operating days | | 1,882 |
|
| — |
|
| 8,977 |
|
| 1,918 |
|
| 468 |
|
| 8,167 |
|
| 954 |
|
| 380 |
|
| 8,311 |
|
SUEZMAX | | | | | | | | | | | | | | | | | | |
Average rate | | $ | 22,131 |
|
| $ | 18,002 |
|
| — |
|
| $ | 26,269 |
|
| $ | 27,498 |
|
| — |
|
| $ | 35,790 |
|
| $ | 41,686 |
|
| — |
|
Vessel Operating days | | 1,886 |
|
| 4,934 |
|
| — |
|
| 2,105 |
|
| 4,646 |
|
| — |
|
| 2,297 |
|
| 4,483 |
|
| — |
|
FSO SEGMENT** | | | | | | | | | | | | | | | | | | |
FSO | | | | | | | | | | | | | | | | | | |
Average rate | | $ | 163,975 |
|
| — |
|
| — |
|
| $ | 178,650 |
|
| — |
|
| — |
|
| $ | 178,778 |
|
| — |
|
| — |
|
FSO Operating days | | 365 |
|
| — |
|
| — |
|
| 366 |
|
| — |
|
| — |
|
| 365 |
|
| — |
|
| — |
|
* The figures for the tanker segment do not include our economic interest in joint ventures.
**The figures for the FSO segment are included and presented at our economic interest, 50%.
Through pooling mechanisms, we receive a weighted, average allocation, based on the total spot results earned by the total of pooled vessels (reflected under "Pool" in the table above), whereas results from direct spot employment are earned and allocated on a one-on-one basis to the individual vessel and thus owner of the according vessel (reflected under "Spot" in the table above).
Vessel Useful Lives and Residual Values
The useful economic life of a vessel is variable. Elements considered in the determination of the useful lives of the assets are the uncertainty over the future market and future technological changes. The carrying value of each of our vessels represents its initial cost at the time it was delivered or purchased plus any additional capital expenditures less depreciation calculated using an estimated useful life of 20 years, except for FSO service vessels for which estimated useful lives of 25 years are used. Newbuildings are depreciated from delivery from the construction yard. Purchased vessels and FSOs converted later into an FSO are depreciated over their respective remaining useful lives as from the delivery of the construction yard to its first owner.
On December 31, 2015,2017, all of our owned vessels were of double hull construction. If the estimated economic lives assigned to our vessels prove to be too long because of new regulations, the continuation of weak markets, the broad imposition of age restrictions by our customers or other future events, this could result in higher depreciation expenses and impairment losses in future periods related to a reduction in the useful lives of any affected vessels.
We estimate that our vessels will not have any residual value at the end of their useful lives. Even though the scrap value of a vessel could be worth something, it is difficult to estimate taking into consideration the cyclicality of the nature of future demand for scrap steel and is likely to remain volatile and unpredictable. The costs of scrapping and disposing of a vessel with due respect for the environment and the safety of the workers in such specialized yards is equally challenging to forecast as regulations and good industry practice leading to self-regulation can dramatically change over time. For example, certain organizations have suggested that the industry adopt The Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, or the Convention. While this Convention has not been accepted yet by the flag states of the flags we use, we believe that this Convention or a similar convention may be adopted in the future. In the event that more stringent requirements are imposed upon tanker owners, including those seeking to sell their vessels to a party that intends to recycle the vessels after they have been purchased, or a Recycling Purchaser, such requirements could negatively impact the sales prices obtainable from the Recycling Purchasers or require companies, including us, to incur additional costs in order to sell their vessels to recycling purchasers or to other foreign buyers intending to use such vessels for further trading. Therefore, we take the view that by the time our assets reach the end of their useful lives, their scrap values are likely to be the same as their disposal costs.
Vessel Impairment
The carrying values of our vessels may not represent their fair market values at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of constructing new vessels. The carrying amounts of our vessels are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated. We define our cash generating unit as a single vessel, unless such vessel is operated in a pool, in which case such vessel, together with the other vessels in the pool, are collectively treated as a cash generating unit. An impairment loss is recognized whenever the carrying amount of an asset or cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the income statement. Impairment of vessels owned through our subsidiaries and joint ventures is treated in the same way.
FSO Impairment
Due to the fact that FSO vessels are often purposely built for specific circumstances, and due the absence of an efficient market for transactions of FSO vessels, the carrying values of our FSO'sFSOs may not represent their fair values at any point in time since.time. The carrying amounts of our FSO'sFSOs are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated. We define our cash generating unit as a single FSO. An impairment loss is recognized whenever the carrying amount of an asset or cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the income statement.
Calculation of recoverable amount
The recoverable amount of an asset or cash generating unit is the greater of its fair value less its cost to sell and value in use. In assessing value in use, the estimated future cash flows, which are based on current market conditions, historical trends as well as future expectations, are discounted to their present value using a pre-tax discount rate that reflects the time value of money and the risks specific to the asset or cash generating unit.
The carrying values of our vessels or our FSOs may not represent their fair market values or the amount that could be obtained by selling the vessels at any point in time since the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. Historically, both charter rates and vessel values tend to be cyclical. The value of a FSO is highly dependent on the value of the service contract under which the unit is employed.
In developing estimates of future cash flows, we must make assumptions about future performance, with significant assumptions being related to charter rates, ship operating expenses, utilization, drydocking requirements, residual value and the estimated remaining useful lives of the vessels. These assumptions are based on historical trends as well asand/or on future expectations. Specifically, in estimating future charter rates or service contract rates, management takes into consideration estimated daily TCE rates for each vessel typeasset over the estimated remaining lives. The estimated daily TCE rates are based on the trailing 10-year historical average rates, based on quarterly average rates published by an independent third-party maritime research service. Recognizing that the transportation of crude oil and petroleum products is cyclical and subject to significant volatility based on factors beyond our control, management believes the use of estimates based on the 10-year historical average rates calculated as of the reporting date to be reasonable, even though the standard deviation of the 10-year average has increased in 2017 compared to 2016 for the tanker segment, on both VLCC and Suezmax. Also, the 10-year average used in the computation of value in use (for both VLCC and Suezmax) as historically it isof December 31, 2017 includes the most appropriate reflectionyear 2008, which was an exceptional high year in terms of a typical shipping cycle.TCE achieved by both the VLCC and Suezmax fleets. When using 5-year historical charter rates in this impairment analysis, the impairment analysis as at December 31, 2017 indicates a total impairment amount of $123.3$5.7 million for the tanker fleet, and when using 1-year historical charter rates in this impairment analysis, the impairment analysis as at December 31, 2017 indicates that noa total impairment is requiredamount of $427.3million for the tanker fleet.
The value in use calculation for FSOs is based on the remaining useful life of the vessels as of the reporting date, and is based on fixed daily rates for the remaining period of the charter as well as management's best estimate of daily rates for future periods. The WACC used to calculate the value in use of our assets is derived from our actual cost of debt and the cost of equity as reported on Bloomberg and without adjustment, which we believe reflects the appropriate cost of equity. However given the significant increase of the WACC in 2017 when compared to 2016, we will continue monitoring it to see if it necessitates any adjustment to reflect more accurately our cost of equity.
Estimated outflows for operating expenses and drydocking requirements are based on historical and budgeted costs and are adjusted for assumed inflation. Finally, utilization is based on historical levels achieved over the last 5 years, vessels useful lives and estimates of a residual value arevalues consistent with our depreciation policy.
The more significant factors that could impact management's assumptions regarding time charter equivalent rates include (i) loss or reduction in business from significant customers, (ii) unanticipated changes in demand for transportation of crude oil and petroleum products, (iii) changes in production of or demand for oil and petroleum products, generally or in particular regions, (iv) greater than anticipated levels of tanker newbuilding orders or lower than anticipated levels of tanker scrappings, and (v) changes in rules and regulations applicable to the tanker industry, including legislation adopted by international organizations such as IMO and the EU or by individual countries. Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate at the time they were made, such assumptions are highly subjective and likely to change, possibly materially, in the future. There can be no assurance as to how long charter rates and vessel values will remain at their current levels..levels.
Our Fleet—Vessel Carrying Values
During the past few years, the market values of vessels have experienced particular volatility, with substantial declines in many vessel classes. As a result, the charter-free market value, or basic market value, of certain of our vessels may have declined below the carrying amounts of those vessels. After undergoing the impairment analysis discussed above, we have concluded that for the years ended December 31, 20152017 and 2014,2016, no impairment was required.
The following table presents information with respect to the carrying amount of our vessels by type and indicates whether their estimated market values are below their carrying values as of December 31, 20152017 and December 31, 2014.2016. The carrying value of each of our vessels does not necessarily represent its fair market value or the amount that could be obtained if the vessel were sold. Our estimates of market values for itsour vessels assume that the vessels are all in good and seaworthy condition without need for repair and, if inspected, would be certified as being in class without notations of any kind. Our estimates are based on the estimated market values for vessels received from independent ship brokers and are inherently uncertain. In addition, because vessel values are highly volatile, these estimates may not be indicative of either the current or future prices that we could achieve if we were to sell any of the vessels. We would not record a loss for any of the vessels for which the fair market value is below its carrying value unless and until we either determine to sell the vessel for a loss or determine that the vessel is impaired as discussed above in "Critical Accounting Policies—Vessel Impairment."Impairment". We believe that the future discounted cash flows expected to be earned over the estimated remaining useful lives for those vessels that have experienced declines in market values below their carrying values would exceed such vessels' carrying values.values (For Vessels or for the CGU as appropriate and defined in the Critical Accounting Policies - Vessel Impairment). For each of the vessels that weare designated as held for sale at December 31, 2015 and December 31, 2014,the balance sheet date, we either useduse the agreed upon selling price of each vessel if an agreement has been reached for such sale or an estimate of basic market value if an agreement for sale has not been reached as of the date of this annual report.
Vessel Type | | Number of Vessels at December 31, 2015 | | | Number of Vessels at December 31, 2014 | | | Carrying Value at December 31, 2015 | | | Carrying Value at December 31, 2014 | |
VLCC (includes ULCC)(1) | | | 26 | | | | 24 | | | $ | 1,645,853 | | | $ | 1,531,707 | |
Suezmax(2) | | | 17 | | | | 18 | | | $ | 642,183 | | | $ | 726,627 | |
Vessels held for sale | | | 1 | | | | 1 | | | $ | 24,195 | | | $ | 89,000 | |
Total | | | 44 | | | | 43 | | | $ | 2,312,231 | | | $ | 2,347,334 | |
|
| | | | | | | | | | | | |
| | | | | | (In thousands of USD) |
Vessel Type | | Numbers of Vessels at December 31, 2017 | | Numbers of Vessels at December 31, 2016 | | Carrying Value at December 31, 2017 | | Carrying Value at December 31, 2016 |
VLCC (includes ULCC) (1) | | 25 |
|
| 26 |
|
| 1,667,308 |
|
| 1,694,506 |
|
Suezmax (2) | | 18 |
|
| 19 |
|
| 604,192 |
|
| 688,657 |
|
Vessels held for sale | | — |
|
| — |
|
| — |
|
| — |
|
Total | | 43 |
|
| 45 |
|
| 2,271,500 |
|
| 2,383,163 |
|
| |
(1) | As of December 31, 2015, eight2017, 20 of our VLCC owned vessels (December 31, 2016: 19) had carrying values which exceeded their aggregate market values. These vessels had an aggregate carrying value of $668.4$1,462.5 million (December 31, 2016: $1,432.2 million), which exceeded their aggregate market value by approximately $94.7 million.$244.2 million (December 31, 2016: $298.0 million). |
| |
(2) | As of December 31, 2015, ten2017, 16 of our Suezmax owned vessels (December 31, 2016: 17) had carrying values which exceeded their aggregate market values. These vessels had an aggregate carrying value of $474.6$598.2 million (December 31, 2016: $664.8 million), which exceeded their aggregate market value by approximately $36.7 million.$191.6 million (December 31, 2016: $204.7 million). |
The table above only takes into account the fleet that is 100% owned by us and therefore does not take into account the vessels that are owned through joint ventures or the FSOs as they are accounted for using the equity method.
Vessels held for sale
Vessels whose carrying values are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. This is the case when the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such vessels and its sale is highly probable i.e., when(when it is significantly more likely than merely probable.probable).
Immediately before classification as held for sale, the vessels are remeasured in accordance with our accounting policies. Thereafter the vessels are measured at the lower of their carrying amount and fair value less cost to sell.
Impairment losses on initial classification as held for sale and subsequent gains and losses on remeasurement are recognized in profit or loss. Gains are not recognized in excess of any cumulative impairment loss.
Vessels classified as held for sale are no longer depreciated.
As of December 31, 2015,2017 and December 31, 2016 we had one VLCC (Famenne) as a non-current asset held for sale. As of December 31, 2014, we had one VLCC (Antarctica)no vessels as a non-current asset held for sale.
Drydocking-Component approach
Within the shipping industry, there are two methods that are used to account for drydockings: (1) capitalize drydocking costs as incurred (deferral method) and amortize such costs over the period to the next scheduled drydocking (typically over 5 years), and (2) expense drydocking costs as incurred. Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment. Costs associated with routine repairs and maintenance are expensed as incurred including routine maintenance performed whilst the vessel is in drydock. After each drydock, all the componentsComponents installed (as replacements or as additional components) during the drydock are classified in two categories (according to their estimated lifetime and their respective cost). When thedry-dock with a useful life is higherof more than 1 year, the component is amortized if their cost is higher than the established threshold. The components will then be amortizedare depreciated over their estimated lifetime (3-5useful life (2.5-5 years). The thresholds are reviewed by the board on an annual basis.
Fleet Development
The following table summarizes the development of our fleet as of the dates presented below*:
| | Year Ended December 31, 2015 | | | Year Ended December 31, 2014 | | | Year Ended December 31, 2013 | |
VLCCs | | | | | | | | | |
At start of period | | | 27.5 | | | | 12.2 | | | | 12.2 | |
Acquisitions | | | 3.0 | | | | 17.0 | | | | 0.0 | |
Dispositions | | | -1.0 | | | | -2.5 | | | | 0.0 | |
Chartered-in | | | -1.0 | | | | 0.8 | | | | 0.0 | |
At end of period | | | 28.5 | | | | 27.5 | | | | 12.2 | |
Newbuildings on order | | | 3.0 | | | | 0.0 | | | | 0.0 | |
Suezmax | | | | | | | | | | | | |
At start of period | | | 21.0 | | | | 21.0 | | | | 20.0 | |
Acquisitions | | | 0.0 | | | | 0.0 | | | | 0.0 | |
Dispositions | | | -1.0 | | | | 0.0 | | | | 0.0 | |
Chartered-in | | | 0.0 | | | | 0.0 | | | | 1.0 | |
At end of period | | | 20.0 | | | | 21.0 | | | | 21.0 | |
Newbuildings on order | | | 0.0 | | | | 0.0 | | | | 0.0 | |
FSO | | | | | | | | | | | | |
At start of period | | | 1.0 | | | | 1.0 | | | | 1.0 | |
Acquisitions | | | 0.0 | | | | 0.0 | | | | 0.0 | |
Dispositions | | | 0.0 | | | | 0.0 | | | | 0.0 | |
Chartered-in | | | 0.0 | | | | 0.0 | | | | 0.0 | |
At end of period | | | 1.0 | | | | 1.0 | | | | 1.0 | |
Newbuildings on order | | | 0.0 | | | | 0.0 | | | | 0.0 | |
Total fleet | | | | | | | | | | | | |
At start of period | | | 49.5 | | | | 34.2 | | | | 33.2 | |
Acquisitions | | | 3.0 | | | | 17.0 | | | | 0.0 | |
Dispositions | | | -2.0 | | | | -2.5 | | | | 0.0 | |
Chartered-in | | | -1.0 | | | | 0.8 | | | | 1.0 | |
At end of period | | | 49.5 | | | | 49.5 | | | | 34.2 | |
Newbuildings on order | | | 3.0 | | | | 0.0 | | | | 0.0 | |
|
| | | | | | | | | |
| | Year ended December 31, 2017 | | Year ended December 31, 2016 | | Year ended December 31, 2015 |
VLCCs | | | | | | |
At start of period | | 30.0 |
|
| 28.5 |
|
| 27.5 |
|
Acquisitions | | 2.0 |
|
| 3.5 |
|
| 3.0 |
|
Dispositions | | (3.0 | ) |
| (5.0 | ) |
| (1.0 | ) |
Chartered-in | | — |
|
| 3.0 |
|
| (1.0 | ) |
At end of period | | 29.0 |
|
| 30.0 |
|
| 28.5 |
|
Newbuildings on order | | — |
|
| 2.0 |
|
| 3.0 |
|
Suezmax | |
|
|
|
|
|
|
|
|
At start of period | | 19.0 |
|
| 20.0 |
|
| 21.0 |
|
Acquisitions | | — |
|
| 1.0 |
|
| — |
|
Dispositions | | (1.0 | ) |
| (1.0 | ) |
| (1.0 | ) |
Chartered in | | — |
|
| (1.0 | ) |
| — |
|
At end of period | | 18.0 |
|
| 19.0 |
|
| 20.0 |
|
Newbuildings on order | | 4.0 |
|
| 2.0 |
|
| — |
|
FSO | |
|
|
|
|
|
|
|
|
At start of period | | 1.0 |
|
| 1.0 |
|
| 1.0 |
|
Acquisitions | | — |
|
| — |
|
| — |
|
Dispositions | | — |
|
| — |
|
| — |
|
Chartered in | | — |
|
| — |
|
| — |
|
At end of period | | 1.0 |
|
| 1.0 |
|
| 1.0 |
|
Newbuildings on order | | — |
|
| — |
|
| — |
|
Total fleet | |
|
|
|
|
|
|
|
|
At start of period | | 50.0 |
|
| 49.5 |
|
| 49.5 |
|
Acquisitions | | 2.0 |
|
| 4.5 |
|
| 3.0 |
|
Dispositions | | (4.0 | ) |
| (6.0 | ) |
| (2.0 | ) |
Chartered in | | — |
|
| 2.0 |
|
| (1.0 | ) |
At end of period | | 48.0 |
|
| 50.0 |
|
| 49.5 |
|
Newbuildings on order | | 4.0 |
|
| 4.0 |
|
| 3.0 |
|
* | * This table includes the two vessels that we own through joint venture entities, which we recognize in our income statement using the equity method, at our respective share of economic interest. This table does not include vessels acquired, but not yet delivered. |
Vessel Acquisitions and Charter-in Agreements
On February 5, 2014, we agreed to charter-in the VLCC Maersk Hojo from Maersk Tankers A/S for a period of 12 months, with the option to extend the charter for an additional 12 months. The time charter commenced on March 24, 2014 upon delivery of the vessel to us.
On February 5, 2014, we agreed to charter-in the VLCC Maersk Hirado from Maersk Tankers A/S for a period of 12 months, with the option to extend the charter for an additional 12 months.
On September 15, 2014, the Suezmax Suez Hans was delivered to us under a 12 month time charter-in contract with a 12 month extension option which was exercised in 2015.
On October 1, 2014, the time charter (time charter-in) relating to the VLCC KHK Vision was extended for 24 months, until October 2016, in direct continuation of the existing contract.
In January 2014, we agreed to acquire the 2014 Fleet Acquisition Vessels from Maersk Tankers for a total purchase price of $980.0 million payable as the vessels were delivered to us charter-free. This acquisition was fully financed through a combination of new equity and debt issuances and borrowings under our $500.0 million Senior Secured Credit Facility. During the period from February 2014 through October 2014, we took delivery of all of the 2014 Fleet Acquisition Vessels from Maersk Tankers, Nautilus, Nucleus, Navarin, Newton, Sara, Ilma, Nautic, Ingrid, Noble, Nectar, Simone, Neptun, Sonia, Iris and Sandra.
On July 7, 2014, we agreed to acquire an additional four modern VLCCs, or the VLCC Acquisition Vessels, charter-free, from Maersk Tankers for an aggregate purchase price of $342.0 million. Two of the vessels, the Hojo and Hakone, were delivered to us during December 2014. The third vessel, Hirado, was delivered to us on February 26, 2015 and the fourth and last vessel, Hakata, was delivered to us on April 9, 2015.
On June 15, 2015, we entered into an agreement with an unrelated third-party to acquire contracts for the construction of the Metrostar Acquisition Vessels, which at the time of our purchase were beingunder construction at Hyundai, for an aggregate purchase price of $384.0 million, or $96.0 million per vessel. The first vessel, the Antigone, was delivered to us on September 25, 2015. The second vessel, the Alice, was delivered to us on January 26, 2016. The third vessel, the Alex, was delivered to us on March 24, 2016. We expect the remainingThe fourth vessel, the Anne, was delivered to us on May 13, 2016.
On June 2, 2016, we entered into a Share Swap and Claims Transfer Agreement whereby (i) we transferred our 50% equity interest in Moneghetti Shipholding Ltd., or Moneghetti, and Fontvieille Shipholding Ltd., or Fontvieille, and, as consideration therefor, acquired from Bretta its 50% ownership interest in Fiorano Shipholding Ltd., or Fiorano, and Larvotto Shipholding Ltd., or Larvotto; and (ii) we transferred our claims arising from the shareholder loans to Moneghetti and Fontvieille and acquired Bretta’s claims arising from the shareholder loans to Fiorano and Larvotto. In addition, we paid $15.1 million to Bretta as compensation for the difference in value of the vessels. As a result of this transaction, our equity interest in both Fiorano and Larvotto increased from 50% to 100% and we are now the sole owner of the Suezmaxes Captain Michael and the Maria, respectively. We no longer have an equity interest in Moneghetti or Fontvieille, which now fully own the Suezmaxes Devon and the Eugenie, respectively. Effective as of the same date, Fiorano and Larvotto are fully consolidated within our consolidated group of companies. We refer to these transactions collectively as the Share Swap and Claims Transfer Agreement.
On August 16, 2016, we entered into an agreement for the acquisition through resale of two VLCCs which are under construction at Hyundai for an aggregated purchase price of $169 million or $84.5 million per vessel. The two VLCCS, Ardeche and Aquitaine, were delivered to us on January 12, 2017 and January 20, 2017 respectively.
On October 3, 2016, we entered into construction contracts with Hyundai for two high specification Ice-Class Suezmax vessels from Hyundai, which we expect will be delivered to us in May 2016. The remaining capexthe first half of 2018.
On November 1, 2016, we entered into an agreement to purchase the VLCC V.K. Eddie from our 50% joint venture Seven Seas Shipping Ltd., or Seven Seas, at a price of $39.0 million.
On April 27, 2017, we entered into newbuilding contracts for this last vessel is $65.3 million.the construction of two additional high specification Ice Class Suezmax vessels from Hyundai shipyard in South Korea. We expect that these vessels will be delivered to us during the second half of 2018.
Vessel Sales and Redeliveries
On April 6, 2014, we redelivered the VLCC Island Splendor, in which we had a 20% economic interest, which was co-chartered-in with Tankers International, to its owner at the end of the time charter-in period.
In March 2013, we sold the newbuilding Suezmax Cap Isabella to Belle Shipholdings Ltd., or Belle Shipholdings, a related party, pursuant to a sale and leaseback agreement for a net selling price of $52.9 million, which was used to pay the final shipyard installment due at delivery of $55.2 million. The stock of Belle Shipholdings is held for the benefit of immediate family members of Peter Livanos, the representative of our former corporate directors, TankLog Holdings Limited, or TankLog, and Ceres Investments (Cyprus) Limited, or Ceres Investments (Cyprus), and the former Chairman of our Board of Directors.
In November 2013, we sold the VLCC Ardenne Venture, which we owned through one of our 50% owned joint ventures, for $41.7 million, resulting in a capital gain of $2.2 million. The vessel was delivered to the new owner on January 2, 2014.
On January 7, 2014, we sold the VLCC Luxembourg, for $28.0 million to an unrelated third-party, resulting in a capital gain of $6.4 million, which was recognized upon delivery of the vessel on May 28, 2014.
In April 2014, our counterparty exercised a purchase option to buy the Olympia and the Antarctica from us for an aggregate purchase price of $178.0 million, of which $20.0 million had been received in January 2011 as an option fee deductible from the purchase price. The sale resulted in a combined loss of $7.4 million which was recorded in the second quarter of 2014. The Olympia was delivered to its new owner on September 8, 2014 and the Antarctica was delivered to its new owner on January 15, 2015, earlier than expected, resulting in an increased sale price and a corresponding gain on disposal of assets of $2.2 million, which was recorded in the first quarter of 2015.
On July 31, 2014, Belle Shipholdings, a related party, sold the Cap Isabella. Our bareboat charter was subsequently terminated on October 8, 2014 upon delivery of the vessel to its new owner. We are entitled to receive a share of the profit resulting from the sale of this vessel by Belle Shipholdings of $4.3 million, which was recorded in the fourth quarter of 2014.
On November 11, 2015, we sold the Suezmax Cap Laurent for a net price of $22.3 million to an unrelated third-party, resulting in a capital gain of $11.1 million in the fourth quarter of 2015. We delivered the vessel to its new owner on November 26, 2015.
On January 15, 2016, we sold the VLCC Famenne,for a net price of $38.0 million to an unrelated third-party, resulting in a capital gain of $13.8 million, which is expected to bewas recorded in the first quarter of 2016. We delivered the vessel to its new owner on March 9, 2016.
On October 27, 2016 and November 27, 2016, we redelivered the VLCC KHK Vision and the Suezmax Suez Hans, respectively, to their owners upon the conclusion of their respective time charter-in periods . On December 16, 2016, we entered into a five-year sale and leaseback agreement with an unrelated third-party for four VLCCs. The four VLCCs are the Nautilus, the Navarin, the Neptun, and the Nucleus. The transaction assumed a net en-bloc sale price of $185 million and produced a gain of $41.5 million which was recorded in the fourth quarter of 2016. However, because there was a total difference of $5.0 million between the observable fair value of the assets ($181 million) and the sale price ($186 million), this excess has been deferred and is being amortized over the period for which the asset is expected to be used (in this case, the duration of the lease, which is 5 years.).
On May 23, 2017, the Company sold the VLCC TI Topaz (2002 – 319,430 dwt), one of its two oldest VLCC vessels, for $21.0 million. The loss on that sale of $21.0 million, was recorded in the second quarter.
On November 10, 2017, the Company sold the VLCC Flandre (2004 - 305,688 dwt) for $45.0 million to a global supplier and operator of offshore floating platforms. The Company recorded a gain of $20.3 million on the sale which was recorded in the fourth quarter of 2017. The vessel was delivered to its new owner on December 20, 2017 and will be converted into an FSPO by her new owner and will therefore leave the worldwide VLCC trading fleet.
On November 16, 2017, the Company sold the Suezmax Cap Georges (1998 - 146,652 dwt) for $9.3 million. The Company recorded a gain of $8.5 million on the sale which was recorded in the fourth quarter of 2017. The vessel was delivered to its new owner on November 29, 2017.
On November 17, 2017, the Company sold the VLCC Artois (2001 - 298,330 dwt) for $21.8 million. The Artois was the oldest vessel in the Company’s VLCC fleet. The Company recorded a gain of $7.7 million on the sale which was recorded in the fourth quarter of 2017. The vessel was delivered to its new owner on December 4, 2017.
A. Operating Results
Year ended December 31, 2015,2017, compared to the year ended December 31, 20142016
Total shipping revenues and voyage expenses and commissions.
The following table sets forth our total shipping revenues and voyage expenses and commissions for the years ended December 31, 20152017 and 2014:2016:
(US$ in thousands) | | 2015 | | | 2014 | | | $ Change | | | % Change | |
Voyage charter and pool revenues | | | 720,416 | | | | 341,867 | | | | 378,549 | | | | 111 | % |
Time charter revenues | | | 126,091 | | | | 132,118 | | | | (6,027 | ) | | | (5 | )% |
Other income | | | 7,426 | | | | 11,411 | | | | (3,985 | ) | | | (35 | )% |
Total shipping revenues | | | 853,933 | | | | 485,396 | | | | 368,537 | | | | 76 | % |
Voyage expenses and commissions | | | (71,237 | ) | | | (118,303 | ) | | | 47,066 | | | | (40 | )% |
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2017 |
| 2016 |
| $ Change |
| % Change |
Voyage charter and pool revenues | | 394,663 |
|
| 544,038 |
|
| (149,375 | ) |
| (27 | )% |
Time charter revenues | | 118,705 |
|
| 140,227 |
|
| (21,522 | ) |
| (15 | )% |
Other income | | 4,902 |
|
| 6,996 |
|
| (2,094 | ) |
| (30 | )% |
Total shipping revenues | | 518,270 |
|
| 691,261 |
|
| (172,991 | ) |
| (25 | )% |
Voyage expenses and commissions | | (62,035 | ) |
| (59,560 | ) |
| (2,475 | ) |
| 4 | % |
Voyage Charter and Pool Revenues. Voyage charter and pool revenues increaseddecreased by 111%27%, or $378.5$149.4 million, to $720.4$394.7 million for the year ended December 31, 2015,2017, compared to $341.9$544.0 million for the same period in 2014.2016. This increasedecrease was due to (i) an increasea decrease in the average TCE rates for VLCCs and Suezmax tankers from $27,189$42,243 per day and $24,491,$27,114 per day, respectively in 20142016 to $52,802$29,827 and $39,689,$19,144, respectively in 2015, and (ii)2017. This decrease in the average TCE was partially offset by an increase of the total number of vessel operating days. In addition, the total number of fleet operating days in 2015 increased by 15%, compared to the same period in 2014, mainly due to the expansion of the VLCC fleet.
Time Charter Revenues. Time charter revenues decreased by 5%15%, or $6.0$21.5 million, to $126.1$118.7 million for the year ended December 31, 2015,2017, compared to $132.1$140.2 million for the same period in 2014.2016. This decrease was partly due to several time charter contracts expiringthat ended without being renewed during the course of 2017 combined with deteriorating spot market conditions that resulted in 2014 and early 2015, resulting in a decrease in fixed operating days. The decrease in fixed operating days was partially offset with a higher rate received during 2015 due to renewallower profit splits existing on some of charters and by the market-related profit share earned on certain of our time charter-out vessels due to more favorable market conditions.those contracts.
Other Income. Other income decreased by 35%30%, or $4.0$2.1 million, to $7.4$4.9 million for the year ended December 31, 2015,2017, compared to $11.4$7 million for the same period in 2014.2016. Other income includes revenues related to the daily standard business operation of the fleet and that are not directly attributable to an individual voyage, such as insurance rebates received based on changes in our vessels' trading patterns.
Voyage Expenses and Commissions. Voyage expenses and commissions decreasedincreased by 40%,4% or $47.1$2.5 million, to $71.2$(62.0) million for the year ended December 31, 2015,2017, compared to $118.3$(59.6) million for the same period in 2014.2016. This decreaseincrease was primarily due to a decreaseincreased of oil prices which reducedincreased bunker expenses, the largest component of voyage expenses.
expenses and fewer vessels operating under a long term time charter.Net gain (loss) on lease terminations and net gain (loss) on the sale of assets.assets.
The following table sets forth our gain (loss) on lease terminations and gain (loss) on the sale of assets for the years ended December 31, 20152017 and 2014:
(US$ in thousands) | | 2015 | | | 2014 | | | $ Change | | | % Change | |
Net gain (loss) on lease terminations | | | 0 | | | | 0 | | | | 0 | | | | 0 | % |
Net gain (loss) on sale of assets (including impairment on non-current assets held for sale) | | | 5,300 | | | | 5,706 | | | | (406 | ) | | | (7 | )% |
2016:
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2017 |
| 2016 |
| $ Change |
| % Change |
Net gain (loss) on lease terminations | | — |
|
| — |
|
| — |
|
| 0 | % |
Net gain (loss) on sale of assets (including impairment on non-current assets held for sale and loss on disposal of investments in equity-accounted investees) | | 15,511 |
|
| 26,245 |
|
| (10,734 | ) |
| (41 | )% |
Net gain (loss) on lease terminations. We did not terminate any leases during the years ended December 31, 2017 and 2016.
Net gain (loss) on sale of assets (including impairment on non-current assets held for sale, and loss on disposal of investments in equity-accounted investees). Net gain (loss) decreased by 41%, or $10.7 million, to a net gain of $15.5 million for the year ended December 31, 2017, compared to a net gain of $26.2 million for 2016.
The net gain on sale of assets of $15.5 million in 2017 , represents the difference between a gain of $8.5 million recorded on the sale of the Suezmax Cap Georges, a gain of $7.7 million on the sale of the VLCC Artois, a gain of $20.3 million recorded on the sale of the VLCC Flandre and a loss of 21.0 million on the sale of the VLCC TI Topaz.
The net gain on sale of assets of $26.2 million in 2016 represents the difference between a gain of $13.8 million recorded on the sale of the VLCC Famenne, a gain of $36.5 million recorded on the sale and lease back transaction of the VLCC Nautilus, Navarin, Neptun and Nucleus, and a loss of $24.1 million on the disposal of the joint ventures with Bretta, where we assumed full ownership of the two youngest vessels, the Suezmax Captain Michael and the Suezmax Maria.
Vessel Operating Expenses.
The following table sets forth our vessel operating expenses for the years ended December 31, 2017 and 2016:
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2017 |
| 2016 |
| $ Change |
| % Change |
Total VLCC operating expenses | | 95,987 |
|
| 100,848 |
|
| (4,861 | ) |
| (5 | )% |
Total Suezmax operating expenses | | 54,440 |
|
| 59,351 |
|
| (4,911 | ) |
| (8 | )% |
Total vessel operating expenses | | 150,427 |
|
| 160,199 |
|
| (9,772 | ) |
| (6 | )% |
Total vessel operating expenses decreased by 6%, or $9.8 million, to $150.4 million during the year ended December 31, 2017, compared to $160.2 million for 2016.
VLCC operating expenses decreased by 5%, or $4.9 million, during the year ended December 31, 2017, compared to 2016. The decrease was primarily attributable to various cost savings and positive rate of exchange impact, partly offset by the delivery of the VLCC Ardeche and VLCC Aquitaine in January 2017 and purchase of the VLCC V.K. Eddie in November 2016.
Suezmax operating expenses decreased by 8%, or $4.9 million, during the year ended December 31, 2017, compared to 2016. The decrease was mainly due to lower technical costs in general, partly offset by the acquisition of the Suezmaxes Maria and Captain Michael following the Share Swap and Claims Transfer Agreement. See Item 5. Operating and Financial Review and Prospects-Fleet Development.
Time charter-in expenses and bareboat charter-hire expenses.
The following table sets forth our chartered-in vessel expenses and bareboat charter-hire expenses for the years ended December 31, 2017 and 2016:
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2017 |
| 2016 |
| $ Change |
| % Change |
Time charter-in expenses | | 62 |
|
| 16,921 |
|
| (16,859 | ) |
| (100 | )% |
Bareboat charter-hire expenses | | 31,111 |
|
| 792 |
|
| 30,319 |
|
| 3,828 | % |
Total charter hire expense | | 31,173 |
|
| 17,713 |
|
| 13,460 |
|
| 76 | % |
Time charter-in expenses. Time charter-in expenses decreased by 100%, or $16.9 million, to $0.1 million during the year ended December 31, 2017, compared to $16.9 million for 2016. The decrease was attributable to the expiration of two time charter parties in 2016.
Bareboat charter-hire expenses. Bareboat charter-hire expenses increased by $30.3 million, to $31.1 million for the year ended December 31, 2017, compared to $0.8 million for 2016. The increase was entirely attributable to the sale and leaseback transaction of the VLCCs Nautilus, Navarin, Nucleus and Neptun entered into on December 16, 2016.
General and administrative expenses.
The following table sets forth our general and administrative expenses for the years ended December 31, 2017 and 2016:
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2017 |
| 2016 |
| $ Change |
| % Change |
General and administrative expenses | | 46,868 |
|
| 44,051 |
|
| 2,817 |
|
| 6 | % |
General and administrative expenses which include also, among others, directors' fees, office rental, consulting fees, audit fees and tonnage tax, increased by 6%, or $2.8 million, to $46.9 million for the year ended December 31, 2017, compared to $44.1 million for 2016.
This increase was due to, among other factors, an increase of $0.5 million relating to tonnage tax due to a higher number of VLCCs in the fleet, and an increase of $1.7 million in administrative expenses related to the TI Pool, due to the signing and usage of a senior secured line of credit to fund the working capital in the ordinary course of TI Pool's business of operating a pool of tankers vessels, including but not limited to the purchase of bunker fuel, the payment of expenses relating to specific voyages and supplies of pool vessels, commissions payable on fixtures, port costs, expenses for hull and propeller cleaning, canal costs, insurance costs for the account of the pool, and insurance and fees payable for towage of vessels. The TI Pool's financing expenses are part of the Pool administrative expenses which are borne by the Pool Participants, including Euronav. Furthermore, the audit and other fees increased by $0.6 million for the year ended December 31, 2017, compared to 2016, due to the enhanced effort on internal processes excellence in 2017. Staff costs increased with $0.6 million due to an increased head count.
This increase was offset partially by a decrease of $0.7 million in directors’ fees, due to a favorable rate of exchange and the resignation of one of our directors.
Depreciation and amortization expenses.
The following table sets forth our depreciation and amortization expenses for the years ended December 31, 2017 and 2016:
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2017 |
| 2016 |
| $ Change |
| % Change |
Depreciation and amortization expenses | | 229,872 |
|
| 227,763 |
|
| 2,109 |
|
| 1 | % |
Depreciation and amortization expenses increased by 1%, or $2.1 million, to $229.9 million for the year ended December 31, 2017, compared to $227.8 million for 2016.
Depreciation increased primarily due to (i) the acquisition and delivery of the VLCCs Ardeche, Aquitaine, Alex, Anne and V.K. Eddie, resulting in an aggregate increase of $15.7 million, (ii) an increase in depreciation of drydock of $3.6 million and (iii) an increase of $3.6 million due to the acquisition of full ownership of the Suezmaxes Maria and Captain Michael following the Share Swap and Claims Transfer Agreement (see Fleet Development). This increase was partially offset by a decrease in depreciations due to (i) the sale and leaseback transaction of the VLCCs Nautilus, Navarin, Nucleus and Neptun entered into on December 16, 2016, resulting in an aggregate decrease of $13.3 million (ii) the sale and delivery of the VLCC TI Topaz to its new owner on June 9, 2017, (iii) the sale and delivery of the Suezmax Cap Georges to its new owner on November 29, 2017, (iv) the sale and delivery of the VLCC Flandre to its new owner on December 20, 2017 and (iv) the sale and delivery of the VLCC Artois to its new owner on December 4, 2017 resulting in a combined decrease of $6.2 million.
Finance Expenses.
The following table sets forth our finance expenses for the years ended December 31, 2017 and 2016:
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2017 |
| 2016 |
| $ Change |
| % Change |
Interest expense on financial liabilities measured at amortized cost | | 38,391 |
|
| 39,007 |
|
| (616 | ) |
| (2 | )% |
Other financial charges | | 5,819 |
|
| 4,577 |
|
| 1,242 |
|
| 27 | % |
Foreign exchange losses | | 6,521 |
|
| 8,111 |
|
| (1,590 | ) |
| (20 | )% |
Finance expenses | | 50,731 |
|
| 51,695 |
|
| (964 | ) |
| (2 | )% |
Finance expenses decreased by 2%, or $1.0 million, to $50.7 million for the year ended December 31, 2017, compared to $51.7 million for 2016.
Interest expense on financial liabilities measured at amortized cost decreased by 2%, or $0.6 million, during the year ended December 31, 2017, compared to 2016. This decrease was primarily attributable to the decrease in average outstanding debt during the year ended December 31, 2017, compared to the same period in 2016, partially offset by an increase of floating interest rates in 2017. Other financial charges increased by 27%, or $1.2 million, to $5.8 million for the year ended December 31, 2017, compared to $4.6 million for 2016. This increase was primarily attributable to commitment fees paid for available credit lines, of which the total availability increased in 2017.
Foreign exchange losses decreased by 20%, or $1.6 million, primarily due to change in exchange rates between the EUR and the USD.
Share of results of equity accounted investees, net of income tax.
The following table sets forth our share of results of equity accounted investees (net of income tax) for the years ended December 31, 2017 and 2016:
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2017 |
| 2016 |
| $ Change |
| % Change |
Share of results of equity accounted investees | | 30,082 |
|
| 40,495 |
|
| (10,413 | ) |
| (26 | )% |
As at December 31, 2017, our equity accounted investees included two joint ventures which owned one FSO each.
On June 2, 2016, we entered into a Share Swap and Claims Transfer Agreement whereby (i) we transferred our 50% equity interest in Moneghetti and Fontvieille, and, as consideration therefor, acquired from Bretta its 50% ownership interest in Fiorano and Larvotto; and (ii) we transferred our claims arising from the shareholder loans to Moneghetti and Fontvieille and acquired Bretta’s claims arising from the shareholder loans to Fiorano and Larvotto. As a result, our equity interest in both Fiorano and Larvotto increased from 50% to 100% giving us control of both companies. We no longer have an equity interest in Moneghetti and Fontvieille. Before the swap agreement, we accounted for the four entities using the equity method. Following the acquisition, Fiorano and Larvotto are fully consolidated as of June 2, 2016. These transactions led to a decrease in the share of results of equity accounted investees for the year ended December 31, 2017, by $2.0 million compared to 2016.
On November 23, 2016, we took delivery of the VLCC V.K. Eddie that we purchased from our 50% joint venture Seven Seas. As a result, our share of the profit of this joint venture for the year ended December 31, 2017, was $3.7 million lower compared to 2016.
The result of our participations in the 50%-owned joint ventures, TI Asia Ltd. and TI Africa Ltd., the owners of FSO Asia and FSO Africa, respectively, have decreased by an aggregate of $4.6 million, mostly due to the recognition of a deferred tax liability and lower revenue under the new FSO contracts which started in July and September 2017 for the FSO Asia and FSO Africa, respectively. This was partly offset by lower interest expense after the repayment of the remaining bank debt in July 2017.
Income tax benefit/(expense).
The following table sets forth our income tax benefit/(expense) for the years ended December 31, 2017 and 2016:
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2017 |
| 2016 |
| $ Change |
| % Change |
Income tax benefit (expense) | | 1,358 |
|
| 174 |
|
| 1,184 |
|
| 680 | % |
Income tax benefit/(expense) increased by 680%, or $1.2 million, to a benefit of $1.4 million for the year ended December 31, 2017, compared to a benefit of $0.2 million for 2016, which was mainly attributable to the recognition of a deferred tax asset related to our fully owned subsidiary Euronav Luxembourg.
Year ended December 31, 2016, compared to the year ended December 31, 2015
Total shipping revenues and voyage expenses and commissions.
The following table sets forth our total shipping revenues and voyage expenses and commissions for the years ended December 31, 2016 and 2015:
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2016 |
| 2015 |
| $ Change |
| % Change |
Voyage charter and pool revenues | | 544,038 |
|
| 720,416 |
|
| (176,378 | ) |
| (24 | )% |
Time charter revenues | | 140,227 |
|
| 126,091 |
|
| 14,136 |
|
| 11 | % |
Other income | | 6,996 |
|
| 7,426 |
|
| (430 | ) |
| (6 | )% |
Total shipping revenues | | 691,261 |
|
| 853,933 |
|
| (162,672 | ) |
| (19 | )% |
Voyage expenses and commissions | | (59,560 | ) |
| (71,237 | ) |
| 11,677 |
|
| (16 | )% |
Voyage Charter and Pool Revenues. Voyage charter and pool revenues decreased by 24%, or $176.4 million, to $544.0 million for the year ended December 31, 2016, compared to $720.4 million for the same period in 2015. This decrease was due to a decrease in the average TCE rates for VLCCs and Suezmax tankers from $52,802 and $39,689, respectively in 2015 to $42,243 and $27,114, respectively in 2016. This decrease in the average TCE was partially offset by an increase of the total number of vessel operating days.
Time Charter Revenues. Time charter revenues increased by 11%, or $14.1 million, to $140.2 million for the year ended December 31, 2016, compared to $126.1 million for the same period in 2015. This increase was partly due to several new time charter contracts at the end of 2015 and 2014.in 2016 resulting in an increase in fixed operating days. The increase in fixed operating days was partially offset by a lower rate received during 2016 due to renewal of charters and by the market-related profit share earned on certain of our time charter-out vessels due to less favorable market conditions.
Other Income. Other income decreased by 6%, or $0.4 million, to $7.0 million for the year ended December 31, 2016, compared to $7.4 million for the same period in 2015. Other income includes revenues related to the daily standard business operation of the fleet that are not directly attributable to an individual voyage, such as insurance rebates received based on changes in our vessels' trading patterns.
Voyage Expenses and Commissions. Voyage expenses and commissions decreased by 16% or $11.7 million, to $(59.6) million for the year ended December 31, 2016, compared to $(71.2) million for the same period in 2015. This decrease was primarily due to a decrease of oil prices which reduced bunker expenses, the largest component of voyage expenses and more vessels operating under a long term time charter.
Net gain (loss) on lease terminations and net gain (loss) on the sale of assets.
The following table sets forth our gain (loss) on lease terminations and gain (loss) on the sale of assets for the years ended December 31, 2016 and 2015:
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2016 |
| 2015 |
| $ Change |
| % Change |
Net gain (loss) on lease terminations | | — |
|
| — |
|
| — |
|
| 0 | % |
Net gain (loss) on sale of assets (including impairment on non-current assets held for sale and loss on disposal of investments in equity-accounted investees) | | 26,247 |
|
| 5,300 |
|
| 20,947 |
|
| 395 | % |
Net gain (loss) on lease terminations. We did not terminate any leases during the years ended December 31, 2016 and 2015.
Net gain (loss) on sale of assets (including impairment on non-current assets held for sale)sale, and loss on disposal of investments in equity-accounted investees).Net gain decreased(loss) increased by 7%395%, or $0.4$20.9 million, to a gain of $26.2 million for the year ended December 31, 2016, compared to a gain of $5.3 million for the year ended December 31, 2015, compared to a gain of $5.7 million for the same period in 2014.2015. The net gain on sale of assets of $26.2 million in 2016 represents the difference between a capital gain of $13.8 million recorded on the sale of the VLCC Famenne, a capital gain of $36.5 million recorded on the sale and lease back transaction of the VLCC Nautilus, Navarin, Neptun and Nucleus, and a loss of $24.1 million on the disposal of the joint ventures with Bretta, where we assumed full ownership of the two youngest vessels, the Suezmax Captain Michael and the Suezmax Maria. The net gain on sale of assets of $5.3 million in 2015 represents the difference between a capital gain of $11.1 million on the sale of the Suezmax Cap Laurent, an additional capital gain of $2.2 million on the sale of the VLCC Antarctica, and a write-off of the $8.0 million option fee of $8.0 million related to the option to purchase four VLCCs from the seller of the Metrostar Acquisition Vessels, which our Board of Directors decided not to exercise in the third quarter of 2015. The net gain on sale of assets of $5.7 million in 2014 represents the difference between a capital gain of $6.4 million recorded on the sale of the VLCC Luxembourg, a net loss of $0.2 million on the sale of the VLCC Olympia, an impairment loss of $4.9 million on the sale of the VLCC Antarctica, and a net gain of $4.3 million, relating to the profit share on the sale of the Suezmax Cap Isabella.
Vessel Operating Expenses.Expenses.
The following table sets forth our vessel operating expenses for the years ended December 31, 20152016 and 2014:
(US$ in thousands) | | 2015 | | | 2014 | | | $ Change | | | % Change | |
Total VLCC operating expenses | | | 99,682 | | | | 65,630 | | | | 34,052 | | | | 52 | % |
Total Suezmax operating expenses | | | 54,036 | | | | 58,459 | | | | (4,423 | ) | | | (8 | )% |
Total vessel operating expenses | | | 153,718 | | | | 124,089 | | | | 29,629 | | | | 24 | % |
2015:
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2016 |
| 2015 |
| $ Change |
| % Change |
Total VLCC operating expenses | | 100,848 |
|
| 99,682 |
|
| 1,166 |
|
| 1 | % |
Total Suezmax operating expenses | | 59,351 |
|
| 54,036 |
|
| 5,315 |
|
| 10 | % |
Total vessel operating expenses | | 160,199 |
|
| 153,718 |
|
| 6,481 |
|
| 4 | % |
Total vessel operating expenses increased by 24%4%, or $29.6$6.5 million, to $153.7$160.2 million during the year ended December 31, 2015,2016, compared to $124.1$153.7 million for the same period in 2014.2015. This increase was primarily due to an increase in the number of vessels operated by us (i) following the delivery of newbuildings the 2014VLCCs Alice, Alex, and Anne , (ii) the acquisition of the joint venture stake we did not own in the Suezmaxes Captain Michael, Maria and VLCC V.K. Eddie (see Fleet Acquisition Vessels andDevelopment). The increase was partly offset by the sale of the VLCC Acquisition Vessels, which, together, we refer to as the 2014 Acquisition Fleet.Famenne and Suezmax Cap Laurent.
VLCC operating expenses increased by 52%1%, or $34.1$1.2 million, during the year ended December 31, 2015,2016, compared to the same period 2014.2015. The increase was primarily attributable to additional vessels acquired and delivered in 20152016 and in the course of 2014.2015, offset by the sale of the Famenne and lower technical expenses in general.
Suezmax operating expenses decreasedincreased by 8%10%, or $4.4$5.3 million, during the year ended December 31, 2015,2016, compared to the same period 2014.2015. The decreaseincrease was mainly due to the operationSuezmaxes Maria and Captain Michael following the Share Swap and Claims Transfer Agreement (see Fleet Development), partially offset by the sale of the Cap Isabella which was on bareboat charter in 2014, but was redelivered to its owners on October 9, 2014 and due to a positive impactLaurent at the end of the Euro/USD rate of exchange on the crewing expense.2015.
Time charter-in expenses and bareboat charter-hire expenses.expenses.
The following table sets forth our chartered-in vessel expenses and bareboat charter-hire expenses for the years ended December 31, 20152016 and 2014:2015:
(US$ in thousands) | | 2015 | | | 2014 | | | $ Change | | | % Change | |
Time charter-in expenses | | | 25,849 | | | | 32,080 | | | | (6,231 | ) | | | (19 | )% |
Bareboat charter-hire expenses | | | 0 | | | | 3,584 | | | | (3,584 | ) | | | (100 | )% |
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2016 |
| 2015 |
| $ Change |
| % Change |
Time charter-in expenses | | 16,921 |
|
| 25,849 |
|
| (8,928 | ) |
| (35 | )% |
Bareboat charter-hire expenses | | 792 |
|
| — |
|
| 792 |
|
| — |
|
Total charter hire expense | | 17,713 |
|
| 25,849 |
|
| (8,136 | ) |
| (31 | )% |
Time charter-in expenses.Time charter-in expenses decreased by 19%35%, or $6.2$8.9 million, to $25.8$16.9 million during the year ended December 31, 2015,2016, compared to $32.1$25.8 million for the same period in 2014.2015. The decrease was attributable primarily attributable to the expiration of threetwo time charter parties. At the end of 2014, and beginning 2015, we acquired three time chartered-in VLCCs, the Maersk Hojo, the Maersk Hirado, and the Maersk Hakone and redelivered one time chartered-in VLCC, the Island Splendor, to its owners on May 18, 2014, resultingparties in a total decrease of $20.3 million in charter-in expenses.2016.
Bareboat charter-hire expenses.Bareboat charter-hire expenses decreasedincreased by 100%, or $3.6$0.8 million, to $0.0$0.8 million for the year ended December 31, 2015,2016, compared to $3.6$0.0 million for the same period in 2014.2015. The decreaseincrease was entirely attributable to the bareboat contract forsale and leaseback transaction of the Suezmax VLCCs Cap IsabellaNautilus, Navarin, Nucleus, which ended and Neptun on October 9, 2014.
General and administrative expenses.expenses.
The following table sets forth our general and administrative expenses for the years ended December 31, 20152016 and 2014:2015:
(US$ in thousands) | 2015 | | 2014 | | $ Change | | % Change | |
General and administrative expenses | | | 46,251 | | | | 40,565 | | | | 5,686 | | | | 14 | % |
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2016 |
| 2015 |
| $ Change |
| % Change |
General and administrative expenses | | 44,051 |
|
| 46,251 |
|
| (2,200 | ) |
| (5 | )% |
General and administrative expenses which include also, among others, directors' fees, office rental, consulting fees, audit fees and tonnage tax, increaseddecreased by 14%5%, or $5.7$2.2 million, to $46.3$44.1 million for the year ended December 31, 2015,2016, compared to $40.6$46.3 million for the same period in 2014.2015.
This increasedecrease was due to, among other factors, an increase in wages and salaries and other staff costs of $2.2 million, as a result of additional staff hired and additional rent paid of $1.0 million for new offices or the rent of additional spaces. This increase was partially offset with a decrease of $2.4$1.2 million relating to equity-settled share based payments.payments, a decrease of $0.4 million in rental expenses, a decrease of $0.4 million in directors' fees, a decrease of $0.3 million in travel expenses, and a $0.7 million reversal of provisions for onerous contracts.
Tonnage tax recorded inFurthermore, the administrative expenses related to the TI Pool decreased by $0.9 million during the year ended December 31, 2015, increased by $1.9 million,2016, compared to the same period in 2014, following the deliveries of vessels in the course of 2014 and 2015.
Administrative expenses relating to TI Pool increased by $2.0 million, primarily2015, mainly due to the increased number of our VLCCs operated in the TI Pool as a result of the acquisition of the additional VLCC's in the course of 2014 and 2015.lower freight market.
The remaining general corporate overhead expenses, including professionalaudit and other fees travel, and information technology expenses, increased by $0.9 million during the year ended December 31, 2015,2016, compared to the same period in 2014.2015, due to the implementation and audit of an enhanced framework of internal controls.
The mortgages and registration fees increased by $0.9 million during the year ended December 31, 2016 compared to the same period in 2015, due to the sale of certain vessels between consolidated companies in the course of 2016.
Depreciation and amortization expenses. expenses.
The following table sets forth our depreciation and amortization expenses for the years ended December 31, 20152016 and 2014:2015:
(US$ in thousands) | 2015 | | 2014 | | $ Change | | % Change | |
Depreciation and amortization expenses | | | 210,206 | | | | 160,953 | | | | 49,253 | | | | 31 | % |
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2016 |
| 2015 |
| $ Change |
| % Change |
Depreciation and amortization expenses | | 227,763 |
|
| 210,206 |
|
| 17,557 |
|
| 8 | % |
Depreciation and amortization expenses increased by 31%8%, or $49.3$17.6 million, to $210.2$227.8 million for the year ended December 31, 2015,2016, compared to $161.0$210.2 million for the same period in 2014.2015.
Depreciations increased primarily due to (i) the acquisition and delivery of the 2014 Acquisition Fleet (as defined above) during the course of 2014VLCCs Antigone, Alice, Alex and 2015,Anne, resulting in an aggregate increase of $48.2$16.0 million, and (ii) an increase in depreciation of drydock of $5.9 million.$3.3 million and (iii) the acquisition of full ownership of the Suezmaxes Maria and Captain Michael following the Share Swap and Claims Transfer Agreement (see Fleet Development). This increase was partially offset by a decrease in depreciations due to (i) the sale and delivery of the VLCCs VLCC OlympiaFamenne and AntarcticaSuezmax Cap Laurent to their respective new owners on September 8, 2014March 9, 2016 and January 15, 2015, respectively, and (ii) the sale and delivery of the Suezmax Cap Laurent to its new owner on November 26, 2015, respectively, resulting in a combined decrease of $4.1$7.9 million.
Finance Expenses. The following table sets forth our finance expenses for the years ended December 31, 2015 and 2014:
(US$ in thousands) | | 2015 | | | 2014 | | | $ Change | | | % Change | |
Interest expense on financial liabilities measured at amortized cost | | | 38,246 | | | | 57,948 | | | | (19,702 | ) | | | (34 | )% |
Fair value adjustment on interest rate swaps | | | 0 | | | | 0 | | | | 0 | | | | 0 | % |
Other financial charges | | | 8,482 | | | | 35,707 | | | | (27,225 | ) | | | (76 | )% |
Foreign exchange losses | | | 4,214 | | | | 2,315 | | | | 1,899 | | | | 82 | % |
Finance expenses | | | 50,942 | | | | 95,970 | | | | (45,028 | ) | | | (47 | )% |
Finance expenses decreased by 47%, or $45.0 million, to $50.9 million for the year ended December 31, 2015, compared to $96.0 million for the same period in 2014.
Interest expense on financial liabilities measured at amortized cost decreased by 34%, or $19.7 million, during the year ended December 31, 2015, compared to the same period in 2014. This decrease was primarily attributable to (i) the redemption of the Convertible Notes due 2015 (ii) the early repayment of the $235.5 million 7-year bond and (iii) the conversion of the remaining 30 perpetual convertible preferred equity securities, which all took place in the first quarter of 2015, and resulted in a decrease of $20.2 million. This decrease was partially offset with an increase in the interest expenses related to bank loans of $1.8 million.
Other financial charges have decreased by 76%, or $27.2 million, to $8.5 million for the year ended December 31, 2015, compared to $35.7 million for the same period in 2014.
This decrease was primarily due to repayment of the $235.5 million bond, issued to partly finance the acquisition of the 2014 Fleet Acquisition Vessels. As the bond was issued below par and in accordance with IFRS, we amortized $31.9 million during the year ended December 31, 2014 and an additional $4.1 million was amortized in the first quarter of 2015.
Foreign exchange losses increased by 82%, or $1.9 million, due to change in exchange rates between the EUR and the USD.
Share of results of equity accounted investees, net of income tax. The following table sets forth our share of results of equity accounted investees (net of income tax) for the years ended December 31, 2015 and 2014:
(US$ in thousands) | | | 2015 | | | | 2014 | | | | $ Change | | | | % Change | |
Share of results of equity accounted investees | | | 51,592 | | | | 30,286 | | | | 21,306 | | | | 70 | % |
Our share of results of equity accounted investees, which consist of two joint ventures, one of which owns one VLCC and one of which delivered its VLCC at the beginning of 2014 to its new buyers following a sale agreement entered into in 2013, four joint ventures which own one Suezmax each, and two joint ventures which own one FSO each, increased by 70%, or $21.3 million, to $51.6 million for the year ended December 31, 2015, compared to $30.3 million for the same period in 2014.
This increase was primarily due to our participation in our 50%-owned joint ventures, which own four of our Suezmaxes and one VLCC. The result of our participation in our 50%-owned joint ventures has increased by an aggregate amount of $20.5 million due to improved market conditions and better freight rates achieved.
The result of our participation in the 50%-owned joint venture, Great Hope Enterprises Ltd., the former owner of the Ardenne Venture, decreased by $2.3 million due to the sale of the vessel in 2014.
The result of our participations in the 50%-owned joint ventures, TI Asia Ltd. and TI Africa Ltd., the owners of FSO Asia and FSO Africa, respectively, have increased by an aggregate of $3.5 million, mostly due to lower daily operating expenses.
Income tax benefit/(expense). The following table sets forth our income tax benefit/(expense) for the years ended December 31, 2015 and 2014:
(US$ in thousands) | | | 2015 | | | | 2014 | | | | $ Change | | | | % Change | |
Income tax benefit/(expense) | | | (5,633 | ) | | | 5,743 | | | | (11,376 | ) | | | (198 | )% |
Income tax benefit/(expense) increased by 198%, or $11.4 million, to $(5.6) million for the year ended December 31, 2015, compared to $5.7 million for the same period in 2014.
This increase was mainly attributable to the utilization of a deferred tax asset of $5.5 million, which was recognized in 2014.
Year ended December 31, 2014, compared to the year ended December 31, 2013
Total shipping revenues and voyage expenses and commissions.
The following table sets forth our total shipping revenues and voyage expenses and commissions for the years ended December 31, 2014 and 2013:
(US$ in thousands) | | 2014 | | | 2013 | | | $ Change | | | % Change | |
Voyage charter and pool revenues | | | 341,867 | | | | 171,226 | | | | 170,641 | | | | 100 | % |
Time charter revenues | | | 132,118 | | | | 133,396 | | | | (1,278 | ) | | | (1 | )% |
Other income | | | 11,411 | | | | 11,520 | | | | (109 | ) | | | (1 | )% |
Total shipping revenues | | | 485,396 | | | | 316,142 | | | | 169,254 | | | | 54 | % |
Voyage expenses and commissions | | | (118,303 | ) | | | (79,584 | ) | | | (38,719 | ) | | | 49 | % |
Voyage Charter and Pool Revenues. Voyage charter revenues increased by 100%, or $170.6 million, to $341.9 million for the year ended December 31, 2014, compared to $171.2 million for the same period in 2013. This increase was due to (i) an increase in the average TCE rates for VLCCs and Suezmax tankers from $25,785 and $19,284 in 2013, respectively, to $27,189 and $24,491 in 2014, respectively, and (ii) a significant increase of the total number of vessel operating days. The total number of fleet operating days in 2014 increased by 32%, compared to the same period in 2013, mainly due to the expansion of the fleet following the acquisition and delivery of the 2014 Acquisition Fleet. The total contribution of the 2014 Acquisition Fleet accounts for 26.4%, or $90.2 million, of the total voyage charter and pool revenues during the year ended December 31, 2014.
Time Charter Revenues. Time charter revenues decreased by 1%, or $1.3 million, to $132.1 million for the year ended December 31, 2014, compared to $133.4 million for the same period in 2013. This decrease was partly due to the sale of certain time charter-out vessels and partly due to change in employment type of certain of our vessels which have been contracted on time charter-out during the year ended December 31, 2014, compared to spot employment for the same period in 2013. This decrease was partly offset by the market related profit share earned on certain of our time charter-out vessels due to more favorable market conditions.
Other Income. Other income decreased by 1%, or $0.1 million, to $11.4 million for the year ended December 31, 2014, compared to $11.5 million for the same period in 2013.
Other income includes revenues related to the daily standard business operation of the fleet and that are not directly attributable to an individual voyage, such as. insurance rebates received based on changes in our vessels' trading patterns.
Voyage Expenses and Commissions. Voyage expenses and commissions increased by 49%, or $38.7 million, to $118.3 million for the year ended December 31, 2014, compared to $79.6 million for the same period in 2013. This increase was primarily due to additional port and bunker expenses, due to changes in our fleet trading pattern and an increase in the number of vessels operating in the spot market or through the TI Pool. The total contribution of the 2014 Acquisition Fleet accounts for 12.4%, or $14.6 million, of the total voyage expenses and commissions during the year ended December 31, 2014.
Net gain (loss) on lease terminations and net gain (loss) on the sale of assets.
The following table sets forth our gain (loss) on lease terminations and gain (loss) on the sale of assets for the years ended December 31, 2014 and 2013:
(US$ in thousands) | | 2014 | | | 2013 | | | $ Change | | | % Change | |
Net gain (loss) on lease terminations | | | 0 | | | | 0 | | | | 0 | | | | 0 | % |
Net gain (loss) on sale of assets (including impairment on non-current assets held for sale) | | | 5,706 | | | | (207 | ) | | | 5,913 | | | | (2,857 | )% |
Net gain (loss) on lease terminations. We did not terminate any leases during the years ended December 31, 2014 and 2013.
Net gain (loss) on sale of assets (including impairment on non-current assets held for sale). Net (loss) increased by 2,857%, or $5.9 million, to a gain of $5.7 million for the year ended December 31, 2014, compared to a (loss) of $(0.2) million for the same period in 2013. The net gain on sale of assets of $5.7 million in 2014 represents the difference between a capital gain of $6.4 million recorded on the sale of the VLCC Luxembourg, a net loss of $0.2 million on the sale of the VLCC Olympia, an impairment loss of $4.9 million on the sale of the VLCC Antarctica and a net gain of $4.3 million, relating to the profit share on the sale of the Suezmax Cap Isabella.
During the year 2013, we recorded a loss of $0.2 million on the sale of the Cap Isabella in 2013.
Vessel Operating Expenses.
The following table sets forth our vessel operating expenses for the years ended December 31, 2014 and 2013:
(US$ in thousands) | | 2014 | | | 2013 | | | $ Change | | | % Change | |
Total VLCC operating expenses | | | 65,630 | | | | 38,591 | | | | 27,039 | | | | 70 | % |
Total Suezmax operating expenses | | | 58,459 | | | | 67,320 | | | | (8,861 | ) | | | (13 | )% |
Total vessel operating expenses | | | 124,089 | | | | 105,911 | | | | 18,178 | | | | 17 | % |
Total vessel operating expenses increased by 17%, or $18.2 million, to $124.1 million during the year ended December 31, 2014, compared to $105.9 million for the same period in 2013. This increase was primarily due to an increase in the number of vessels operated by us following the delivery of the 2014 Acquisition Fleet.
VLCC operating expenses increased by 70%, or $27.0 million, during the year ended December 31, 2014, compared to the same period 2013. The increase is virtually entirely attributable to the additional vessels acquired under the Maersk transactions and the sale of two VLCC vessels during the year 2013. The contribution of the 2014 Acquisition Fleet in the total VLCC operating expenses amounts to $33.4 million.
Suezmax operating expenses decreased by 13%, or $8.9 million, during the year ended December 31, 2014, compared to the same period 2013. The decrease is mainly due to the fact that three of our Suezmax vessels underwent a periodical technical inspection in drydock, compared to six Suezmax vessels in 2013.
Time charter-in expenses and bareboat charter-hire expenses.
The following table sets forth our chartered-in vessel expenses and bareboat charter-hire expenses for the years ended December 31, 2014 and 2013:
(US$ in thousands) | | 2014 | | | 2013 | | | $ Change | | | % Change | |
Time charter-in expenses | | | 32,080 | | | | 18,029 | | | | 14,051 | | | | 78 | % |
Bareboat charter-hire expenses | | | 3,584 | | | | 3,002 | | | | 582 | | | | 19 | % |
Time charter-in expenses. Time charter-in expenses increased by 78%, or $14.1 million, to $32.1 million during the year ended December 31, 2014, compared to $18.0 million for the same period in 2013. The increase was primarily attributable to the net increase of the number of vessels on time-charter to us.
During the year ended December 31, 2014, we took delivery of 3 time chartered-in VLCCs, the Maersk Hojo on March 24, 2014, the Maersk Hirado on May 3, 2014, and the Maersk Hakone on May 5, 2014 and one time charter-in Suezmax, the Suez Hans on September 15, 2014, which resulted in a combined increase of time charter-in expense for the period of $18.5 million.
This increase was offset by the redelivery of the VLCC Island Splendor to her owners on May 18, 2014, resulting in a total decrease of $1.8 million for the full year 2014, compared to the same period in 2013.
On October 1, 2014, the time chartered-in VLCC KHK Vision was extended for a further 24 months at a reduced hire rate per day, resulting in a decrease of $0.9 million.
During the year ended December 31, 2013, we recorded an amount of $1.7 million relating to its contractual Suezmax vessel sharing agreement, compared to $0 for the same period in 2014.
Bareboat charter-hire expenses. Bareboat charter-hire expenses increased by 19%, or $0.6 million, to $3.6 million for the year ended December 31, 2014, compared to $3.0 million for the same period in 2013. The increase was entirely attributable to the bareboat contract for the Suezmax Cap Isabella, which ended on October 9, 2014.
General and administrative expenses.
The following table sets forth our general and administrative expenses for the years ended December 31, 2014 and 2013:
(US$ in thousands) | | | 2014 | | | | 2013 | | | | $ Change | | | | % Change | |
General and administrative expenses | | | 40,565 | | | | 27,166 | | | | 13,399 | | | | 49 | % |
General and administrative expenses, which include also, amongst others, directors' fees, office rental, consulting fees, audit fees and tonnage tax, increased by 49%, or $13.4 million, to $40.6 million for the year ended December 31, 2014, compared to $27.2 million for the same period in 2013. This increase was primarily due to an increase in staff costs of $6.6 million, of which $3.8 million relating to equity-settled share based payments, and $2.8 million relating to an increase in wages and salaries, as a result of additional staff hired.
Tonnage Tax recorded in the year ended December 31, 2014, increased by $0.8 million, compared to the same period in 2013.
Administrative expenses relating to TI Pool increased by $2.7 million due to the increased number of our VLCCs operated in the TI Pool as a result of the acquisition of the 2014 Acquisition Fleet.
The remaining general corporate overhead expenses, including professional fees, rent, travel, and information technology expenses, increased by $3.3 million during the year ended December 31, 2014, compared to the same period in 2013.
Depreciation and amortization expenses.
The following table sets forth our depreciation and amortization expenses for the years ended December 31, 2014 and 2013:
(US$ in thousands) | | | 2014 | | | | 2013 | | | | $ Change | | | | % Change | |
Depreciation and amortization expenses | | | 160,954 | | | | 136,957 | | | | 23,997 | | | | 18 | % |
Depreciation and amortization expenses increased by 18%, or $24.0 million, to $161.0 million for the year ended December 31, 2014, compared to $137.0 million for the same period in 2013.
This increase was partly attributable to (i) the sale of the VLCC Luxembourg on January 15, 2014, which was delivered to her new owners on May 28, 2014, resulting in a decrease of $4.3 million, and (ii) the sale of the VLCCs Olympia and Antarctica on April 15, 2014, resulting in a combined decrease of $8.9 million. The Olympia was delivered to its new owner on September 8, 2014 and the Antarctica was delivered to its new owner on January 15, 2015.
These decreases were more than offset by (i) the acquisition and delivery of 17 VLCCs in the 2014 Acquisition Fleet in the course of 2014, resulting in an aggregate increase of $33.3 million, and (ii) an increase in depreciation of drydock of $3.9 million.
Finance Expenses.Expenses.
The following table sets forth our finance expenses for the years ended December 31, 20142016 and 2013:2015:
(US$ in thousands) | | 2014 | | | 2013 | | | $ Change | | | % Change | |
Interest expense on financial liabilities measured at amortized cost | | | 57,948 | | | | 49,240 | | | | 8,708 | | | | 18 | % |
Fair value adjustment on interest rate swaps | | | 0 | | | | (154 | ) | | | 154 | | | | (100 | )% |
Other financial charges | | | 35,707 | | | | 2,809 | | | | 32,898 | | | | 1,171 | % |
Foreign exchange losses | | | 2,315 | | | | 2,742 | | | | (427 | ) | | | (16 | )% |
Finance expenses | | | 95,970 | | | | 54,637 | | | | 41,333 | | | | 76 | % |
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2016 |
| 2015 |
| $ Change |
| % Change |
Interest expense on financial liabilities measured at amortized cost | | 39,007 |
|
| 38,246 |
|
| 761 |
|
| 2 | % |
Other financial charges | | 4,577 |
|
| 8,482 |
|
| (3,905 | ) |
| (46 | )% |
Foreign exchange losses | | 8,111 |
|
| 4,214 |
|
| 3,897 |
|
| 92 | % |
Finance expenses | | 51,695 |
|
| 50,942 |
|
| 753 |
|
| 1 | % |
Finance expenses increased by 76%1%, or $41.3$0.8 million, to $96.0$51.7 million for the year ended December 31, 2014,2016, compared to $54.6$50.9 million for the same period in 2013.2015.
Interest Expense.
Interest expense on financial liabilities measured at amortized cost increased by 18%2%, or $8.7$0.8 million, during the year ended December 31, 2014,2016, compared to the same period in 2013.2015. This increase was primarily attributable to the resultincrease of an additionalfloating interest expense of $11.6 million related to our perpetual convertible preferred equity securitiesrates in 2014 and $1.4 million on bank loans. This increase was partially2016, offset by a decrease in interest rate swaps expenses relatedaverage outstanding debt during the year ended December 31, 2016, compared to our $300 million Senior Secured Credit Facility which matured at the beginning of April 2014, resultingsame period in a decrease of $4.3 million for the period.
Other financial Charges.2015. Other financial charges have increaseddecreased by 1,171%(46)%, or $32.9$ (3.9) million, to $35.7$4.6 million for the year ended December 31, 2014,2016, compared to $2.8$8.5 million for the same period in 2013.
We issued2015. This decrease was primarily attributable to the repayment of the $235.5 million bond, issued to partly finance the acquisition of the 2014 FleetMaersk Acquisition Vessels.Vessels, in the first quarter of 2015. As the bond was issued below par and in accordance with IFRS, we amortized $31.9 million during the year ended December 31, 2014 and a further $4.1 million was amortized in the first quarter of 2015.
Foreign Exchange Losses.Foreign exchange losses decreasedincreased by 16%92%, or $0.4$3.9 million, due to favorablechange in exchange rates between the EUR and the USD.
Share of results of equity accounted investees, net of income tax.tax.
The following table sets forth our share of results of equity accounted investees (net of income tax) for the years ended December 31, 20142016 and 2013:2015:
(US$ in thousands) | | | 2014 | | | | 2013 | | | | $ Change | | | | % Change | |
Share of results of equity accounted investees | | | 30,286 | | | | 17,853 | | | | 12,433 | | | | 70 | % |
Our share of results of |
| | | | | | | | | | | | |
(US$ in thousands) | | 2016 |
| 2015 |
| $ Change |
| % Change |
Share of results of equity accounted investees | | 40,495 |
|
| 51,592 |
|
| (11,097 | ) |
| (22 | )% |
As at December 31, 2015, our equity accounted investees included one joint venture which consist of two joint ventures, one of which ownsowned one VLCC, and one of which delivered its VLCC at the beginning of 2014 to its new buyers following a sale agreement dated in 2013, four joint ventures which ownowned one Suezmax each, and two joint ventures which ownowned one FSO each,each.
On June 2, 2016, we entered into a Share Swap and Claims Transfer Agreement whereby (i) we transferred our 50% equity interest in Moneghetti and Fontvieille, and, as consideration therefor, acquired from Bretta its 50% ownership interest in Fiorano and Larvotto; and (ii) we transferred our claims arising from the shareholder loans to Moneghetti and Fontvieille and acquired Bretta's claims arising from the shareholder loans to Fiorano and Larvotto. As a result, our equity interest in both Fiorano and Larvotto increased from 50% to 100% giving us control of both companies. We no longer have an equity interest in Moneghetti and Fontvieille. Before the swap agreement, we accounted for the four entities using the equity method. Following the acquisition, Fiorano and Larvotto are fully consolidated as of June 2, 2016. These transactions led to a decrease in the share of results of equity accounted investees by 70%, or $12.4$10.6 million compared to $30.3 million2015.
On November 23, 2016, we took delivery of the VLCC V.K. Eddie that we purchased from our 50% joint venture Seven Seas. Our share of the profit of this joint venture for the year ended December 31, 2014, compared to $17.92016 was $2.2 million for the same period in 2013.
This increase was primarily due to our participation in our 50%-owned joint ventures, which own four of our Suezmaxes and one VLCC. The result of our participation in our 50%-owned joint ventures has been positively affected by an aggregate of $8.2 million, due to improved market conditions and better freight rates achieved.
The result of our participationlower than in the 50%-owned joint venture, Great Hope Enterprises Ltd., the former owner of the Ardenne Ventureyear ended December 31, 2015., was positively affected by $2.8 million, mainly due to a capital gain on the sale of the vessel.
The result of our participations in the 50%-owned joint ventures, TI Asia Ltd. and TI Africa Ltd., the owners of FSO Asia and FSO Africa, respectively, have been positively affectedincreased by an aggregate of $1.2$1.4 million, mostly due to lower daily operating expenses.
Income tax benefit/(expense).
The following table sets forth our income tax benefit/(expense) for the years ended December 31, 20142016 and 2013:2015:
(US$ in thousands) | | | 2014 | | | | 2013 | | | | $ Change | | | | % Change | |
Income tax benefit/(expense) | | | 5,743 | | | | (178 | ) | | | 5,921 | | | | (3,326 | )% |
|
| | | | | | | | | | | | |
(US$ in thousands) | | 2016 |
| 2015 |
| $ Change |
| % Change |
Income tax benefit (expense) | | 174 |
|
| (5,633 | ) |
| 5,807 |
|
| (103 | )% |
Income tax benefit/(expense) increaseddecreased by 3,326%103%, or $5.9$5.8 million, to $5.7a benefit of $0.2 million for the year ended December 31, 2014,2016, compared to $(0.2)an expense of $5.6 million for the same period in 2013.
This increase2015, which was mainly relatedattributable to the recognition of $5.5 million of deferred taxes on unusedfact that two Belgian subsidiaries applied the tonnage tax lossesregime as from January 1, 2016.
B. Liquidity and credits carried forward in 2014.
B. | Liquidity and Capital Resources |
capital resourcesWe operate in a capital intensive industry and have historically financed our purchase of tankers and other capital expenditures through a combination of cash generated from operations, equity capital, borrowings from commercial banks and the occasional issuance of convertible or other unsecured notes. Our ability to generate adequate cash flows on a short- and medium-term basis depends substantially on the trading performance of our vessels. Historically, market rates for charters of our vessels have been volatile. Periodic adjustments to the supply of and demand for oil tankers cause the industry to be cyclical in nature. We expect continued volatility in market rates for our vessels in the foreseeable future with a consequent effect on our short- and medium-term liquidity.
Our funding and treasury activities are conducted within corporate policies to maximize investment returns while maintaining appropriate liquidity for our requirements. Cash and cash equivalents are held primarily in U.S. dollars with some balances held in British Pounds, Euros, and other currencies we may hold for limited amounts.
As of December 31, 20152017 and December 31, 2014,2016, we had $131.7$143.6 million and $254.1$206.7 million in cash and cash equivalents, respectively.
Our short-term liquidity requirements relate to payment of operating costs (including certain repairs performed in drydock), lease payments for our chartered-in fleet, funding working capital requirements, maintaining cash reserves against fluctuations in operating cash flows as well as maintaining some cash balances on accounts pledgespledged under borrowings from commercial banks.
Sources of short-term liquidity include cash balances, restricted cash balances, syndicated credit lines, short-term investments and receipts from our customers. Revenues from time charters and bareboat charters are generally received monthly in advance. Revenues from FSO service contracts are received monthly in arrears while revenues from voyage charters are received upon completion of the voyage. As of December 31, 20152017 and December 31, 2014,2016, we had $60.0$ 60.0 million and €10.0$ 60.0 million in available syndicated credit lines, respectively.
Our medium- and long-term liquidity requirements include funding the equity portion of investments in new or replacement vessels and funding all the payments we are required to make under our loan agreements with commercial banks. Sources of funding for our medium- and long-term liquidity requirements include new loans, refinancing of existing arrangements, drawdown under committed secured revolving credit facilities, issuance of new notes or refinancing of existing ones via public and private debt offerings, equity issues, vessel sales and sale and leaseback arrangements. As of December 31, 20152017 and December 31, 2014,2016, we had $231.1$ 547.4 million and $0.0$ 295.8 million in available committed secured revolving credit facilities, respectively.
Net cash from (used in) operating activities during the year ended December 31, 20152017 was $450.5$211.3 million, compared to $14.8$438.2 million during the year ended December 31, 2014.2016. Our partial reliance on the spot market contributes to fluctuations in cash flows from operating activities as a result of its exposure to highly cyclical tanker rates. Any increase or decrease in the average TCE rates earned by our vessels in periods subsequent to December 31, 2015,2017 will have a positive or negative comparative impact, respectively, on the amount of cash provided by operating activities.
We believe that our working capital resources are sufficient to meet our requirements for the next 12 months from the date of this annual report.
As of December 31, 20152017 and December 31, 2014,2016, our total indebtedness was $1,135.0$964.6 million and $1,623.7$1,159.0 million respectively.
We expect to finance our funding requirements with cash on hand, operating cash flow and bank debt or other types of debt financing. In the event that our cash flow from operations does not enable us to satisfy our short-term or medium- to long-term liquidity requirements, we will also have to consider alternatives, such as raising equity, or new convertible notes, which could dilute shareholders, or selling assets (including investments), which could negatively impact our financial results, depending on market conditions at the time, establish new loans or refinancing of existing arrangements.
Equity Issuances
During the period from November 12, 2013 through April 22, 2014, we issued an aggregate of 20,969,473 existing ordinary shares upon conversion at the holders' option of $124,900,000 in aggregate principal amount of 1,249 Convertible Notes due 2018. On April 9, 2014, we exercised our right to redeem all such Convertible Notes due 2018 outstanding as of April 2, 2014.
On January 10, 2014, we received gross proceeds of $50.0 million upon the issuance of 5,473,571 of our ordinary shares in an equity offering at €6.70 per share (based on the USD/EUR exchange rate applied by the European Central Bank of EUR 1.00 per $1.3634 in effect on January 6, 2014). The proceeds of the offering were used to partially finance the purchase price of the 2014 Fleet Acquisition Vessels.
On February 24, 2014, we received gross proceeds of $300.0 million upon the issuance of 32,841,528 of our ordinary shares in an equity offering at €6.70 per share (based on the USD/EUR exchange rate applied by the European Central Bank of EUR 1.00 per $1.3634 in effect on January 6, 2014). The proceeds of the offering were used to partially finance the purchase price of the 2014 Fleet Acquisition Vessels.
On July 14, 2014, we received gross proceeds of $125.0 million upon the issuance of 10,556,808 of our ordinary shares in an underwritten private offering in Belgium mainly to a group of qualified investors at €8.70 per share (or $11.84 per share based on the USD/EUR exchange rate of EUR 1.00 per $1.3610). The proceeds of the offering were used to partially finance the purchase price of the four VLCC Acquisition Vessels.
In January 2015, we completed our underwritten initial public offering in the United States of 18,699,000 ordinary shares at $12.25 per share, for gross proceeds of $229.1 million.
Equity Issuances related to our Perpetual Convertible Preferred Equity Securities
On January 13, 2014, we issued 60 perpetual convertible preferred equity securities for net proceeds of $150.0 million, which were convertible into ordinary shares of us, at the holders' option. The perpetual convertible preferred equity securities bore interest at 6%, which was payable annually in arrears in cash or in shares at our option. On February 6, 2014, we issued 9,459,286 ordinary shares upon the conversion of 30 perpetual convertible preferred equity securities, representing a face value of $75.0 million, and on February 6, 2015, we issued 9,459,283 ordinary shares upon our exercise of our right to force the conversion of the remaining 30 perpetual convertible preferred equity securities, representing a face value of $75.0 million. As of December 31, 2015, there were no Perpetual Convertible Preferred Equity Securities outstanding.
Our Borrowing Activities
| | Amounts Outstanding as of | |
(U.S.$ in thousands) | | December 31, 2015 | | | December 31, 2014 | |
Euronav NV Credit Facilities | | | | | | |
$750.0 Million Senior Secured Credit Facility (2011) | | $ | — | | | $ | 483,409 | |
$65.0 Million Secured Loan Facility | | $ | — | | | $ | 54,250 | |
$500.0 Million Senior Secured Credit Facility | | $ | 428,000 | | | $ | 476,000 | |
$340.0 Million Senior Secured Credit Facility | | $ | 175,476 | | | $ | 235,217 | |
$750.0 Million Senior Secured Credit Facility (2015) | | $ | 467,500 | | | $ | — | |
| | | | | | | | |
Credit Line Facilities | | | | | | | | |
Credit lines | | $ | — | | | $ | — | |
| | | | | | | | |
Bonds | | | | | | | | |
$150.0 Million Convertible Notes due 2015 | | $ | — | | | $ | 25,000 | |
$125.0 Million Convertible Notes due 2018 | | $ | — | | | $ | — | |
$235.5 Million Notes due 2021 | | $ | — | | | $ | 235,500 | |
| | | | | | | | |
Total interest bearing debt | | $ | 1,070,976 | | | $ | 1,509,376 | |
Joint Venture Credit Facilities (at 50% economic interest) | | | | | | | | |
$43.0 Million Secured Loan Facility (Great Hope Enterprises) | | $ | — | | | $ | — | |
$52.0 Million Secured Loan Facility (Seven Seas) | | $ | — | | | $ | 5,417 | |
$135.0 Million Secured Loan Facility (Fontveille and Monghetti) | | $ | 41,110 | | | $ | 45,110 | |
$76.0 Million Secured Loan Facility (Fiorano) | | $ | 16,031 | | | $ | 18,156 | |
$67.5 Million Secured Loan Facility (Larvotto) | | $ | 16,556 | | | $ | 18,541 | |
$500.0 Million Secured Loan Facility (TI Asia and TI Africa) | | $ | 52,100 | | | $ | 72,698 | |
| | | | | | | | |
Total interest bearing debt—joint ventures | | $ | 125,797 | | | $ | 159,922 | |
|
| | | | | | |
| | Amounts Outstanding as of |
(US$ in thousands) | | December 31, 2017 | | December 31, 2016 |
Euronav NV Credit Facilities | | | | |
$500.0 Million Senior Secured Credit Facility |
| — |
|
| — |
|
$340.0 Million Senior Secured Credit Facility |
| 111,666 |
|
| 207,271 |
|
$750.0 Million Senior Secured Credit Facility |
| 330,000 |
|
| 612,050 |
|
$409.5 Million Senior Secured Credit Facility |
| 118,000 |
|
| 222,036 |
|
$67.5 Million Secured Loan Facility (Larvotto) |
| 25,173 |
|
| 29,143 |
|
$76.0 Million Secured Loan Facility (Fiorano) |
| 23,563 |
|
| 27,813 |
|
$108.5 Million Secured Loan Facility | | 104,932 |
| | — |
|
| | | | |
Credit Line Facilities | | | | |
Credit lines |
| — |
|
| — |
|
| | | | |
Senior unsecured bond | | | | |
Senior unsecured bond | | 150,000 |
| | — |
|
| | | | |
Treasury notes program | | | | |
Treasury notes program | | 50,010 |
| | — |
|
| | | | |
Total interest bearing debt | | 913,344 |
| | 1,098,313 |
|
| | | | |
Joint Venture Credit Facilities (at 50% economic interest) | | |
| | |
|
$500.0 Million Secured Loan Facility (TI Asia and TI Africa) |
| — |
|
| 37,671 |
|
| | | | |
Total interest bearing debt - joint ventures | | — |
| | 37,671 |
|
Euronav NV Credit Facilities
$750.0 Million Senior Secured Credit Facility (2011)
On June 22, 2011, we entered into a $750.0 million secured loan facility with a syndicate of banks and Nordea Bank Norge SA, as Agent and Security Trustee. This facility was comprised of a $500.0 million term loan facility and a $250.0 million revolving credit facility, and had a term of six years. We used the proceeds of this facility to refinance all remaining indebtedness under our $1,600 million loan agreement and for general corporate and working capital purposes. This facility was secured by 22 of our wholly-owned vessels. The term loan was repayable in 11 installments of consecutive 6-month intervals, with the final repayment due at maturity in 2017. Each revolving advance was repayable in full on the last day of its applicable interest period. This facility, as amended, bore interest at LIBOR plus a margin of 3.0% per annum plus applicable mandatory costs. Following the sale of the Algarve in October 2012, we prepaid $18.6 million of the term loan, and the revolving loan facility was reduced by $10.2 million. As of December 31, 2014, the outstanding balance on this facility was $483.4 million. On September 1, 2015, we repaid this facility in full using a portion of the borrowings under our new $750.0 Senior Secured Credit Facility (2015).
$65.0 Million Secured Loan Facility
On December 23, 2011, we entered into a $65.0 million secured term loan facility with DNB Bank ASA and Skandinaviska Enskilda Banken AB (publ) to finance the acquisition of Alsace, which was mortgaged under the loan. This facility was repayable over a term of seven years in ten installments at successive six month intervals, each in the amount of $2.15 million together with a balloon installment of $43.5 million payable with (and forming part of) the tenth and final repayment installment on February 23, 2017, assuming the full amount was drawn. The interest rate was LIBOR plus a margin of 2.95% per annum plus applicable mandatory costs. As of December 31, 2014 the outstanding balance on this facility was $54.3 million. On September 1, 2015, we repaid this facility in full using a portion of the borrowings under our new $750.0 Senior Secured Credit Facility (2015).
$500.0 Million Senior Secured Credit Facility
On March 25, 2014, we entered into a $500.0 million senior secured credit facility with DNB Bank ASA, Nordea Bank Norge ASA, and Skandinaviska Enskilda Banken AB (publ). This facility bears interest at LIBOR plus a margin of 2.75% per annum and is repayable over a term of six years with maturity in 2020 and is secured by the 2014 Fleet Acquisition Vessels. The proceeds of the facility were drawn and used to partially finance the purchase price of the 2014 Fleet Acquisition Vessels. As of15 VLCCs which we acquired from Maersk Tankers in 2014. On December 31, 2015 and December 31, 2014, the outstanding balances on21, 2016, we repaid this facility was $428.0in full using a portion of the borrowings under our new $409.5 million and $476.0 million, respectively.Senior Secured Credit Facility.
$340.0 Million Senior Secured Credit Facility
On October 13, 2014, we entered into a $340.0 million senior secured credit facility with a syndicate of banks and ING Bank N.V., as Agent and Security Trustee. Borrowings under this facility have been or are expected to be, used to partially finance our acquisition of the VLCC Acquisition Vessels and to repay $153.1 million of outstanding debt and retire our $300.0 million Secured Loan Facility dated April 3, 2009. This facility is comprised of (i) a $148.0 million non-amortizing revolving credit facility and (ii) a $192.0 million term loan facility. This facility has a term of 7 years and bears interest at LIBOR plus a margin of 2.25% per annum. This credit facility is or will be, secured by eight of our wholly-owned vessels, the Fraternity,, Felicity,, Cap Felix, Cap Theodora and upon their respective deliveries, the VLCC Acquisition Vessels. As of December 31, 2015,2017 and December 31, 20142016 the outstanding balancesbalance on this facility was $175.5$111.7 million and $235.2$207.3 million, respectively.
$750.0 Million Senior Secured Credit Facility (2015)
On August 19, 2015, we entered into a $750.0 million secured loan facility with a syndicate of banks and Nordea Bank Norge SA, as Agent and Security Agent. This facility is comprised of a $500.0 million revolving credit facility, a $250.0 million revolving acquisition facility, and an uncommitted $250.0 million upsize facility. We used the proceeds of this facility to refinance all remaining indebtedness under our $750.0 million senior secured credit facility (2011) and our $65.0 million secured credit facility and for the acquisition of the Metrostar Acquisition Vessels in June 2015. This facility is or will be, secured by 2524 of our wholly-owned vessels, including one newbuilding VLCC under construction.vessels. The revolving credit facility is reduced in 13 installments of consecutive six-month interval. The revolving acquisition facility is reduced in 13 installments of consecutive six-month interval and a final $154.0 million repayment is due at maturity in 2022. This facility bears interest at LIBOR plus a margin of 1.95% per annum plus applicable mandatory costs. Following the sale of the Cap Laurentin November 2015, the total revolving credit facility was reduced by $11.5 million. Following the sale of the Famenne in January 2016, the total revolving credit facility was reduced by $21.3 million. Following the sale of the VLCC TI Topaz in June 2017, the total revolving credit facility was reduced by $19.5 million. Following the sale of the Suezmax Cap Georges in November 2017, the total revolving credit facility was reduced by $7.5 million. Following the sale of the VLCC Artois and Flandre in December 2017, the total revolving credit facility was reduced by $35.5 million. As of December 31, 20152017 and December 31, 2016 the outstanding balance on this facility was $467.5 million.
Joint Venture Credit Facilities (at 50% economic interest)$330.0 million and $612.1 million, respectively.
$52.0409.5 Million Senior Secured LoanCredit Facility (Seven Seas)
On May 6, 2005, one of our 50%-owned joint ventures, Seven Seas Shipping Limited,December 16, 2016, we entered into a $52.0$409.5 million loansenior secured amortizing revolving credit facility with Chiao Tunga syndicate of banks and Nordea Bank Norge SA, as Agent and Security Agent. We used the proceeds of this facility to partially finance the constructionrefinance all remaining indebtedness under our $500.0 Million Senior Secured Credit Facility. This facility is secured by 11 of the V.K. Eddie.our wholly-owned vessels. The revolving credit facility is reduced in 12 installments of consecutive six-month interval and a final $129.2 million repayment is due at maturity in 2023. This loan has a term of 12 years with a maturity of May 2017 and no balloon andfacility bears interest at LIBOR plus a margin of 0.80%2.25% per annum.annum plus applicable mandatory costs. As of December 31, 20142017 and December 31, 2016, the outstanding balance on this facility was $10.8 million, of which we had a 50% economic interest of $5.4 million. On November 6, 2015, we repaid this facility in full.
$135.0 Million Secured Loan Facility (Fontvielle and Moneghetti)
On April 23, 2008, two of our 50%-owned joint ventures, Fontvielle Shipholding Limited and Moneghetti Shipholding Limited, entered into a $135.0 million secured term loan facility with BNP Paribas (Suisse) SA and Alpha Bank A.E. to finance our acquisition of Eugenie and Devon. This facility, as amended, is comprised of two tranches; the Fontvielle Tranche of up to $55.5$118.0 million and the Moneghetti Tranche in the amount of $67.5 million. This facility is repayable in quarterly installments over a term of 10 years with a balloon of $43.2 million. This loan bears interest at LIBOR plus a margin of 2.75% per annum. As of December 31, 2015 and December 31, 2014, the outstanding balances on this facility were $82.2$222.0 million, and $90.2 million, respectively, of which we had a 50% economic interest of $41.1 million and $45.1 million, respectively.
$76.0 Million Secured Loan Facility (Fiorano)
On October 23, 2008, one of our 50%-owned joint ventures, Fiorano Shipholding Limited, entered into a $76.0 million loan facility with Scotiabank Ireland Ltd. to partially finance the acquisition of the Capt. Michael. This loan has a term of eight years with a balloon of $14.0 million due at maturity. This loan bears interest at LIBOR plus a margin of 1.225% per annum. As of December 31, 2015 and December 31, 2014, the outstanding balances on this facility were $32.0 million and $36.3 million, respectively, of which we had a 50% economic interest of $16.0 million and $18.2 million, respectively.
$67.5 Million Secured Loan Facility (Larvotto)
On August 29, 2008, one of our previously 50%-owned joint ventures, Larvotto Shipholding Limited, entered into a $67.5 million loan facility, as supplemented by a supplemental letter dated November 28, 2011, with Fortis Bank S.A./N.V. to partially finance the acquisition of the Maria. This loan has a term of eight years starting after the delivery of the vessel (January 2012) with a balloon payment of $16.2 million due at maturity. This loan bears interest at LIBOR plus a margin of 1.5% per annum. As of December 31, 2015, and December 31, 2014, the outstanding balancesbalance on this facility werewas $33.1 million and $37.1 million, respectively, of which we had a 50% economic interest of $16.5 million. After the Share Swap and Claims Transfer Agreement (see Fleet Development), we acquired the full economic interest in this loan facility, and as of December 31, 2017 and December 31, 2016, the outstanding balance on this facility was $25.2 million and $18.5$29.1 million, respectively.
$76.0 Million Secured Loan Facility (Fiorano)
On October 23, 2008, one of our previously 50%-owned joint ventures, Fiorano Shipholding Limited, entered into a $76.0 million loan facility with Scotiabank Ireland Ltd. to partially finance the acquisition of the Capt. Michael. This loan had an original term of eight years and was extended in January 2017 bringing the final maturity date to January 31, 2020, with a final balloon payment of $14.0 million. This loan bears interest at LIBOR plus a margin of 1.95% per annum. As of December 31, 2015 the outstanding balance on this facility was $32.0 million, of which we had a 50% economic interest of $16.0 million. After the Share Swap and Claims Transfer Agreement (see Fleet Development), we acquired the full economic interest in this loan facility, and as of December 31, 2017 and December 31, 2016 the outstanding balance on this facility was $23.6 million and $27.8 million, respectively.
$108.5 Million Senior Secured Credit Facility
On April 25, 2017, we entered into a $108.5 million revolving credit facility with DNB Bank ASA, as Agent and Security Trustee. This facility is comprised of (i) a term loan of $27.1 million from a syndicate of commercial lenders which we refer to as the “commercial tranche” and (ii) a term loan of $81.4 million insured by the Korea Trade Insurance Corporation, which we refer to as “K-sure tranche”. We used the proceeds of this facility to finance our acquisition of the VLCC newbuildings Ardeche and Aquitaine, which were delivered to us on January 12, 2017 and January 20, 2017, respectively, and which serve as security under this facility. The commercial tranche bears interest at LIBOR plus a margin of 1.95% per annum plus applicable mandatory costs and is reduced in 24 installments of consecutive six-month interval and a final $21.7 million repayment is due at maturity in 2029. The K-sure tranche bears interest at LIBOR plus a margin of 1.50% per annum plus applicable mandatory costs and is reduced in 24 installments of consecutive six-month interval until maturity in 2029. As of December 31, 2017, the outstanding balance on this facility was $104.9 million in aggregate.
The facility agreement contains a provision that entitles the lenders to require us to prepay to the lenders, on January 12, 2024, with 180 days’ notice, their respective portion of any advances granted to us under the facility. The facility agreement also contains provisions that allow the remaining lenders to assume an outgoing lender’s respective portion(s) of the advances made to us or to allow us to suggest a replacement lender to assume the respective portion of such advances.
$150.0 Million Senior Unsecured Note
On May 31, 2017, we completed an issuance of $150.0 million of senior unsecured bonds with a fixed coupon of 7.50% and maturity in May 2022. Euronav NV serves as guarantor of the bonds. The net proceeds from the bond issuance are being used for general corporate purposes. DNB Markets, Nordea and Arctic Securities AS acted as joint lead managers in connection with the placement of the bonds. The related transaction costs for a total of $2.7 million are amortized over the lifetime of the bonds using the effective interest rate method. The bonds were listed on the Oslo Stock Exchange on October 23, 2017.
€50.0 Million Treasury Notes Program
On June 6, 2017, we entered into an agreement, or the Dealer Agreement, with BNP Paribas Fortis SA/NV to act as arranger and dealer for a Belgian Multi-currency Short-Term Treasury Notes Program with a maximum outstanding amount of €50.0 million. Pursuant to the terms of the Dealer Agreement, we may issue the treasury notes to the dealer from time to time upon such terms and such prices as we and the dealer agree. As of December 31, 2017 the outstanding balance under this program was €41.7 million or $50.0 million.
Joint Venture Credit Facilities (at 50% economic interest)
$500.0 Million Secured Loan Facility (TI Asia and TI Africa)
On October 3, 2008, two of our 50%-owned joint ventures, TI Asia Ltd. and TI Africa Ltd., entered into a $500.0 million senior secured credit facility with a group of commercial lenders with ING Bank N.V. as Agent and Security Trustee. WeThe joint ventures used the proceeds of this facility to finance the acquisition of two ULCC vessels, TI Asia and TI Africa, and to convert these vessels to FSOs, which serve as collateral under this facility. This facility consists of two tranches; the FSO Asia tranche matures in 2017 and bears interest at LIBOR plus a margin of 1.15% per annum, and the FSO Africa tranche, following the restructuring of this tranche, matured in 2015 and bore interest at LIBOR plus a margin of 2.75% per annum. As of December 31, 2015 and December 31, 2014,2016, the outstanding balancesbalance on this facility were $104.2was $75.4 million, and $145.4 million, respectively, of which we had a 50% economic interest of $52.1 million and $72.7 million, respectively.
All of the joint venture loans described above are secured by a mortgage of the specific vessel and guaranteed by the respective shareholders of each joint venture$37.7 million. The facility was repaid in full on a several basis.
Bond Issuances
Convertible Notes due 2015 and 2018
On September 24, 2009, we issued $150 million of fixed-rate senior unsecured convertible notes due January 31, 2015, which we refer to as the "Convertible Notes due 2015." These notes were issued at 100% of their principal amount and bore interest at a rate of 6.50% per annum, payable semi-annually in arrears, and were convertible between November 4, 2009 and January 24, 2015 into our ordinary shares at the conversion price applicable at such conversion date and in accordance with the conditions set out in a related trust deed. The initial conversion price was EUR 16.28375 (or $23.16852 at EUR/US$ exchange rate of 1.4228) per share and was set at a premium of 25% to the volume weighted average price of our ordinary shares on Euronext Brussels on September 3, 2009. Unless previously redeemed, converted or purchased and cancelled, the Convertible Notes due 2015 were redeemed in cash on January 31, 2015 at 100% of their principal amount. The Notes were added to the official list of the Luxembourg Stock Exchange and were traded on the Luxembourg Stock Exchange's Euro MTF Market. During the first quarter of 2012, we repurchased 68 Convertible Notes due 2015, which we subsequently exchanged for Convertible Notes due 2018 (as defined below). The face value of each note was $100,000 and we paid an average of $78,441. Further, in the second quarter of 2013, we repurchased an additional 5 Convertible Notes due 2015 for an average price of $92,000. In February 2014, we repurchased an additional $1.3 million of the Convertible Notes due 2015, taking the total number of notes held by us to 18. On January 31, 2015, the 250 remaining Convertible Notes due 2015 with a face value of $100,000 each, were fully redeemed at par. As a result, after January 31, 2015, no Convertible Notes due 2015 were outstanding.
On February 20, 2013, we completed our offer to exchange all of the Convertible Notes due 2015 for $150.0 million in aggregate principal amount of 6.50% convertible notes due 2018, which we refer to as the Convertible Notes due 2018. The Convertible Notes due 2018 had an extended maturity profile and an initial conversion price of EUR 5.65. The Convertible Notes due 2018 also had a feature to compensate the noteholders for the forgiven interest in the event they are converted to ordinary shares during the first four years. The exchange offer resulted in $125.0 million of notes (face value) being exchanged for new notes, including the 68 notes acquired by us in 2012, which we subsequently resold in the third quarter in 2013.
During the period from November 12, 2013 through April 22, 2014, we issued an aggregate of 20,969,473 existing ordinary shares upon conversion of $124,900,000 in aggregate principal amount of 1,249 Convertible Notes due 2018 at the holders' option. On February 20, 2014, we exercised our right to redeem all of the remaining Convertible Notes due in 2018 and on April 9, 2014, redeemed the last convertible note due 2018 outstanding as of April 2, 2014 for an aggregate of $101,227.78. At that time, $4.9 million, or less than 10%, in principal amount of the Convertible Notes due 2018 originally issued remained outstanding. Each outstanding note was redeemed on April 9, 2014 at $101,227.78, which is the principal amount of a note ($100,000) plus accrued but unpaid interest from January 31, 2014 to (but excluding) April 9, 2014. As a result, after April 9, 2014, no Convertible Notes due in 2018 were outstanding.
$235.5 Million Unsecured Bond
On February 4, 2014, we issued $235.5 million in aggregate principal amount of 7-year redeemable unsecured bonds. The bonds were issued at 85% of their principal amount (original issue discount) and bore interest at a rate of 5.95% per annum for the first year, payable semi-annually in arrears, which would increase to 8.50% per annum for the second and third years and would further increase to 10.20% per annum from year four until maturity in 2021. We may redeem the bonds at any time at par. The proceeds of the bonds were used to partially finance the purchase price of the 2014 Fleet Acquisition Vessels. On February 19, 2015, we repaid the aggregate amount outstanding under the bonds.July 13, 2017.
Security
Our secured indebtedness is generally secured by:
| · | a first priority mortgage in all collateral vessels; |
| · | a parent guarantee;a general pledge of earnings generated by the vessels under mortgage for the specific facility; and |
| · | a general pledge of earnings generated by the vessels under mortgage for the specific facility. |
a parent guarantee when the indebtedness is not taken at the level of the parent.Loan Covenants
Our debt agreements discussed above generally contain financial covenants, which require us to maintain, among other things:
| · | an amount of current assets that, on a consolidated basis, exceeds our current liabilities. Current assets may include undrawn amount of any committed revolving credit facilities and credit lines having a maturity of more than one year; |
| · | an aggregate amount of cash, cash equivalents and available aggregate undrawn amounts of any committed loan of at least $50.0 million or 5% of our total indebtedness (excluding guarantees), depending on the applicable loan facility, whichever is greater; |
| · | an aggregate cash balance of at least $30.0 million; and |
| · | a ratio of stockholders' equity to total assets of at least 30%. |
Our credit facilities discussed above also contain restrictions and undertakings which may limit our and our subsidiaries' ability to, among other things:
| · | effect changes in management of our vessels; |
| · | transfer or sell or otherwise dispose of all or a substantial portion of our assets; |
effect changes in management of our vessels; | · | declare and pay dividends, (with respect to each of our joint ventures, other than Seven Seas Shipping Limited, no dividend may be distributed before its loan agreement, as applicable, is repaid in full); and |
transfer or sell or otherwise dispose of all or a substantial portion of our assets; | · | declare and pay dividends, (with respect to each of our joint ventures, other than Seven Seas Shipping Limited, no dividend may be distributed before its loan agreement, as applicable, is repaid in full); and incur additional indebtedness. |
A violation of any of our financial covenants or operating restrictions contained in our credit facilities may constitute an event of default under our credit facilities, which, unless cured within the grace period set forth under the applicable credit facility, if applicable, or waived or modified by our lenders, provides our lenders with the right to, among other things, require us to post additional collateral, enhance our equity and liquidity, increase our interest payments, pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, reclassify our indebtedness as current liabilities and accelerate our indebtedness and foreclose their liens on our vessels and the other assets securing the credit facilities, which would impair our ability to continue to conduct our business.
Furthermore, certain of our credit facilities contain a cross-default provision that may be triggered by a default under one of our other credit facilities. A cross-default provision means that a default on one loan would result in a default on certain other loans. Because of the presence of cross-default provisions in certain of our credit facilities, the refusal of any one lender under our credit facilities to grant or extend a waiver could result in certain of our indebtedness being accelerated, even if our other lenders under our credit facilities have waived covenant defaults under the respective credit facilities. If our secured indebtedness is accelerated in full or in part, it would be very difficult in the current financing environment for us to refinance our debt or obtain additional financing and we could lose our vessels and other assets securing our credit facilities if our lenders foreclose their liens, which would adversely affect our ability to conduct our business.
Moreover, in connection with any waivers of or amendments to our credit facilities that we may obtain, our lenders may impose additional operating and financial restrictions on us or modify the terms of our existing credit facilities. These restrictions may further restrict our ability to, among other things, pay dividends, make capital expenditures or incur additional indebtedness, including through the issuance of guarantees. In addition, our lenders may require the payment of additional fees, require prepayment of a portion of our indebtedness to them, accelerate the amortization schedule for our indebtedness and increase the interest rates they charge us on our outstanding indebtedness.
In addition, we have provided, and may continue to provide in the future, unsecured loans to our joint ventures which we treatconsider economically as additionalequivalent to investments in the joint ventures. Accordingly, in the event our joint ventures do not repay these loans as they become due and payable, the value of our investment in such entities may decline. Furthermore, we have provided, and may continue to provide in the future, guarantees to certain banks with respect to commercial bank indebtedness of our joint ventures. Failure on behalf of any of our joint ventures to service its debt requirements and comply with any provisions contained in its commercial loan agreements, including paying scheduled installments and complying with certain covenants, may lead to an event of default under its loan agreement. As a result, if our joint ventures are unable to obtain a waiver or do not have enough cash on hand to repay the outstanding borrowings, their lenders may foreclose their liens on the vessels securing the loans or seek repayment of the loan from us, or both, which would have a material adverse effect on our financial condition, results of operations, and cash flows. As of December 31, 2015 and December 31, 2014, $251.62016, $75.4 million and $319.8 million, respectively, was outstanding under these joint venture loan agreements, of which we have guaranteed $125.8 million and $159.9 million, respectively.$37.7 million. In 2017, these joint venture loans matured.
As of December 31, 20152017 and December 31, 2014,2016, we were in compliance with all of the covenants contained in our debt agreements, and our joint ventures were in compliance with all of the covenants contained in their respective debt agreements.
Guarantees
We have provided guarantees to financial institutions that have provided credit facilities in 2016 to sixtwo of our joint ventures, in the aggregate amount of $125.8 million and $159.9 million as of December 31, 2015 and December 31, 2014, respectively.$37.7 million. The total of the related outstanding bank loans as of December 31, 2015 and December 31, 2014 was $251.6 million and $319.8 million, respectively.were repaid on July 13, 2017.
In addition, on July 24, 2009, two of our 50%-owned joint ventures,14, 2017 and September 22, 2017, TI Asia Ltd. and TI Africa Ltd., two 50%-owned joint ventures, which own the FSO Asia and FSO Africa, two FSO vessels, respectively, entered into a $50.0 million guarantee facility agreement with Nordea Bank Finland plc in order to issue two guarantees of up to $25.0$5.0 million each with ING Bank, in favor of MaerskNorth Oil Company in connection with its use of the FSO Asia and FSO Africa after such vessels have been converted. These guarantees terminate on October 21, 2022 with respect to FSO. In August 2010, the amount available under this guarantee facility was reducedFSO Asia and December 21, 2022 with respect to $31.5 million. This guarantee terminates upon the earlier of (i) eight years after the Guarantee Issue Date for the second Guarantee and (ii) March 31, 2018.FSO Africa. As of December 31, 2015, the guarantee has2017, these guarantees have not been called upon.
C. |
C. Research and development, patents and licenses etc. |
Not applicable.
Our revenues are highly sensitive toD. Trend information
The supply and demand patterns for vessels ofships continue to be the size and design configurations which we own and operate, andbiggest impact on revenues. Generally the trades in which our vessels operate. Rates for the transportation of crude oil from which we earn a substantial part of our revenues are determined by market forces such as the supply andglobal demand for oil transportation on ships is affected by the distance over which cargoes must be transported, and the number of vessels expected to be available at the time such cargoes need to be transported. Theglobal demand for crude oil, shipmentswhich in turn is significantly affected byhighly dependent on the state of the global economy, global GDPeconomy. Most economies across the world are experiencing healthy economic growth at the moment and this is reflected in particularstrong oil demand growth. In its latest published report the International Energy Agency (IEA) are forecasting 2018 oil demand growth of 1.29 million barrels per day compared to average growth levels in the last 10 years of 1.15 million barrels. The market has recently seen the price of oil increase, which could have a dampening effect on oil demand going forward.
The rate at which a change in oil demand impacts the demand for oil tankers depends not only on the nominal change in oil demand but also how this oil is traded. Looking at crude oil, the market has recently seen a significant uptick in exports emanating from the US Gulf, most of which have been destined for China GDP growth.and other Far Eastern customers. This oil travels a substantially longer distance than crude oil originating from the Arabian Gulf headed for the same destination, and hence employs the crude tankers for a longer period of time. The number of vesselscurrent trend is affected by newbuilding deliveries and bya rise in crude exports from the removal of existing vessels from service, principally because of storage, scrappings or conversions. Our revenues are also affected byAtlantic basin combined with demand growth centered in the mix of charters between spot market voyages and medium- to long-term time charters. Because shipping revenues and voyage expenses are significantly affected byFar East providing longer employment times for crude tankers for the mix between voyage charters and time charters, we manage our vessels to maximize TCE revenues, which represents operating revenues less voyage expenses, as a measure to compare revenue generated from a voyage charter, under which we are responsible for voyage related expenses, to revenue generated from a time charter, under which we are not responsible for voyage related expenses. Our management makes economic decisions based on anticipated TCE rates and evaluates financial performance based on TCE rates achieved on our vessels.incremental barrel produced.
In general, the The supply of tankers is influenced by the current orderbook for newbuildingnumber of vessels delivered to the fleet, the number of vessels removed from the fleet (through scrapping or conversion) and the rate of removalnumber of vessels tied up in alternative employment such as storage. 2017 saw a significant number of new ships join the fleet across all the crude tanker segments, and this trend is set to continue in 2018. The tanker orderbook as a whole however remains measured, with both the VLCC and Suezmax orderbooks equal to 14% of the current fleet. Vessel exits from the worldwidetrading fleet have started to gain momentum towards the end of 2017. We expect this trend to continue in 2018 as a number of factors support increased scrapping levels. These include the freight environment being at the lowest levels seen for scrappingmany years, scrap prices increasing and regulatory pressure on ship owners to make decisions on whether to continue trading their older tonnage or conversion as vessels age.
We believe we are well positionedput them through costly upgrades to benefit from the solid tanker market industry fundamentals which are in place.
Demand for crude oil continues to be robust with the International Energy Agency, or IEA, forecasting global demand growth for crude oil of 1.2 million barrels per day for 2016. Should the price for oil remain low by historical standards then further stimulation of demand from these levels can be anticipated.
We believe that the tanker fleet order book remains moderate,comply with new orders comprising 18%directives, such as the Ballast Water Management convention.
Our revenues are also affected by our strategy to employ some of the VLCC fleet and 19% of the Suezmax fleet. While the scrapping ofour vessels is expected to be extremely modest duringon time charters, which have a strong freight rate background, the average 20 year lifefixed income for a crude tanker implies a natural levelpre-set period of attrition (5% per annum)time as opposed to trading ships in the global fleet. Two key strategic developments, the re-introduction of Iran to global crude oil markets and trading along with the repealing of the ban on U.S. crude oil exports, should underpin further, if modest, expansion of the ton-miles crude cargoes that will be transported.
We expect thatspot market where their earnings are heavily impacted by the supply and demand balance. The Management team continuously evaluates the value of oil inboth strategies and makes informed decisions on the shortchartering mix based on anticipated earnings, and through this process we aim to medium term may continue to be at elevated levels of production as key participants in the U.S., OPEC and Russia will continue to focus on market share strategies.always maximize each vessel’s return.
We have no additional funding requirements going forward all other things being equal (4 Suezmaxes newbuilding to be delivered over the course of 2018 and wea pending merger) and are supported by a proven management team, strict capital discipline and an established dividend distribution policy.
Please see also "Item 4. Information on the Company—A. History and Development of the Company—B. Business Overview—Industry and Market Conditions."
E. | Off-balance sheet arrangements. |
E. Off-balance sheet arrangements
We are committed to make rental payments under operating leases for vessels and for office premises. The future minimum rental payments under our non-cancellable operating leases are disclosed below under "Contractual Obligations."
F. | Tabular disclosure of contractual obligations. |
F. Tabular disclosure of contractual obligations
Contractual Obligations
As of December 31, 2015,2017, we had the following contractual obligations and commitments which are based on contractual payment dates:
|
| | | | | | | | | | | | | | | | | | | | | |
(US$ in thousands) | | Total |
| | 2018 |
| | 2019 |
| | 2020 |
| | 2021 |
| | 2022 |
| | Thereafter |
|
Long-term bank loan facilities (1) | | 713,334 |
| | 47,361 |
| | 47,361 |
| | 147,111 |
| | 106,567 |
| | 197,020 |
| | 167,914 |
|
Long-term debt obligations | | 150,000 |
| | — |
| | — |
| | — |
| | — |
| | 150,000 |
| | — |
|
Treasury Note Program | | 50,010 |
| | 50,010 |
| | | | | | | | | | |
Bank credit line facilities | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Operating leases (vessels) | | 127,644 |
| | 32,120 |
| | 32,120 |
| | 32,208 |
| | 31,196 |
| | — |
| | — |
|
Operating leases (non-vessel) | | 10,738 |
| | 2,287 |
| | 2,015 |
| | 1,898 |
| | 1,744 |
| | 1,567 |
| | 1,227 |
|
Capital Expenditure commitments (2) | | 185,922 |
| | 185,922 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total contractual obligations due by period | | 1,237,648 |
| | 317,700 |
| | 81,496 |
| | 181,217 |
| | 139,507 |
| | 348,587 |
| | 169,141 |
|
(1) Excludes interest payments.
(US$ in thousands) | | Total | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | Thereafter | |
Long-term bank loan facilities | | | 1,070,976 | | | | 79,905 | | | | 161,042 | | | | 162,235 | | | | 162,235 | | | | 350,235 | | | | 155,324 | |
Long-term debt obligations | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Bank credit line facilities | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Seller's credit facility | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Operational leases (vessels) | | | 15,012 | | | | 15,012 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Operational leases (non-vessel) | | | 11,939 | | | | 2,448 | | | | 2,382 | | | | 1,676 | | | | 1,423 | | | | 1,345 | | | | 2,665 | |
Capital Expenditure commitments | | | 195,910 | | | | 195,910 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Total contractual obligations due by period | | | 1,293,837 | | | | 293,275 | | | | 163,424 | | | | 163,911 | | | | 163,658 | | | | 351,580 | | | | 157,989 | |
____________________(2) Includes obligations only under our newbuilding program.
Not included in the table above are options that have been granted to us but not yet exercised under our time charter-in agreements to extend their respective durations.
As of December 31, 2015, the following equity accounted investees (of which we have a 50% ownership interest) have the following contractual obligations and commitments which are based on contractual payment dates (figures are shown at our economic interest):
| | | Total | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | Thereafter | |
Joint Venture | Long-term bank loan facilities | | | 125,797 | | | | 22,539 | | | | 45,781 | | | | 8,110 | | | | 8,110 | | | | 27,382 | | | | 13,875 | |
Seven Seas Shipping Ltd. | $52.0 Million secured bank loan facility | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Fontvieille Shipholding Ltd. | $55.5 Million secured bank loan facility | | | 17,235 | | | | 2,000 | | | | 2,000 | | | | 2,000 | | | | 2,000 | | | | 9,235 | | | | — | |
Moneghetti Shipholding Ltd. | $67.5 Million secured bank loan facility | | | 23,875 | | | | 2,000 | | | | 2,000 | | | | 2,000 | | | | 2,000 | | | | 2,000 | | | | 13,875 | |
Larvotto Shipholding Ltd. | $48.0 Million secured bank loan facility | | | 16,556 | | | | 1,985 | | | | 1,985 | | | | 1,985 | | | | 1,985 | | | | 8,616 | | | | — | |
Fiorano Shipholding Ltd. | $48.0 Million secured bank loan facility | | | 16,031 | | | | 2,125 | | | | 2,125 | | | | 2,125 | | | | 2,125 | | | | 7,532 | | | | — | |
TI Africa Ltd | $113.7 Million secured bank loan facility | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
TI Asia Ltd | $250.0 Million secured bank loan facility | | | 52,100 | | | | 14,429 | | | | 37,671 | | | | — | | | | — | | | | — | | | | — | |
Total contractual obligations due by period | | | | 125,797 | | | | 22,539 | | | | 45,781 | | | | 8,110 | | | | 8,110 | | | | 27,382 | | | | 13,875 | |
Forward-looking information discussed in this Item 5 includes assumptions, expectations, projections, intentions and beliefs about future events. These statements are intended as "forward-looking statements." We caution that assumptions, expectations, projections, intentions and beliefs about future events may and often do vary from actual results and the differences can be material. Please see the section entitled "Cautionary Statement Regarding Forward-Looking Statements" in this annual report.
ITEM 6. | ITEM 6. DIRECTORS, SENIOR MANAGEMENTAND EMPLOYEES |
A. | Directors and Senior management |
A.Directors and Senior managementSet forth below are the names, ages and positions of our Directors and executive officersExecutive Officers as on March 24, 2016.of the date of this annual report. Our Board of Directors is elected annually on a staggered basis, and each director holds office for a term of maximum four years, until his or her term expires or until his or her death, resignation, removal or the earlier termination of his or her term of office. All Directors whose term expires are eligible for re-election. Officers are appointed from time to time by our Board of Directors and hold office until a successor is appointed or their employment is terminated. The business address of each of our Directors and executive officersExecutive Officers listed below is Euronav NV, Belgica House, De Gerlachekaai 20, 2000 Antwerp, Belgium.
|
| | | | | | |
Name | | Age | | Position | | Date of Expiry of Current Term (for Directors) |
Carl Steen | 65 | 67 | | Chairman of the Board of Directors | To be confirmed by the Annual General Meeting 2016 |
Daniel R. Bradshaw | 69 | Director | Annual General Meeting 2017 |
Ludwig Criel | 64 | Director | Annual General Meeting 2016 |
Alice Wingfield Digby | 41 | Director | Annual General Meeting 2016 |
Alexandros Drouliscos | 57 | Director | Annual General Meeting 2017 |
Anne-Hélène Monsellato | 48 | Director | Annual General Meeting 2018 |
John Michael RadziwillDaniel R. Bradshaw | 36 | 71 | | Director | | Annual General Meeting 20172019 |
Ludovic SaverysWilliam Thomson | 32 | 70 | | Director | | Annual General Meeting 2018 |
William ThomsonAnne-Hélène Monsellato | 68 | 50 | | Director | | Annual General Meeting 2018 |
Ludovic Saverys | | 34 | | Director | | Annual General Meeting 2018 |
Grace Reksten Skaugen | | 64 | | Director | | Annual General Meeting 2020 |
Patrick Rodgers | 56 | 58 | | Chief Executive Officer and Director | | Annual General Meeting 20162020 |
Hugo De Stoop | 43 | 45 | | Chief Financial Officer | | |
Alex Staring | 50 | 52 | | Chief Operating Officer | | |
Egied Verbeeck | 41 | 43 | | General Counsel | | |
An Goris | 38 | 40 | | Secretary General | | |
Brian Gallagher | | 47 | | Head of Investor Relations | | |
Biographical information concerning the Directors and executive officersExecutive Officers listed above is set forth below.
Carl Steen, our Chairman, was co-opted as director and appointed Chairman of theour Board of Directors effectivewith effect immediately after the meeting of theour Board of Directors ofon December 3, December 2015. Mr. Steen is also a member of our Audit and Risk Committee. He graduated from the Eidgenössische Technische Hochschule in Zurich, Switzerland in 1975 with a M.Sc. in Industrial and Management Engineering. After working as a consultant in a logistical research and consultancy company, he joined a Norwegian shipping company in 1978 with primary focus on business development. Five years later, in 1983, he joined Christiania Bank and moved to Luxembourg. HeLuxembourg, where he was there responsible for Germany and later the Corporate division. In 1987 Mr. Steen became Senior Vice president within the Shipping Division in Oslo and in 1992 he took charge of the Shipping/Offshore and Transport Division. When Christiania Bank merged with Nordea in 2001 he was made Executive Vice President within the newly formed organization while adding the International Division to his responsibilities. Mr. Steen remained Head of Shipping, Offshore and Oil services and the International Division until 2011. Since leaving Nordea, Mr. Steen has become a non-executive director for the following listed companies in the finance, shipping and logistics sectors: Golar LNG Limited (NASDAQ: GLNG) and Golar MLP,LNG Partners LP (NASDAQ: GMLP), both part of the same group and where he also sits on the audit committee, Wilh Wilhelmsen Holding ASA and Belships.Belships ASA.
Daniel R. Bradshaw, one of our directors,serves and has served on our Board of Directors since 2004, and is a member of our Audit and Risk Committee and the chairman of our Corporate Governance and Nomination Committee. Since 2014 Mr. Bradshaw has servedalso serves as an independent directorIndependent Director of GasLog Partners LP (NYSE: GLOP), a Marshall Islands limited partnership. Since 2013, Mr. Bradshaw has been a Director of Greenship Offshore Manager Pte Ltd. and since 2010 he has servedserves as an independentIndependent non-executive Director of IRC Limited, a company listed in Hong Kong, which operates iron mines in far eastern Russia, and which is an affiliate of Petropavlovsk PLC, a London-listed mining and exploration company. Since 2006 Mr. Bradshaw has been a Director and since 2016,is an Independent Non-executivenon-executive Director of Pacific Basin Shipping Company Limited, a company listed in Hong Kong and operating in the Handysize bulk carrier sector. Since 1978 Mr. Bradshaw has worked at Johnson Stokes & Master, now Mayer Brown JSM, in Hong Kong, from 1983 to 2003 as a partnerPartner and since 2003 as a senior consultant.Senior Consultant. From 2003 until 2008 Mr. Bradshaw was a member of the Hong Kong Maritime Industry Council. From 1993 to 2001 he served as Vice-Chairman of the Hong Kong Shipowners' Association and was a member of the Hong Kong Port and Maritime Board until 2003. Mr. Bradshaw began his career with the New Zealand law firm Bell Gully and in 1974, joined the international law firm Sinclair Roche & Temperley in London. Mr. Bradshaw obtained a Bachelor of Laws and a Master of Laws degree at the Victoria University of Wellington (New Zealand).
Ludwig Criel,William Thomson one of our directors, has served on our Board of Directors since our incorporation in 2003, and is a member of our Corporate Governance and Nomination Committee. Mr. Criel has been the Chairman of De Persgroep since 1996. Mr. Criel has served as a Director of CMB and of Exmar NV since 1991. Since 1983, he has held various management functions within the Almabo/Exmar group and was made Chief Financial Officer of CMB in 1993. In 1999, Mr. Criel was appointed Managing Director of the Wah Kwong group in Hong Kong. Mr. Criel joined Boelwerf as a project manager in 1976. He is Vice-Chairman of the West of England P&I Club. In 1974, Mr. Criel graduated in applied economic sciences from the University of Ghent. He also holds a degree in management from the Vlerick School of Management.
Alice Wingfield Digby, one of our directors, has served on our Board of Directors since May 2012, and is the Chairman of our Health, Safety, Security and Environmental Committee, and a member of our Audit and Risk Committee. Mrs. Wingfield Digby currently works at Pritchard-Gordon Tankers Ltd., where she started as Chartering Manager in 1999. Since 1995, she has served as a member of the Board of Directors of Giles W. Pritchard-Gordon & Co., Pritchard-Gordon Tankers Ltd. and Giles W. Pritchard-Gordon (Shipowning) Ltd., and since 2005 as a member of the board of Giles W. Pritchard-Gordon (Farming) Ltd. and Giles W. Pritchard-Gordon (Australia) Pty Ltd. Mrs. Wingfield Digby has been a member of the Baltic Exchange since 2002. In the late nineties, Mrs. Wingfield Digby joined the chartering department of Mobil before the merger with Exxon in 1999. From 1995 to 1996, she trained with Campbell Maritime Limited, a ship management company in South Shields, and subsequently at British Marine Mutual P & I Club, SBJ Insurance Brokers and J. Hadjipateras in London after returning from working at sea as a deckhand on board a tanker trading around the Eastern Caribbean. In 1996, Mrs. Wingfield Digby was awarded the Shell International Trading and Shipping Award in tanker chartering from the Institute of Chartered Shipbrokers.
Alexandros Drouliscos, one of our directors, has served on our Board of Directors since May 2013, and is a member of our Remuneration Committee. Since 1999, he has held the position of Managing Director at a family-owned European bank, Union Bancaire Privée. From 1986 to 1992, Mr. Drouliscos held the position of Vice President at Chase Manhattan Bank NA, working as a credit officer and then as an investment officer, and subsequently, from 1992 to 1997, as a Senior Vice President at Merrill Lynch. He graduated from the American University in Athens with a Bachelor's degree in Business Administration in 1982 and then continued his postgraduate studies at Heriott Watt University in Edinburgh, with a M.Sc. in International Banking.
Anne-Hélène Monsellato, one of our directors, has served on the Board of Directors since May 2015,serves and is the Chairman of the Audit and Risk Committee and a member of the Corporate Governance and Nomination Committee. Anne-Hélène Monsellato is a member of the French National Association of Directors and of the Selection Committee of Femmes Business Angels since 2013. In addition, she serves as the Treasurer of the Mona Bismarck American Center for Art and Culture, a U.S. foundation based in New York. From 2005 till 2013 Mrs. Monsellato served as a partner of Ernst & Young (now EY), Paris, after having served as Auditor/Senior, Manager and Senior Manager for the firm starting in 1990. During her time at EY, she gained extensive experience in cross border listing transactions, in particular with the U.S. She is a Certified Public Accountant in France since 2008, and graduated from EM Lyon in 1990 with a degree in Business Management.
John Michael Radziwill, one of our directors, has served on our Board of Directors since 2013, and is a member of our Health, Safety, Security and Environmental Committee. Mr. John Michael Radziwill is also the Chief Executive Officer of C Transport Maritime S.A.M. in Monaco (since 2010), prior to which he served in its commercial department as a Capesize freight trader from 2005 to 2006 and as the head of the sale and purchase division from 2006 through 2010. From 2004 to 2005, Mr. John Michael Radziwill worked at H. Clarkson & Co. Ltd and Seascope Insurance Services Ltd. both in London, England. In 2003, he joined Ceres Hellenic's Insurance and Claims Department in Piraeus, Greece. Mr. John Michael Radziwill also serves as an advisor of SCP Clover Maritime, a company that manages assets and investments for Mr. John Radziwill, his father, and specifically for JM Maritime Investments Inc. and Bretta Tanker Holdings, Inc., Mr. John Michael Radziwill is the first cousin of Mr. Livanos, the representative of our former corporate directors, TankLog and Ceres Investments (Cyprus), and former Chairman of our Board of Directors. In addition, he is a member of the American Bureau of Shipping and the Baltic Exchange. Mr. Radziwill graduated from Brown University in 2002 with a BA in Economics, after which he served as Administrative Officer at Ceres Hellenic Enterprise's New Building Site Office in Koje, South Korea.
Ludovic Saverys, one of our directors, has served on the Board of Directors since 13 May 2015 and is member of the Remuneration Committee and a member of the Health, Safety, Security and Environmental Committee. Ludovic Saverys currently serves as Chief Financial Officer of CMB NV and as General Manager of Saverco NV. During the time he lived in New York, Mr. Saverys served as Chief Financial Officer of MiNeeds Inc. from 2011 till 2013 and as Chief Executive Officer of SURFACExchange LLC from 2009 till 2013. He started his career as Managing Director of European Petroleum Exchange (EPX) in 2008. From 2001 till 2007 he followed several educational programs at universities in Leuven, Barcelona and London from which he graduated with M. Sc. degrees in International Business and Finance.
William Thomson, one of our directors, has served on our Board of Directors since 2011 and is the Chairmana member of our Remuneration Committee and a member of our Audit and Risk Committee. Currently and since 2005 Mr. Thomson holds a directors'Directors' mandate in Latsco, established to operate under the British Tonnage Tax Regime operating Very Large Gas Carriers (VLGC), long-range and medium-range vessels. From 1980 to 2008 Mr. Thomson has been Chairman in several maritime and other companies including Forth Ports Plc, British Ports Federation and Relayfast, and the North of England P&I club. Mr. Thomson previously served as a Director of Trinity Lighthouse Service, Tibbett and Britten and Caledonian McBrayne. From 1970 to 1986 he was a Director with Ben Line, for which he worked in, amongst others, Japan, Indonesia, Taiwan and Edinburgh. In 1985, he established Edinburgh Tankers and five years later, Forth and Celtic Tankers. After serving with the army for three years, Mr. Thomson began his professional career with Killick Martin Shipbrokers in London.
Patrick RodgersAnne-Hélène Monsellato, one of our directors, serves and has served on our Board of Directors since June 2003her appointment at the AGM of May 2015, and has beenis the Chairman of our Audit and Risk Committee and a member of our Corporate Governance and Nomination Committee. She can be considered as the Audit and Risk Committee financial expert for purposes applicable for corporate governance regulations and Article 96 paragraph 1, 9° of the Belgian Company Code. Since June 2017, Mrs. Monsellato serves on the Board of Directors of Genfit, a biopharmaceutical company listed in Euronext, and is the chairman of the Audit Committee. Mrs. Monsellato is an active member of the French National Association of Directors since 2013. In addition, she is serving as the Vice President and Treasurer of the Mona Bismarck American Center for Art and Culture, a U.S. public foundation based in New York. From 2005 till 2013, Mrs. Monsellato served as a Partner with Ernst & Young (now EY), Paris, after having served as Auditor/Senior, Manager and Senior Manager for the firm starting in 1990. During her time at EY, she gained extensive experience in cross border listing transactions, in particular with the U.S. She is a Certified Public Accountant in France since 2008 and graduated from EM Lyon in 1990 with a degree in Business Management.
Ludovic Saverys, one of our directors, serves and has served on our Board of Directors since 2015 and is a member of our Remuneration Committee and our Corporate Governance and Nomination Committee. Mr. Saverys currently serves as Chief Financial Officer of CMB NV and as General Manager of Saverco NV. He also serves as Chief Financial Officer and Director of Hunter Maritime Acquisition Corp. (NASDAQ: HUNT), a blank check company listed on NASDAQ. During the time he lived in New York, Mr. Saverys served as Chief Financial Officer of MiNeeds Inc. from 2011 until 2013 and as Chief Executive Officer of SURFACExchange LLC from 2009 until 2013. He started his career as Managing Director of European Petroleum Exchange (EPX) in 2008. From 2001 until 2007 he followed several educational programs at universities in Leuven, Barcelona and London from which he graduated with M. Sc. degrees in International Business and Finance.
Grace Reksten Skaugen, one of our directors, serves and has served on the Board of Directors since the AGM of 12 May 2016 and is Chairman of the Remuneration Committee and a member of the Corporate Governance and Nomination Committee. Grace Reksten Skaugen is a member of the HSBC European Senior Advisory Council (ESAC). In 2009 she founded Infovidi Board Services Ltd, an independent consulting company. From 2002 until 2015 she was a member of the Board of Directors of Statoil ASA. She is presently Deputy Chairman of Orkla ASA, a Board member of Investor AB and Lundin Petroleum AB and Chairman of NAXS Noric Access Buyout A/S. In 2006 she as one of the founders of the Norwegian Institute of Directors, of which she continues to be a member of the Board. From 1994 until 2002 she was a Director in Corporate Finance in SEB Enskilda Securities in Oslo. She has previously worked in the fields of venture capital and shipping in Oslo and London and carried out research in microelectronics at Columbia University in New York. She has a doctorate in Laser Physics from Imperial College of Science and Technology, University of London. In 1993 she obtained an MBA from the BI Norwegian School of Management.
Patrick Rodgers became Chief Executive Officer of Euronav in 2000 and has served on Euronav’s Board of Directors since June 2003. He joined Euronav as a member of the Executive Committee since 2004. Mr. Rodgersin 1995 and was appointed Chief Financial Officer of the predecessor of the Company in 1998 and has been Chief Executive Officer since 2000.1998. Since 2005, Mr. Rodgers2011, he has served as a Director and Chairman of Euronav Luxembourg SA and Seven Seas Shipping Ltd. Mr. Rodgers currently serves as a Director ofthe International Tanker Owners Pollution Federation Fund since 2011, Great Hope Enterprises Ltd., since 2003, and Euronav (UK) Agencies, since 1995.(ITOPF). Paddy was elected to the Executive Committee of Intertanko in May 2017. From 1990 to 1995 Mr.Paddy Rodgers worked at CMB groupGroup as an in-house lawyer,Lawyer and subsequently as Shipping Executive. Mr. Rodgers began his careerExecutive moving to Euronav when it became a subsidiary for tanker investments of the CMB Group. He graduated in 1982 as a trainee lawyer with Keene Marsland & Co.an LLB in Law from University College London in 1981 and qualified to practice in 1984 having passed law society entrance exams after studying at the College of Law, Guildford in 1982. In 1984 he joined Bentley, Stokes & Lowless as a qualified lawyersolicitor and in 1986 he joinedmoved to Johnson, Stokes & Master in Hong Kong as a solicitor. Mr. Rodgers graduated in law from University College London in 1981 and from the College of Law, Guildford in 1982.where he practiced until 1990
Hugo De Stoop serves and has served as our Chief Financial Officer since 2008, after serving as our Deputy Chief Financial Officer and Head of Investor Relations beginning in 2004. Mr. De Stoop has been a member of our Executive Committee since 2008. In 2000, he joined Davos Financial Corp., an investment manager for UBS, specializing in Asset Management and Private Equity, where he became an Associate and later a Vice President in 2001. In 1999, Mr. De Stoop founded First Tuesday in America, the world's largest meeting place for high tech entrepreneurs, venture capitalists and companies and helped develop the network in the United States and in Latin America and, in 2001, was appointed member of the Board of Directors of First Tuesday International. Mr. De Stoop started his career in 1998 with Mustad International Group, an industrial group with over 30 companies located in five continents where he worked as a project manager on various assignments in the United States, Europe and Latin America, in order to integrate recently acquired subsidiaries. Mr. De Stoop studied in Oxford, Madrid and Brussels and graduated from école polytechnique (ULB) with a Master of Science in engineering. He also holds a MBA from INSEAD.
Alex Staring serves and has served as our Chief OffshoreOperating Officer since 20102005. He has also been in charge of our offshore segment since July 2010. Captain Staring serves and has served as a member of our Executive Committee since 2005. From 2005 to 2010, Captain Staring held the position of Chief Operating Officer of the Company. Captain Staring has been a Director of Euronav Hong Kong Ltd. since 2007, a Director of Euronav SAS and Euronav Ship Management since 2002 and a Director of Euronav Luxembourg SA since 2000. In 2000, international shipping companies, AP Moller, Euronav, Frontline, OSG, Osprey Maritime and Reederei'Nord' Klaus E Oldendorff consolidated the commercial management of their VLCCs by operating them in a pool, Tankers International, of which Captain Staring became Director of Operations. In 1988, Captain Staring gained his master's and chief engineer's license and spent the majority of his time at sea
on Shell Tankers and CMB tankers, the last 3 years of which he attained the title of Master. From 1997 to 1998, Captain Staring headed the SGS S.A. training and gas centre. In 1998, Captain Staring rejoined CMB and moved to London to head the operations team at their subsidiary, Euronav UK. Captain Staring graduated with a degree in Maritime Sciences from the Maritime Institute in Flushing, The Netherlands and started his career at sea in 1985.
Egied Verbeeck serves and has served as General Counsel of the Company since 2009 and became member of the Executive Committee of the Company in January 2010. From 2006 until June 2014, Mr. Verbeeck served as Secretary General of the Company. Prior to joining Euronav he was a managing associate at Linklaters De Bandt from 1999-2005. Mr. Verbeeck has been a Director of Euronav Ship Management SAS since 2012, a Director of Euronav Hong Kong Ltd. since 2007 and a Director of Euronav Luxembourg S.A. since 2008. Mr. Verbeeck graduated in law from the Catholic University of Louvain in 1998 and1998. He also holds a Master Degree in international business law from Kyushu University (Japan) as well as a postgraduate degree in corporate finance from the Catholic University of Louvain.
An Goris serves and has served as Secretary General of the Company since June 2014, and in thiswhich capacity, Ms. Gorisshe is responsible for the general corporate affairs of the Company. From 2011 to 2014, Ms. Goris served as legal counsel to the Company. In 2001, Ms. GorisShe became a member of the Antwerp Bar and joinedwhen joining Linklaters De Bandt,in 2001 where she gained extensive experience in corporate law, mergers and acquisitions and finance. In 2008 Ms. Gorisshe joined Euroclear as a legal manager where she worked for both the local central securities depository Euroclear Belgium as well as the international central securities depository Euroclear Bank. Ms.An Goris graduated with ain law degree from the University of Antwerp in 2000. She also holds a Master's Degree in law from Oxford University, a degree in international business law fromInternational Business Law (Paris, University René DescartesDescartes) and in Paris, France and a degree in corporate law from the Catholic UniversityCorporate Law (Catholic Universities of Louvain and Brussels.Brussels). Ms. Goris is a native Dutch speaker and is also fluent in English and French. Ms. GorisShe is also a sworn legal translator offor English and French into Dutch.
88Brian Gallagher serves and has served as Head of Investor Relations of the Company since March 2014. Mr. Gallagher began his fund management career at the British Coal Pension fund unit, CIN Management, before moving to Aberdeen Asset Management in 1996. Managing and marketing a range of UK investment products Mr. Gallagher then progressed to Murray Johnstone in 1999 and then was headhunted by Gartmore Investment Management in 2000 to manage a range of UK equity income products. In 2007 he then set up a retail fund at UBS Global Asset Management before switching into Investor Relations as IR Director at APR Energy in 2011. Mr. Gallagher graduated in Economics from Birmingham University in 1992.
The compensation of our Board of Directors is determined on the basis of four regular meetings of the full board per year. The actual amount of remuneration is determined by the annual general meeting and is benchmarked periodically with Belgian listed companies and international peer companies. The aggregate annual compensation paid to our executive officers, excluding our Chief Executive Officer, for the year ended December 31, 20152017 was EUR 2,935,526,2,644,951 comprised of EUR 1,083,097 of fixed compensation, EUR 1,760,000EUR1,468,500 of variable compensation (of which EUR 1,382,000734,250 in cash and EUR 378,000734,250 in share related compensation), pension and benefits valued at EUR 35,025EUR35,252 and EUR 57,40458,102 in other compensation. The annual aggregate compensation paid to our Chief Executive Officer was GBP 1,072,507,996,978 comprised of GBP 393,728GBP393,728 of fixed compensation, GBP 668,000590,592 of variable compensation (of which GBP 530,000295,296 in cash and GBP 138,000295,296 in share related compensation) and GBP 10,779GBP12,658 in other compensation. We also paid an aggregate of $911,250EUR580,000 fixed fees (board and committees) to our non-executive directors during the year ended December 31, 2015,2017, with an additional aggregate board and committee meeting attendance fee of $680,000.EUR435,000. Our Chairman of the Board is entitled to receive a gross fixed amount of EUR 160,000 per year, and each member of the board is entitled to receive a gross fixed amount of EUR 60,000 per year.year, save for Mr. Dan Bradshaw. For Mr. Bradshaw, the gross fixed annual remuneration pursuant to his director's mandate was set at EUR 20,000. In addition, our Chairman and each director are entitled to receive an attendance fee of EUR 10,000 per board meeting attended, not to exceed EUR 40,000 per year. The Chairman of our audit and risk committee is entitled to receive a gross fixed amount of EUR 40,000, and each member of the audit and risk committee is entitled to receive a gross fixed amount of EUR 20,000 per year. In addition, the Chairman of our audit and risk committee and members of the audit and risk committee are entitled to receive an attendance fee of EUR 5,000 per audit and risk committee meeting attended, not to exceed EUR 20,000 per year. Our Chairmen of all of our other committees are entitled to receive a gross fixed amount of EUR 7,500 per year, and the members of all of our other committees are entitled to receive a gross fixed amount of EUR 5,000. In addition, our Chairmen and members of these other committees will also be entitled to receive an attendance fee of EUR 5,000 for each committee meeting attended, with a maximum of EUR 20,000 per year for each committee served.
Our Chief Executive Officer, who is also a director, has waived his director's fees.
Our Board of Directors currently consists of tenseven members, sixfive of which are considered "independent" under Rule 10A-3 promulgated under the Exchange Act and under the rules of the NYSE: Mr. Steen, Mrs. Monsellato, Mrs. Wingfield Digby, Mr. Bradshaw, Mr. ThomsonMs. Monsellato, Ms. Skaugen and Mr. Drouliscos.Thomson.
Our Board of Directors has established the following committees, and may, in the future, establish such other committees as it determines from time to time:
Audit and Risk Committee
Our Audit and Risk Committee consists of four Directors (all four Directors are independent Directors: Mrs.under the Exchange Act and NYSE rules): Ms. Monsellato, as Chairman, Mr. Thomson, Mr. Bradshaw and Mrs. Wingfield Digby.Mr. Steen. Our Audit and Risk Committee is responsible for ensuring that we have an independent and effective internal and external audit system. Additionally, the Audit and Risk Committee advises the Board of Directors in order to achieve its supervisory oversight and monitoring responsibilities with respect to financial reporting, internal controls and risk management. Our Board of Directors has determined that Mrs.Ms. Monsellato qualifies as an "audit committee financial expert" for purposes of SEC rules and regulations.
Corporate Governance and Nomination Committee
Our Corporate Governance and Nomination Committee consists of three members: Mr. Bradshaw, as Chairman, Mrs.Ms. Monsellato and Mr. Criel.Ms. Skaugen. Our Corporate Governance and Nomination Committee is responsible for evaluating and making recommendations regarding the size, composition and independence of the Board of Directors and the Executive Committee, including the recommendation of new Director-nominees.
Remuneration Committee
Our Remuneration Committee consists of three members: Mr. Thomson, as Chairman, Mr. Drouliscos,Ms. Skaugen and Mr. Saverys. Our remuneration committee is responsible for assisting and advising the Board of Directors on determining compensation for our directors, executive officers and other employees and administering our compensation programs.
Health, Safety, Security and Environmental Committee.
Our Health, Safety, Security and Environmental, or HSSE, Committee consists of three members: Mrs. Wingfield Digby, as Chairman, Mr. Saverys, and Mr. Radziwill. Our HSSE Committee is responsible for overseeing our policies related to the health, safety, security and environmental procedures with respect to our operations, and to assess our internal systems for ensuring compliance with related laws, regulations and policies.
As of December 31, 2015,2017, we employed approximately 2,8502,952 people, including approximately 150152 onshore employees based in our offices in Greece, Belgium, United Kingdom, France and Singapore and approximately 2,7002,800 seagoing officers and crew. Some of our employees are represented by collective bargaining agreements. As part of the legal obligations in some of these agreements, we are required to contribute certain amounts to retirement funds and pension plans and have restricted ability to dismiss employees. In addition, many of these represented individuals are working under agreements that are subject to salary negotiation. These negotiations could result in higher personnel costs, other increased costs or increased operating restrictions that could adversely affect our financial performance. We consider our relationships with the various unions as satisfactory. As of the date of this annual report, there are no ongoing negotiations or outstanding issues.
The ordinary shares beneficially owned by our directors and senior managers are disclosed in "Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders."
Equity Incentive Plans
Stock Option Plan
Our Board of Directors has adopted a stock option plan, pursuant to which directors, officers, and certain employees of us and our subsidiaries were eligible to receive options to purchase ordinary shares of us at a predetermined price. On December 16, 2013, we granted options to purchase an aggregate of 1,750,000 ordinary shares to members of our Executive Committee at an exercise price of €5.7705 per share. The following table provides a summary of the number of options that were granted pursuant to this plan, together with the amount of options that have vested and have been exercised.exercised as of the date of this annual report.
|
| | | |
| Options Granted | Options Vested | Options Exercised |
CEO | 525,000 | 525,000 | 350,000 |
CFO | 525,000 | 525,000 | 350,000 |
COO | 350,000 | 350,000 | 350,000 |
General Counsel | 350,000 | 350,000 | 350,000 |
2015 Long-Term Incentive Plan
In 2015, our Board of Directors adopted a long-term incentive plan, pursuant to which key management personnel are eligible to receive options to purchase ordinary shares of us at a predetermined price and restricted stock units (RSUs) that represent the right to receive ordinary shares or payment of cash in lieu thereof, in accordance with the terms of the plan. On February 12, 2015, we granted options to purchase an aggregate of 236,590 ordinary shares at €10.0475 per share, subject to customary vesting provisions, and 65,433 RSUs which are scheduled to vestvested automatically on the third anniversary of the grant. The following tables provide a summary of the number of options and RSUs that were granted pursuant to this plan, together with the amount of options that have vested and have been exercised.exercised as of the date of this annual report..
| Options Granted | Options Vested | Options Exercised |
CEO | 80,518 | 26,839 | - |
CFO | 58,716 | 19,572 | - |
COO | 54,614 | 18,205 | - |
General Counsel | 42,742 | 14,247 | - |
|
| | | |
| Options Granted | Options Vested | Options Exercised |
CEO | 80,518 | 80,518 | — |
CFO | 58,716 | 58,716 | — |
COO | 54,614 | 54,614 | — |
General Counsel | 42,742 | 42,742 | — |
|
| |
| RSUs granted |
CEO | 22,268 |
CFO | 16,239 |
COO | 15,105 |
General Counsel | 11,821 |
2016 Long-TermLong Term Incentive Plan
In December 2015, our Board of Directors adopted a long-termlong term incentive plan, or the 2016 Long-TermLong Term Incentive Plan, pursuant to which members of the Executive Committee are eligible to receive phantom stock unit grants. In the future, otherOther senior employees may receive grants underin the 2016 Long-Term Incentivefuture be invited to participate in this long term incentive plan by the Board of Directors upon the recommendation of ourthe Remuneration Committee. Upon the vesting of each phantom stock unit and subject to the terms of the 2016 Long-TermLong Term Incentive Plan, each phantom stock unit grants the holder a conditional right to receive an amount of cash equal to the fair market value of one share of the Company on the settlement date. On February 2, 2016, we granted 54,616 phantom stock units to certain of our executive officers. The phantom stock units will mature one-third each year on the second, third, fourth anniversary of the award. All of the beneficiaries have accepted the phantom stock units granted to them. The number of phantom stock units granted was calculated on the basis of a share price of €10.6134 which equals the weighted average of the share price of the three days preceding the grant date. The following tables provide a summary of the number of phantom stock units that were granted pursuant to this plan and the amount that has vested.vested as of the date of this annual report.
|
| | |
| Phantom Stock Units Granted | Phantom Stock Units Vested |
CEO | 17,116 | 5,705 |
CFO | 20,728 | 6,909 |
COO | 8,009 | 2,669 |
General Counsel | 8,762 | 2,920 |
2017 Long Term Incentive Plan
In February 2017, our Board of Directors adopted a long term incentive plan, pursuant to which members of the Executive Committee as well as the Head of Investor Relations are eligible to receive phantom stock unit grants. Other senior employees may in the future be invited to participate in this long term incentive plan by the Board of Directors upon recommendation of the Remuneration Committee. Upon the vesting of each phantom stock unit and subject the terms of the 2017 Long Term Incentive Plan, each phantom stock unit grants the holder a conditional right to receive an amount of cash equal to the fair market value of one share of the Company on the settlement date. On February 9, 2017, we granted 66,448 phantom stock units to certain of our executive officers. The phantom stock units will mature one-third each year on the second, third, fourth anniversary of the award. All of the beneficiaries have accepted the phantom stock units granted to them. The number of phantom stock units granted was calculated on the basis of a share price of €7.2677 which equals the weighted average of the share price of the three days preceding the announcement of our preliminary full year results of 2016. The following tables provide a summary of the number of phantom stock units that were granted pursuant to this plan and the amount that has vested as of the date of this annual report.
|
| | |
| Phantom Stock Units Granted | Phantom Stock Units Vested |
CEO | 17,11617,819 | -— |
CFO | 20,72820,229 | -— |
COO | 8,00912,557 | -— |
General Counsel | 8,7629,808 | -— |
Head of Investor Relations | 6,036 | — |
2018 Long Term Incentive Plan
In February 2018, our Board of Directors adopted a long term incentive plan, pursuant to which members of the Executive Committee as well as the Head of Investor Relations are eligible to receive phantom stock unit grants. Other senior employees may in the future be invited to participate in this long term incentive plan by the Board of Directors upon recommendation of the Remuneration Committee. Upon the vesting of each phantom stock unit and subject the terms of the 2018 Long Term Incentive Plan, each phantom stock unit grants the holder a conditional right to receive an amount of cash equal to the fair market value of one share of the Company on the settlement date. On February 16, 2018, we granted 148,113 phantom stock units to certain of our executive officers. The phantom stock units will mature one-third each year on the second, third, fourth anniversary of the award. All of the beneficiaries have accepted the phantom stock units granted to them. The number of phantom stock units granted was calculated on the basis of a share price of €7.2368 which equals the weighted average of the share price of the three days preceding the announcement of our preliminary full year results of 2017. The following tables provide a summary of the number of phantom stock units that were granted pursuant to this plan and the amount that has vested as of the date of this annual report.
|
| | |
| Phantom Stock Units Granted | Phantom Stock Units Vested |
CEO | 46,652 | — |
CFO | 37,620 | — |
COO | 36,480 | — |
General Counsel | 27,360 | — |
Head of Investor Relations | 6,319 | — |
ITEM 7. | ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. |
The following table sets forth information regarding beneficial ownership of our ordinary shares for (i) owners of more than five percent of our ordinary shares and (ii) our directors and officers as a group, of which we are aware as of March 24, 2016.19, 2018.
Number | | Percentage(1) | |
Marc Saverys (2) | | | 17,026,896 | | | | 10.7 | % |
Victrix NV (3) | | | 9,245,393 | | | | 5.8 | % |
Directors and Executive Officers as a Group * | | | - | | | | - | |
|
| | | | | | |
| | Number |
| | Percentage(1) |
|
Saverco NV (2) | | 16,130,028 |
| | 10.13 | % |
Châteauban SA (3) | | 15,921,400 |
| | 10.00 | % |
Victrix NV (4) | | 9,245,393 |
| | 5.81 | % |
M&G Investment Management Limited (5) | | 8,135,920 |
| | 5.11 | % |
Directors and Executive Officers as a Group * | | — |
| | — |
|
* |
Individually each owning less than 1.0% of our outstanding ordinary shares. |
|
*Individually each owning less than 1.0% of our outstanding ordinary shares.
| |
(1) | Calculated based on 159,208,949 ordinary shares outstanding as of March 24, 2016.19, 2018. |
| |
(2) | Including shares held directly or indirectly by or for the benefit of Mr. Marc Saverys. The business address of Mr. Marc Saverys is De Gerlachekaai 20, 2000 Antwerpen, Belgium. The information is derived from Schedule 13G filed with the SEC on February 11, 2016.1, 2018. |
| |
(3) | Based on information contained in the Schedule 13G/A that was filed with the SEC on February 1, 2018 by Châteauban SA. |
| |
(4) | Including shares held directly or indirectly by or for the benefit of Ms. Virginie Saverys, who has voting or dispositive power over the shares held by Victrix NV. The business address of Victrix NV is Le Grellelei 20, 2000 Antwerpen, Belgium. The information is derived from Schedule 13G filed with the SEC on February 9,11, 2016. |
| |
(5) | Based on information contained in the Schedule 13G that was filed with the SEC on February 14, 2018 by M&G Investment Management Limited. |
OnAs of March 24, 2016,19, 2018, our issued share capital amounted to $173,046,122.14 divided into 159,208,949 ordinary shares with no par value. On the same date, 52,971,17233,939,913 of our shares, our U.S. Shares, representing approximately 33.3%21.3% of our share capital, were reflected on the U.S. Register, all of which were held in the namesname of two shareholders, which includes 50,451,472 shares held byone shareholder, being CEDE & CO., as nominee holder for The Depository Trust Company.
In accordance with a May 2, 2007 Belgian law relating to disclosure of major holdings in issuers whose shares are admitted to trading on a regulated market and containing miscellaneous provisions requiring investors in certain publicly-traded corporations whose investments reach certain thresholds to notify the Company and the Belgian Financial Services and Markets Authority, or the FSMA, of such change as soon as possible and in any event within four trading days. The minimum disclosure threshold is 5% of the Company's issued voting share capital. Further details in this respect can be found on the website of the FSMA: http://www.fsma.be/en/Supervision/fm/gv/ah/wetteksten/wetgeving.aspx.
As a result of certain prepaid forward sale transactions involving an aggregate of 6,000,000 of our ordinary shares entered into in August 2015 as well as a sales transaction involving an aggregate of 9,000,000 of our ordinary shares entered into in November 2015, and subject to the terms and conditions of the prepaid forward sale transactions as summarized in the transparency notification received by us on August 5, 2015, at the date of this annual report the voting rights in the Company held directly or indirectly by Mr. Peter Livanos, the representative of our former corporate directors, TankLog and Ceres Investments (Cyprus), and former Chairman of our Board of Directors, no longer exceed five percent.
To our knowledge, we are neither directly nor indirectly owned nor controlled by any other corporation, by any government or by any other natural or legal person severally or jointly. Pursuant to Belgian law and our organizational documents, to the extent that we may have major shareholders at any time, we may not give them different voting rights from any of our other shareholders.
We are aware of no arrangements which may at a subsequent date result in a change in control of our company.
B. | Related party transactions. |
B.Related party transactions.Services Agreement with CMB
We received legal services from CMB pursuant to a Services Agreement, dated January 1, 2006, which we believe was on arms' length terms. During the year ended December 31, 2013, we paid CMB $61,895 in consideration for its services, as compared to $265,000 for the same period in 2012. This agreement was terminated at the end of 2013.
During the year ended December 31, 2015, Euronav2017, we paid CMB a total of $0 (2014: $17,745)$34,928 (2016: $17,731, 2015: $0) for stationery provided by CMB.
Mr. Marc Saverys, the former Vice Chairman of our Board of Directors, currently controls Saverco, a company that is currently CMB's majority shareholder, and may be deemed to beneficially own 10.7%10.13% of our outstanding ordinary shares. Mr. Marc Saverys is the father of one of our directors, Mr. Ludovic Saverys.
From time to time, Saverco renders travel services to us on a transactional basis. DuringSaverco did not render any such services to us during the yearyears ended December 31, 2015, 2014, and 2013, we paid Saverco $0, $15,828, and $25,533, respectively, for these services.2017.
Registration Rights Agreement
On January 28, 2015, we entered into a registration rights agreement with companies affiliated with our former Chairman, Peter Livanos, or the Ceres Shareholders, and companies affiliated with our former Vice Chairman and current major shareholder, Marc Saverys, or the Saverco Shareholders.
Pursuant to the registration rights agreement, each of the Ceres Shareholders as a group and the Saverco Shareholders as a group will be able to piggyback on the others' demand registration. The Ceres Shareholders and the Saverco Shareholders are only treated as having made their request if the registration statement for such shareholder group's shares is declared effective.
Once we are eligible to do so, commencing 12 calendar months after the ordinary shares have been registered under the Exchange Act, the Ceres Shareholders and the Saverco Shareholders may require us to file shelf registration statements permitting sales by them of ordinary shares into the market from time to time over an extended period.period, subject to certain exceptions. The Ceres Shareholders and the Saverco Shareholders are only treated as having made their request if the registration statement for such shareholder group's shares is declared effective. The Ceres Shareholders and the Saverco Shareholders can also exercise piggyback registration rights to participate in certain registrations of ordinary shares by us.us, including through on the others' demand registration. All expenses relating to the registrations, including the participation of our executive management team in two marketed roadshows and a reasonable number of marketing calls in connection with one-day or overnight transactions, will be borne by us. The registration rights agreement also contains provisions relating to indemnification and contribution. There are no specified financial remedies for non-compliance with the registration rights agreement.
Chartering with Joint Venture Entities
Cap Isabella
On March 15, 2013, we sold the newbuilding Suezmax Cap Isabella to Belle Shipholdings Ltd., a related party, pursuant to a sale and leaseback agreement for a net selling price of $52.9 million, which was used to pay the final shipyard installment due at delivery of $55.2 million. The stock of Belle Shipholdings Ltd. is held for the benefit of immediate family members of Peter Livanos, who at the time of this transaction was the representative of our former corporate director, TankLog. Mr. Livanos notified our Board of Directors which met on March 14, 2013, that pursuant to the provisions of the Belgian Code of Companies relating to the existence of conflicts of interest, he had a direct or indirect patrimonial interest that conflicts with the interests of the Company in respect of this sale and therefore, did not participate in the deliberation or the vote that authorized us to sell the Cap Isabella on the basis of current market values. The bareboat charter was terminated on October 8, 2014 upon delivery of the vessel to its new owner.
The Cap Isabella was a newbuilding from Samsung Heavy Industries. We chartered the ship back on bareboat for a fixed period of two years with three options in our favor to extend for a further year. On July 31, 2014, Belle Shipholdings sold the Cap Isabella to a third-party. Pursuant to the sale and leaseback agreement, we are entitled to receive a share of the profit resulting from the sale of the vessel by Belle Shipholdings of approximately $4.3 million, which was recorded in the fourth quarter of 2014.
Bretta Tanker Holdings Inc. Eugenie, Devon, Capt. Michael, Maria
The Eugenie, Devon, Capt. Michael, Maria arePrior to June 2, 2016, we and Bretta Tanker Holdings Inc., or Bretta, each owned respectively, bya 50% equity interest in Fiorano, Shipholding Ltd., Larvotto, Shipholding Ltd., Fontvieille, Shipholding Ltd. and Moneghetti, Shipholding Ltd., our 50%-owned joint ventures which we own with Bretta. Johnowned the Capt. Michael, Radziwill, one of our directors, is the son of John Radziwill who owns Bretta. John Michael Radziwill is not a shareholder or director of Bretta nor is he employed by Bretta.Maria, Eugenie and Devon, respectively.
John Michael Radziwill, one of our former directors, serves as an advisor of SCP Clover Maritime, a company that manages assets and investments of Mr. John Radziwill, his father, and specifically for Bretta.
On June 2, 2016, we entered into a share swap and claims transfer agreement whereby (i) we transferred our 50% equity interest in Moneghetti and Fontvieille, and as consideration therefore, acquired from Bretta Tanker Holdings, Inc.,its 50% ownership interest in Fiorano and Larvotto; and (ii) we transferred our claims arising from the joint venture partner of Euronav inshareholder loans to Moneghetti and Fontvieille and acquired Bretta's claims arising from the four joint ventures formedshareholder loans to Fiorano and Larvotto. In addition, we paid $15.1 million to Bretta as compensation for the purposedifference in value of orderingthe vessels. As a result of this transaction, our equity interest in both Fiorano and owning four Suezmax tankers throughLarvotto increased from 50% to 100% and we are now the following holding companies:sole owner of the Suezmaxes Captain Michael and the Maria. We no longer have an equity interest in Moneghetti or Fontvieille, which own the Suezmaxes Devon and the Eugenie, respectively. Effective as of the same date, Fiorano Shipholding Limited, Fontveille Shipholding Limited,and Larvotto Shipholding Limited and Moneghetti Shipholding Limited.are fully consolidated within our consolidated group of companies.
AUp to December 31, 2015, a majority of our Suezmaxes operating in the spot market participateparticipated in an internal Revenue Sharing Agreement, or RSA, together with the above four Suezmaxes that we previously owned in joint venture.with Bretta, as well as Suezmaxes owned by third-parties. Under the RSA, each vessel owner iswas responsible for its own costs, including voyage-related expenses, but will shareshared in the net revenues, after the deduction of voyage-related expenses, retroactively on a semi-annual basis. Calculation of allocations and contributions under the RSA arewere based on a pool points system and arewere paid after the deduction of the pool fee to Euronav NV,us, as pool manager, from the gross pool income. The RSA was terminated during the course of 2016, with effect as of December 31, 2015. If this RSA had not been in place, our profit for the year ended December 31, 2015 would have been impacted with $(0.9) million (2014: $1.2 million).
Loans to Our Joint Venture Entities
Fontvieille Shareholder Loan
On April 24, 2008, we provided a shareholder loan to Euronav Hong Kong Limited in relation to Fontvieille Shipholding Limited, one of our 50%-owned joint ventures that we own with Bretta Tanker Holdings Ltd., or Bretta Tanker Holdings. The proceeds of this loan were used to partially finance the acquisition of Eugenie and working capital purposes. This loan does not bear interest, and will become due upon demand. The largest amounts outstanding during 2015, 2014, 2013, and 2012 were $29.0 million, $29.0 million, $26.2 million and $23.9 million, respectively. As of December 31, 2015 and December 31, 2014, the outstanding balances on this loan were $23.5 million and $27.8 million, respectively.
Moneghetti Shareholder Loan
On April 24, 2008, we provided a shareholder loan to Euronav Hong Kong Limited in relation to Moneghetti Shipholding Limited, one of our 50%-owned joint ventures that we own with Bretta Tanker Holdings. The proceeds of this loan were used to partially finance the acquisition of Devon and working capital purposes. This loan does not bear interest, and will become due upon demand. The largest amounts outstanding during 2015, 2014, 2013 and 2012 were $20.1 million, $21.6 million, $20.2 million and $19.2 million, respectively. As of December 31, 2015 and December 31, 2014, the outstanding balances on this loan were $17.9 million and $19.6 million, respectively.
Larvotto Shareholder Loan
On May 16, 2008, we provided a shareholder loan to Euronav Hong Kong Limited in relation to Larvotto Shipholding Limited, one of our 50%-owned joint ventures that we own with Bretta. The proceeds of this loan were used to partially finance the acquisition of Maria and working capital purposes. This loan does not bear interest, and will become due upon demand. The largest amounts outstanding during 2015, 2014, 2013 and 2012 were $30.2 million, $26.0 million, $23.5 million and $22.4 million, respectively. As of December 31, 2015 and December 31, 2014, the outstanding balances on this loan were $26.1 million and $24.2 million, respectively.
Fiorano Shareholder Loan
On August 28, 2008, we provided a shareholder loan to Euronav Hong Kong Limited in relation to Fiorano Shipholding Limited, one of our 50%-owned joint ventures that we own with Bretta. The proceeds of this loan were used to partially finance the acquisition of Capt. Michael and working capital purposes. This loan does not bear interest, and will become due upon demand. The largest amounts outstanding during 2015, 2014, 2013 and 2012 were $31.4 million, $27.5 million, $26.0 million and $24.2 million, respectively. As of December 31, 2015 and December 31, 2014, the outstanding balances on this loan were $28.1 million and $26.4 million, respectively.
93
reduced by $0.9 million.Loan Agreements of Our Joint Ventures
For a description of our Joint Venture Loan Agreements, please see "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Joint Venture Credit Facilities (at 50% economic interest)"."
Guarantees
For a description of our guarantees, please see "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Guarantees."Guarantees" and our consolidated financial statements included herein.
Properties
We lease office space in Belgium pursuant to a lease agreement with Reslea N.V., an entity jointly controlled by Saverco, one of our majority shareholders, which we believe is on arms' length terms.CMB and Exmar N.V. Under this lease, we paid an annual rent of $207,738$175,572 for the year ended December 31, 20142016 and an annual rent of $178,104$179,079 for the year ended December 31, 2015.2017. This lease expires on August 31, 2021.
We leaseleased office space, through our subsidiary Euronav Ship Management Hellas, in Piraeus, Greece, pursuant to a lease agreement with Nea Dimitra Ktimatiki Kai Emporiki S.A., an entity controlled by Ceres Shipping, which we believe iswas on arms'-length length terms. Mr. Livanos, the representative of our former corporate directors, TankLog and Ceres Investments
(Cyprus), and the former Chairman of our Board of Directors, is the Chairman and sole shareholder of Ceres Shipping. Under this lease, we paid an annual rent of $198,822$199,873 for the year ended December 31, 20142016 and an annual rent of $184,791$183,766 for the year ended December 31, 2015.2017. This lease expiresexpired on December 31, 2017.
We sublease office space in our new London, United Kingdom office, through our subsidiary Euronav (UK) Agencies Limited, pursuant to sublease agreements, dated September 25, 2014, with GasLog Services UK Limited and Unisea Maritime Limited, both parties related to Peter Livanos, the representative of our former corporate directors, TankLog and Ceres Investments (Cyprus), and the former Chairman of our Board of Directors, which we believe is on arms'-length terms.Directors. In 2014,2016 and 2017, under these subleases, we received rent of $169,052$443,643 and in 2015, under these subleases, we received $495.507.$416,995, respectively. These subleases expire on April 27, 2023.
We also sublease office space in our new London, United Kingdom office, through our subsidiary Euronav (UK) Agencies Limited, pursuant to a sublease agreement, dated September 25, 2014, with Tankers (UK) Agencies Limited, a wholly-owned subsidiary of Tankersjoint venture with International LLC, of which we own 40% of the outstanding interests, which we believe is on arms'-length terms.Seaways. In 2014,2016 and 2017, under this sublease, we received rent of $88,738,$232,882 and in $260,108.$218,594, respectively. This sublease expires on April 27, 2023.
C. | Interests of experts and counsel. |
We lease office space in Hong Kong pursuant to a lease agreement, dated January 1 2017, with Bocimar Hong Kong Limited, an entity controlled by CMB N.V. Under this lease, we paid an annual rent of $38,461 for the year ended December 31, 2017. This lease expires on August 31, 2018.C.Interests of experts and counsel.
Not applicable.
ITEM 8. | ITEM 8. FINANCIAL INFORMATION |
A. | Consolidated Statements and Other Financial Information |
A.Consolidated Statements and Other Financial InformationSee "Item 18. Financial Statements."
Legal Proceedings
On March 8, 2018, a putative class action lawsuit captioned Fragapane v. Gener8 Maritime, Inc. et al., No. 1:18-cv-02097 (S.D.N.Y.), was filed in the United States District Court for the Southern District of New York, purportedly on behalf of the public stockholders of Gener8, against Gener8, Gener8’s directors, us and the Merger Sub. On March 14, 2018, another lawsuit, captioned Mohr v. Gener8 Maritime, Inc., et al, No. 1:18-cv-02276 (S.D.N.Y.), was also filed against Gener8 and its directors. The complaints allege that our registration statement on Form F-4 (Registration No. 333-223039) violates Section 14(a) of the Securities and Exchange Act of 1934 because it omits and/or misrepresents material information concerning, among other things, the (i) sales process leading up to the Merger, (ii) financial projections used by Gener8’s financial advisor in its financial analyses and (iii) inputs underlying the financial valuation analyses that were used by Gener8’s financial advisor to support its fairness opinion. The complaints also allege that Gener8’s directors are liable under Section 20(a) of the Exchange Act as controlling persons. The Fragapane complaint further alleges that Gener8’s directors breached their fiduciary duties to Gener8’s stockholders by engaging in a flawed sales process, by agreeing to sell Gener8 for inadequate consideration and by agreeing to improper deal protection terms in the Merger Agreement. The complaints seek, among other things, injunctive relief against the proposed transaction with us as well as other equitable relief, damages and attorneys’ fees and costs. We believe that the allegations in the complaints are notwithout merit, and intend to defend them vigorously.
Neither are we involved in any other legal proceedings which we believe may have, or have had, a significant effect on our business, financial position and results of operations or liquidity, nor are we aware of any other proceedings that are pending or threatened which may have a significant effect on our business, financial position, results of operations or liquidity. From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. We expect that these claims would be covered by insurance, subject to customary deductibles. Any such claims, even if lacking merit, could result in the expenditure of managerial resources and materially adversely affect our business, financial condition and results of operations.
Capital Allocation Policy & Dividend Policy
Our Board of Directors may from time to time, declare and pay cash dividends in accordance with our Articles of Association and applicable Belgian law. The declaration and payment of dividends, if any, will always be subject to the approval of either our Board of Directors (in the case of "interim dividends") or of the shareholders (in the case of "regular dividends" or "intermediary dividends").
On April 1, 2015, we announced the adoption of our new "return to shareholders" policy, pursuant to which we intend to distribute to our shareholders 80% of our annual net consolidated profit (excluding exceptional items such as gains on the disposal of vessels), subject to the discretion of our Board of Directors, the terms of our loan agreements, and provisions of Belgian law, discussed below. Notwithstanding the adoption of this policy, our Board of Directors' primary obligation remains to act in the best interest of the Company and in doing so our Board of Directors will always consider alternatives for use of cash that might otherwise be distributed as dividends. This may include the purchase by us of our own shares, the accelerated amortisation of debt or the acquisition of vessels which we consider at that time to be accretive to shareholders' value.
Dividends, if any, will be paid in two instalments: first as an interim dividend based on the results of the first six months of our fiscal year, then as a balance payment corresponding to the final dividend.dividend once the full year results have been audited and presented to our shareholders for approval. The interim dividend payout ratio may typically be more conservative than the yearly payout and will take into account any other form of at least 80%return of net consolidated profit. At our annual shareholders' meeting held on May 13, 2015, our shareholders approvedcapital made over the distribution of a gross dividend in the amount of $0.25 per share to all shareholders, which was paid in May 2015. In addition, on the occasion of the announcement of our half year results in August 2015, our Board of Directors declared an interim dividend in the amount of $0.62 per share, which was paid in September 2015.
same period.
Pursuant to the dividend policy set out above, our Board of Directors will continue to assess the declaration and payment of dividends upon consideration of our financial results and earnings, restrictions in our debtloan agreements, market prospects, current capital expenditures, commitments, investment opportunities, and the provisions of Belgian law affecting the payment of dividends to shareholders and other factors.
As adopted by our Board of Directors in August 2017, our current dividend policy, as of the date of this annual report, is to pay a minimum fixed dividend of at least $0.12 per share per year provided that, at the sole discretion of our Board of Directors, (i) the Company has sufficient balance sheet strength and liquidity and (ii) sufficient earnings visibility from fixed income contracts. In addition, if our results per share are positive and exceed the amount of the fixed dividend over the same period, the additional income during such period will be allocated to either additional cash dividends, the purchase by us of our own shares, accelerated amortization of debt or the acquisition of vessels which the Board of Directors considers, at that time, to be accretive to shareholders’ value. As part of this distribution policy we will continue to include exceptional capital losses when assessing additional dividends but also continue to exclude exceptional capital gains when assessing additional dividend payments. In addition, as a part of this dividend policy, we will not include non-cash items affecting the results such as deferred tax assets or deferred tax liabilities.
We may stop paying dividends at any time and cannot assure you that we will pay any dividends in the future or of the amount of such dividends. For instance, we did not declare or pay any dividends from 2010 until 2014.May 2015. Since May 2015, we have declared and paid six dividends to shareholders in an aggregate amount of $2.52 per share.
The current dividend payment policy as adopted by the Board is the following: the company intends to pay a minimum fixed dividend of at least USD 0.12 in total per share per year provided (a) the company has in the view of the board, sufficient balance sheet strength and liquidity combined (b) with sufficient earnings visibility from fixed income contracts. In addition, if the results per share are positive and exceed the amount of the fixed dividend, that additional income* will be allocated to either: additional cash dividends, share buy-back, accelerated amortization of debt or the acquisition of vessels which the board considers at that time to be accretive to shareholders’ value.
*Treatment of capital losses and capital gains
As part of its distribution policy Euronav will continue to include exceptional capital losses when assessing additional dividends but also continue to exclude exceptional capital gains when assessing additional dividend payments.
*Treatment of Deferred Tax Assets (DTA) and Deferred Tax Liabilities (DTL)
As part of its distribution policy Euronav will not include non-cash items affecting the results such as DTA or DTL.
In general, under the terms of our debt agreements, we are not permitted to pay dividends if there is or will be as a result of the dividend a default or a breach of a loan covenant. Please see "Item 5. Operating and Financial Review and Prospects" for more information relating to restrictions on our ability to pay dividends under the terms of the agreements governing our indebtedness. Belgian law generally prohibits the payment of dividends unless net assets on the closing date of the last financial year do not fall beneath the amount of the registered capital and, before the dividend is paid out, 5% of the net profit is allocated to the legal reserve until this legal reserve amounts to 10% of the share capital. No distributions may occur if, as a result of such distribution, our net assets would fall below the sum of (i) the amount of our registered capital, (ii) the amount of such aforementioned legal reserves, and (iii) other reserves which may be required by our Articles of Association or by law, such as the reserves not available for distribution in the event we hold treasury shares. We may not have sufficient surplus in the future to pay dividends and our subsidiaries may not have sufficient funds or surplus to make distributions to us. We can give no assurance that dividends will be paid at all. In addition, the corporate law of jurisdictions in which our subsidiaries are organized may impose restrictions on the payment or source of dividends under certain circumstances.
For a discussion of the material tax consequences regarding the receipt of dividends we may declare, please see "Item 10. Additional Information—E. Taxation."
Please see Note 2829 - Subsequent Events to our Audited Consolidated Financial Statements included herein.
ITEM 9. | ITEM 9. OFFER AND THE LISTING |
A. | Offer and Listing Details. |
A.Offer and Listing Details.
Our share capital consists of ordinary shares issued without par value. Under Belgian law, shares without par value are deemed to have a "nominal" value equal to the total amount of share capital divided by the number of shares. As of March 24, 2016,March19, 2018, our issued (and fully paid up) share capital was $173,046,122.14, which is represented by 159,208,949 ordinary shares with no par value. The nominalfractional value of our ordinary shares is $1.086912 per share.
Our ordinary shares have traded on Euronext Brussels, since December 1, 2004 and on the NYSE since January 23, 2015, under the symbol "EURN." We maintain the Belgian Register and, for the purposes of trading our shares on the NYSE, the U.S. Register.
All shares on Euronext Brussels trade in euros, and all shares on the NYSE trade in U.S. dollars. The following tables set forth the high and low closing prices for our ordinary shares for the periods indicated, as reported by the NYSE and Euronext Brussels, respectively.
| | NYSE | | | Euronext Brussels | |
| | High (US$) | | | (US$) Low | | | High (EUR) | | | Low (EUR) | |
For the Fiscal Year Ended: | | | | | | | | | | | | |
December 31, 2011 | | | - | | | | - | | | | 13.12 | | | | 2.95 | |
December 31, 2012 | | | - | | | | - | | | | 7.25 | | | | 3.74 | |
December 31, 2013 | | | - | | | | - | | | | 8 | | | | 3.05 | |
December 31, 2014 | | | - | | | | - | | | | 10.50 | | | | 7.35 | |
December 31, 2015 | | | 16.32 | * | | | 10.95 | * | | | 15.10 | | | | 9.60 | |
| | NYSE | | | Euronext Brussels | |
| | High (US$) | | | (US$) Low | | | High (EUR) | | | Low (EUR) | |
For the Quarter Year Ended: | | | | | | | | | | | | |
March 31, 2014 | | | - | | | | - | | | | 10.50 | | | | 8.23 | |
June 30, 2014 | | | - | | | | - | | | | 9.39 | | | | 7.86 | |
September 30, 2014 | | | - | | | | - | | | | 9.94 | | | | 8.21 | |
December 31, 2014 | | | - | | | | - | | | | 10.45 | | | | 7.35 | |
March 31, 2015 | | | 12.54 | * | | | 10.95 | * | | | 11.61 | | | | 9.60 | |
June 30, 2015 | | | 15.44 | | | | 12.61 | | | | 13.67 | | | | 11.57 | |
September 30, 2015 | | | 16.32 | | | | 12.14 | | | | 15.10 | | | | 10.89 | |
December 31, 2015 | | | 16.02 | | | | 12.65 | | | | 14.22 | | | | 11.45 | |
| | NYSE | | | Euronext Brussels | |
| | High (US$) | | | (US$) Low | | | High (EUR) | | | Low (EUR) | |
For the Month: | | | | | | | | | | | | |
September 2015 | | | 14.86 | | | | 13.12 | | | | 13.28 | | | | 11.65 | |
October 2015 | | | 16.02 | | | | 14.49 | | | | 14.22 | | | | 12.79 | |
November 2015 | | | 15.06 | | | | 12.88 | | | | 13.68 | | | | 12.10 | |
December 2015 | | | 13.85 | | | | 12.65 | | | | 12.84 | | | | 11.45 | |
January 2016 | | | 13.44 | | | | 10.09 | | | | 12.44 | | | | 9.06 | |
February 2016 | | | 12.27 | | | | 9.54 | | | | 10.92 | | | | 8.88 | |
March 2016 (through and including March 24, 2016) | | | 10.83 | | | | 9.72 | | | | 9.66 | | | | 8.67 | |
* | Period for the NYSE begins on January 23, 2015. |
|
| | | | | | | | | | | | | | |
| | NYSE | | | Euronext Brussels |
| | High (US$) |
| | | Low (US$) |
| | | High (EUR) |
| | Low (EUR) |
|
For the Fiscal Year Ended: | | | | | | | | | | |
December 31, 2013 | | — |
| | | — |
| | | 8 |
| | 3.05 |
|
December 31, 2014 | | — |
| | | — |
| | | 10.50 |
| | 7.35 |
|
December 31, 2015 | | 16.32 |
| * | | 10.95 |
| * | | 15.10 |
| | 9.60 |
|
December 31, 2016 | | 13.44 |
| | | 6.70 |
| | | 12.44 |
| | 6.40 |
|
December 31, 2017 | | 9.25 |
| | | 6.90 |
| | | 8.01 |
| | 6.05 |
|
|
| | | | | | | | | | | | | | |
| | NYSE | | | Euronext Brussels |
| | High (US$) |
| | | Low (US$) |
| | | High (EUR) |
| | Low (EUR) |
|
For the Quarter Ended: | | | | | | | | | | |
June 30, 2016 | | 11.37 |
| | | 8.79 |
| | | 10.07 |
| | 7.95 |
|
September 30, 2016 | | 9.44 |
| | | 7.43 |
| | | 8.46 |
| | 6.81 |
|
December 31, 2016 | | 8.26 |
| | | 6.70 |
| | | 7.72 |
| | 6.40 |
|
March 31, 2017 | | 8.55 |
| | | 7.65 |
| | | 8.01 |
| | 7.18 |
|
June 30, 2017 | | 8.25 |
| | | 7.20 |
| | | 7.65 |
| | 6.49 |
|
September 30, 2017 | | 8.10 |
| | | 6.90 |
| | | 6.98 |
| | 6.05 |
|
December 31, 2017 | | 9.25 |
| | | 8.00 |
| | | 7.73 |
| | 6.84 |
|
March 31, 2018 | | 9.55 |
| | | 7.65 |
| | | 7.96 |
| | 6.33 |
|
|
| | | | | | | | | | | | |
| | NYSE | | Euronext Brussels |
| | High (US$) |
| | Low (US$) |
| | High (EUR) |
| | Low (EUR) |
|
For the Month: | | | | | | | | |
October 2017 | | 8.60 |
| | 8.00 |
| | 7.29 |
| | 6.84 |
|
November 2017 | | 8.90 |
| | 8.20 |
| | 7.51 |
| | 7.07 |
|
December 2017 | | 9.25 |
| | 8.10 |
| | 7.73 |
| | 6.84 |
|
January 2018 | | 9.55 |
| | 8.80 |
| | 7.96 |
| | 6.98 |
|
February 2018 | | 8.45 |
| | 7.65 |
| | 6.86 |
| | 6.33 |
|
March 2018 | | 8.75 |
| | 8.10 |
| | 7.05 |
| | 6.51 |
|
April 2018 (through and including April 16, 2018) | | 8.80 |
| | 8.05 |
| | 7.06 |
| | 6.67 |
|
* Period for the NYSE begins on January 23, 2015.
B.Plan of Distribution
Not applicable
Our ordinary shares trade on the NYSE and Euronext Brussels under the symbol "EURN."
For a discussion of our ordinary shares which are listed and eligible for trading on the NYSE and Euronext Brussels, please Seesee "Item 10. Additional Information — B. Memorandum and Articles of Association — Share Register."
Not applicable.
Not applicable.
Not applicable.
ITEM 10. | ITEM 10. ADDITIONAL INFORMATION |
Not applicable.
B. | Memorandum and Articles of Association. |
B.Memorandum and Articles of Association.The following is a description of the material terms of our Articles of Association currently in effect. Because the following is a summary, it does not contain all information that you may find useful. For more complete information, you should read our Articles of Association which have been filed as Exhibit 1.1 to thisour annual report.report on Form 20-F filed with the SEC on April 5, 2016, which is incorporated by reference herein.
Purpose
Our objectives are set forth in Section I, Article 2 of our Articles of Association. Our purpose, as stated therein, is to engage in operations related to maritime transport and shipowning, particularly the chartering in and out, the acquisition and sale of ships, and the opening and operation of regular shipping lines, but is not restricted to these activities.
Issued and Authorized Capitalization
As of March 24, 2016,19, 2018, our issued (and fully paid up) share capital was $173,046,122.14 which is represented by 159,208,949 ordinary shares with no par value. The shareholders' meeting of May 13, 2015 has authorized the Board of Directors to increase the share capital one or several times by a total maximum amount of $150,000,000 for a period of five years as of June 19, 2015. Taking into account the fractional value of $1.086912 per share, the authorized capital of $150,000,000 allows the Board to issue additionally up to 138,005,652 ordinary shares without future shareholder approval. As of March 24, 201619, 2018 and taking into account that no ordinary shares have been issued since the shareholders' meeting of May 13, 2015, our Board of Directors is authorized to issue up to an additional 138,005,652 ordinary shares without future shareholder approval.
Share History
On January 10, 2014, we received gross proceeds of $50.0 million upon the issuance of 5,473,571 of our existing ordinary shares in an equity offering at €6.70 per share (based on the USD/EUR exchange rate applied by the European Central Bank of EUR 1.00 per $1.3634 in effect on January 6, 2014). The proceeds of the offering were used to partially finance the purchase price of the 2014 Fleet Acquisition Vessels.
On January 13, 2014, we issued 60 perpetual convertible preferred equity securities, each with a denomination of $2.5 million, which are convertible into our existing ordinary shares at the holders' option. The proceeds of the issuance are being used to strengthen our balance sheet liquidity, to diversify funding sources, and for general corporate and working capital purposes.
On February 6, 2014, we issued 9,459,286 ordinary shares upon the conversion of 30 out of the 60 issued and outstanding perpetual convertible preferred equity securities.
On February 24, 2014, we received gross proceeds of $300.0 million upon the issuance of 32,841,528 of our existing ordinary shares in an equity offering at €6.70 per share (based on the USD/EUR exchange rate applied by the European Central Bank of EUR 1.00 per $1.3634 in effect on January 6, 2014). The proceeds of the offering were used to partially finance the purchase price of the 2014 Fleet Acquisition Vessels.
During the period from November 12, 2013 through April 22, 2014, we issued an aggregate of 20,969,473 existing ordinary shares upon conversion of $124,900,000 in aggregate principal amount of 1,249 Convertible Notes due 2018 at the holders' option. On February 20, 2014, we issued an optional redemption notice and on April 9, 2014, redeemed the last convertible note due 2018 outstanding as of April 2, 2014 for an aggregate of $101,227.78. As a result, no more convertible notes due 2018 are outstanding since that date.
On July 14, 2014, we received gross proceeds of $125.0 million upon the issuance of 10,556,808 of our ordinary shares in an underwritten private offering in Belgium mainly to a group of qualified investors at €8.70 per share (or $11.84 per share based on the USD/EUR exchange rate of EUR 1.00 per $1.3610). The proceeds of the offering were used to partially finance the purchase price of the four VLCC Acquisition Vessels.
In January 2015, we completed our underwritten initial public offering in the United States of 18,699,000 ordinary shares at $12.25 per share, for gross proceeds of $229.1 million.
In January 2015, we redeemed the remaining 250 outstanding convertible notes due 2015, with a face value of $100,000, at par. We held 18 of these notes. As a result, no more convertible notes due 2015 are outstanding.
On February 6, 2015, we issued 9,459,283 ordinary shares upon the conversion of the remaining 30 outstanding perpetual convertible preferred equity securities. As a result, no more perpetual convertible preferred equity securities are outstanding.
In March 2015, we completed our offer to exchange unregistered ordinary shares that were previously issued in Belgium (other than ordinary shares owned by our affiliates) for ordinary shares that were registered under the Securities Act of 1933, as amended, or the U.S. Exchange Offer, in which an aggregate of 42,919,647 ordinary shares were validly tendered and exchanged.
In January 2016, we repurchased 500,000 of our ordinary shares at the average price of $10.3705 per share. In June 2016, we repurchased 192,415 of our ordinary shares at the average price of $8.8588.
Ordinary Shares
Each outstanding ordinary share entitles the holder to one vote on all matters submitted to a vote of shareholders. Each share represents an identical fraction of the share capital and is either in registered or dematerialized form.
Share Register
We maintain a share register in Belgium, the Belgian Register, maintained by Euroclear Belgium, on which our Belgian Shares are reflected. Our U.S. Shares are reflected in our U.S. Register that is maintained by Computershare.
The U.S. Shares have CUSIP B38564 108. Only these shares, which are reflected in the U.S. Register, may be traded on the NYSE.
The Belgian Shares have ISIN BE0003816338. Only these shares, which are reflected in the Belgian Register, may be traded on Euronext Brussels.
For Belgian Shares, including shares that were either acquired on Euronext Brussels or prior to our initial public offering, to be traded on the NYSE and for U.S. Shares to be traded on Euronext Brussels, shareholders must reposition their shares to the appropriate component of our share register (the U.S. Register for listing and trading on the NYSE and the Belgian Register for listing and trading on Euronext Belgium). As part of the repositioning procedure, the shares to be repositioned would be debited from the Belgian Register or the U.S. Register, as applicable, and cancelled from the holder's securities account, and simultaneously credited to the relevant register (the Belgian Register for shares to be eligible for listing and trading on Euronext Brussels and the U.S. Register for shares to be eligible for listing and trading on the NYSE) and deposited in the holder's securities account. The repositioning procedure is normally completed within three trading days, but may take longer and the Company cannot guarantee the timing. The Company may suspend the repositioning of shares for periods of time, which we refer to as "freeze periods" for certain corporate events, including the payment of dividends or shareholder meetings. In such cases, the Company plans to inform its shareholders about such freeze periods on its website.
Please see the Company's website www.euronav.com for instructions on how to reposition your shares to be eligible for trading on either the NYSE or Euronext Brussels.
Dividend Rights
For a summary of our dividend policy and legal basis for dividends under Belgian law, see "Item 8: Financial Information – Dividend Policy."
Liquidation Rights
In the event of the dissolution and liquidation of the Company, the assets remaining after payment of all debts, liquidation expenses and taxes shall be distributed to the holders of our ordinary shares, each receiving a sum proportional to the number of our shares held by them, subject to prior liquidation rights of any preferred stock that may be outstanding.
Perpetual Convertible Preferred Equity Issues
On January 13, 2014, we issued 60 perpetual convertible preferred equity securities for net proceeds of $150.0 million, which arewere convertible into ordinary shares of us, at the holders' option. The perpetual convertible preferred equity securities bearbore interest at 6% during the first 5 years,, which iswas payable annually in arrears in cash or in shares at our option. On February 6, 2014, we issued 9,459,286 ordinary shares upon the conversion of 30 perpetual convertible preferred equity securities, representing a face value of $75.0 million, and on February 6, 2015, we issued 9,459,283 ordinary shares upon our exercise of our right to force the conversion of the remaining 30 perpetual convertible preferred equity securities, representing a face value of $75.0 million. As a result, no more perpetual convertible preferred equity securities are outstanding.
Directors
Our Articles of Association provide that our Board of Directors shall consist of at least five members. Our Board of Directors currently consists of tenseven members. The Articles of Association provide that the members of the Board of Directors remain in office for a period not exceeding four4 years and are eligible for re-election. The term of a director comes to an end immediately after the annual shareholders' meeting of the last year of his term. Directors can be dismissed at any time by the vote of a majority of our shareholders. Each year, there may be one or more directors who have reached the end of their current term of office and may be reappointed.
The Board of Directors is our ultimate decision-making body, with the exception of the matters reserved for the general shareholders' meeting as provided by the Belgian Companies Code or by our Articles of Association.
Belgian law does not regulate specifically the ability of directors to borrow money from the Company. Our Corporate Governance Charter provides that as a matter of principle, no loans or advances will be granted to any director (except for routine advances for business-related expenses in accordance with our rules for reimbursement of expense).
Article 523 of the Belgian Code of Companies provides that if one of our directors directly or indirectly has a personal financial interest that conflicts with a decision or transaction that falls within the powers of our Board, the director concerned must inform our other directors before our Board makes any decision on such transaction. The statutory auditor must also be notified. The director may not participate in the deliberation or vote on the conflicting decision or transaction. An excerpt from the minutes of the meeting of our Board that sets forth the financial impact of the matter on us and justifies the decision of our Board must be published in our annual report. The statutory auditor's report to the annual accounts must contain a description of the financial impact on us of each of the decisions of our Board where director conflicts arise.
Shareholder Meetings
The annual general shareholders' meeting is held annually on the second Thursday of May at 11 a.m. (Central European Time). If this day is a legal holiday, the meeting is held on the preceding business day.
The Board of Directors or the statutory auditor (or, as the case may be, the liquidators) can convene a special or extraordinary general shareholders' meeting at any time if the interests of the Company so require. Such general meetings must also be convened whenever requested by the shareholders who together represent a fifth of our share capital within three weeks of their request, provided that the reason of convening a special or extraordinary general shareholders' meeting is given.
A shareholder only has the right to be admitted to and to vote at the general shareholders' meeting on the basis of the registration of the shares on the fourteenth calendar day at 12 p.m. (Belgian time) preceding the date of the meeting, the day of the meeting not included (the "Record Date"), either by registration in the Company's register of registered shares, either by their registration in the accounts of an authorized custody account keeper or clearing institution, regardless of the number of shares owned by the shareholder on the day of the general shareholders' meeting.
The shareholder must notify the Company or a designated person of its intention to take part in the general shareholders' meeting at the sixth calendar day preceding the date of the meeting, the day of the meeting not included, in the way mentioned in the convening notice.
The financial intermediary of the authorized custody account keeper or clearing institution delivers a certificate to the shareholders of dematerialized shares which are tradable on Euronext Brussels stating the number of dematerialized shares which are registered in the name of the shareholder on its accounts at the Record Date and with which the shareholder intends to take part in the general shareholders' meeting.
A shareholder of shares which are tradable on the New York Stock Exchange only has the right to be admitted to and vote at the general meeting if such shareholder complies with the conditions and formalities set out in the convening notice, as decided upon by the board of directors in compliance with all applicable legal provisions.
The convening notice for each general shareholders' meeting shall be disclosed to our shareholders in compliance with all applicable legal terms and provisions, including on our website www.euronav.com
In general, there is no quorum requirement for the general shareholders' meeting and decisions are taken with a simple majority of the votes, except as provided by law on certain matters.
Preferential Subscription Rights
In the event of a share capital increase for cash by way of the issue of new shares, or in the event of an issue of convertible bonds or warrants, our existing shareholders have a preferential right to subscribe, pro rata, to the new shares, convertible bonds or warrants.
In accordance with the provisions of the Belgian Code of Companies and our Articles of Association, the Company, when issuing shares, has the authority to limit or cancel the preferential subscription right of the shareholders in the interest of the Company in respect of such issuance. This limitation or cancellation can be decided upon in favor of one or more particular persons subscribing to that issuance.
When cancelling the preferential right of the shareholders, priority may be given to the existing shareholders for the allocation of the newly issued shares.
Disclosure of Major Shareholdings
In accordance with a May 2, 2007 Belgian law relating to disclosure of major holdings in issuers whose shares are admitted to trading on a regulated market and containing miscellaneous provisions requiring investors in certain publicly-traded corporations whose investments reach certain thresholds to notify the Company and the Belgian Financial Services and Markets Authority, or the FSMA, of such change as soon as possible and in any event within four trading days. The minimum disclosure threshold is 5% of the Company's issued voting share capital. Further details in this respect can be found in article 14 of our Articles of Association and on the website of the FSMA: http://www.fsma.be/en/Supervision/fm/gv/ah/wetteksten/wetgeving.aspx.
Purchase and Sales of Our Own Shares
We may only acquire our own ordinary shares pursuant to a decision by our shareholders' meeting taken under the conditions of quorum and majority provided for in the Belgian Companies Code.
The extraordinary shareholders' meeting of May 13, 2015 resolved to authorize the Board of Directors of the Company and its direct subsidiaries to acquire, in accordance with the conditions of the law, with available assets in the sense of article 617 of the Belgian Companies Code, for a period of five years as from May 13, 2015, a maximum of twenty per cent of the existing ordinary shares of the Company where all ordinary shares already purchased by the Company and its direct subsidiaries need to be taken into account and at a price per share equal to the average of the last five closing prices of the Company's ordinary shares at Euronext Brussels before the acquisition, increased with a maximum of twenty percent (20%) or decreased with a maximum of twenty percent (20%) of the said average.
Anti-Takeover Effect of Certain Provisions of Our Articles of Association
Our Articles of Association contain provisions which may have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our Board of Directors to maximize shareholder value in connection with any unsolicited offer to acquire us. However, these anti-takeover provisions could also discourage, delay or prevent (1) the merger or acquisition of us by means of a tender offer, a proxy contest or otherwise that a shareholder may consider in its best interest and (2) the removal of incumbent officers and directors.
For example, a shareholder's voting rights can be suspended with respect to ordinary shares that give such shareholder the right to voting rights above 5% (or a multiple of 5%) of the total number of voting rights attached to our ordinary shares on the date of the relevant general shareholder's meeting, unless we and the Belgian Financial Services and Markets Authority have been informed at least 20 days prior to the date of the relevant general shareholder's meeting in which the holder wishes to vote. In addition, our boardBoard of directorsDirectors is authorized in our Articles of Association to (i) increase the Company's capital within the framework of the authorized capital with a maximum amount of $150,000,000 and (ii) buy back and sell the Company's own shares. These authorizations may be used by the boardBoard of directorsDirectors in the event of a hostile takeover bid.
98Limitations on the Right to Own Securities
Neither Belgian law nor our articles of association imposes any general limitation on the right of non-residents or foreign persons to hold our ordinary shares or exercise voting rights on our ordinary shares other than those limitations that would generally apply to all shareholders.
Transfer agent
The registrar and transfer agent for our ordinary shares in the United States is Computershare Trust Company N.A. Our Belgian Register is maintained by Euroclear Belgium.
We refer you to "Item 4. Information on the Company—B. Business Overview," "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Credit Facilities," Item 6. Directors, Senior Management and Employees — E. Share Ownership— Equity Incentive Plan," and "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions" for a discussion of our material agreements that we have entered into outside the ordinary course of our business during the two-year period immediately preceding the date of this annual report.
Other than as set forth above, there were no material contracts, other than contracts entered into in the ordinary course of business, to which we were a party during the two year period immediately preceding the date of this annual report.
D.Exchange controls.
There are no Belgian exchange control regulations that would affect the import or export of capital, including the availability of cash and cash equivalents for use by the company's group or the remittance of dividends, interest or other payments to nonresident holders of the Company's securities.
See "Item 10. Additional information—E. Taxation" for a discussion of the tax treatment of dividends.
United States Federal Income Tax Considerations
In the opinion of Seward & Kissel LLP, our United States counsel, the following are the material United States federal income tax consequences to us and our U.S. Holders and Non-U.S. Holders, each as defined below, of our activities and the ownership of our ordinary shares. This discussion does not purport to deal with the tax consequences of owning ordinary shares to all categories of investors, some of which, such as banks, insurance companies, real estate investment trusts, regulated investment companies, grantor trusts, tax-exempt organizations, dealers in securities or currencies, traders in securities that elect the mark-to-market method of accounting for their securities, investors whose functional currency is not the United States dollar, investors that are or own our ordinary shares through partnerships or other pass-through entitles, investors that own, actually or under applicable constructive ownership rules, 10% or more of our ordinary shares, persons that will hold the ordinary shares as part of a hedging transaction, "straddle" or "conversion transaction," persons who are deemed to sell the ordinary shares under constructive sale rules and persons who are liable for the alternative minimum tax may be subject to special rules. The following discussion of United States federal income tax matters is based on the United States Internal Revenue Code of 1986, as amended, or the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United States Department of the Treasury, or the Treasury Regulations, all of which are subject to change, possibly with retroactive effect. This discussion deals only with holders who purchase ordinary and hold the ordinary shares as a capital asset. The discussion below is based, in part, on the description of our business as described herein and assumes that we conduct our business as described herein. Unless otherwise noted, references in the following discussion to the "Company," "we" and "us" are to Euronav NV and its subsidiaries on a consolidated basis.
United States Federal Income Taxation of the Company
Taxation of Operating Income: In General
Unless exempt from U.S. federal income taxation under the rules discussed below, a foreign corporation is subject to U.S. federal income taxation in respect of any income that is derived from the use of vessels, from the hiring or leasing of vessels for use on a time, voyage or bareboat charter basis, from the participation in a pool, partnership, strategic alliance, joint operating agreement, code sharing arrangements or other joint venture it directly or indirectly owns or participates in that generates such income, or from the performance of services directly related to those uses, which we refer to as "shipping income," to the extent that the shipping income is derived from sources within the United States. For these purposes, 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States constitutes income from sources within the United States, which we refer to as "U.S.-source shipping income."
Shipping income attributable to transportation that both begins and ends in the United States is considered to be 100% from sources within the United States. We are not permitted by law to engage in transportation that produces income which is considered to be 100% from sources within the United States.
Shipping income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from sources outside the United States. Shipping income derived from sources outside the United States will not be subject to any U.S. federal income tax.
In the absence of exemption from tax under Section 883 of the Code or an applicable U.S. income tax treaty, our gross U.S.-source shipping income would be subject to a 4% tax imposed without allowance for deductions as described below.
Exemption of Operating Income from U.S. Federal Income Taxation
Under the U.S.-Belgium income tax treaty (the "Belgian Treaty"), we will be exempt from U.S. federal income tax on our U.S.-source shipping income if (1) we are resident in Belgium for Belgian income tax purposes and (2) we satisfy one of the tests under the Limitation on Benefits Provision of the Belgian Treaty. We believe that we satisfy the requirements for exemption under the Belgian Treaty for our 2015 year2017 and possibly for our future taxable years. Alternatively, beginning with our 2015 taxable year, we may qualify for exemption under Section 883, as discussed below.
Under Section 883 of the Code and the regulations there under, we will be exempt from U.S. federal income tax on our U.S.-source shipping income if:
(1)we are organized in a foreign country, or our country of organization, that grants an "equivalent exemption" to corporations organized in the United States; and
(2)either
(A)more than 50% of the value of our stock is owned, directly or indirectly, by individuals who are "residents" of our country of organization or of another foreign country that grants an "equivalent exemption" to corporations organized in the United States, which we refer to as the "50% Ownership Test," or
(B)our stock is "primarily and regularly traded on an established securities market" in our country of organization, in another country that grants an "equivalent exemption" to United States corporations, or in the United States, which we refer to as the "Publicly-Traded Test".
Each of the jurisdictions where our ship-owning subsidiaries are incorporated grant an "equivalent exemption" to U.S. corporations. Therefore, we will be exempt from U.S. federal income tax with respect to our U.S.-source shipping income if either the 50% Ownership Test or the Publicly-Traded Test is met.
We do not currently anticipate circumstances under which we would be able to satisfy the 50% Ownership Test given the widely held nature of our ordinary shares. Our ability to satisfy the Publicly-Traded Test is discussed below.
Treasury Regulations provide, in pertinent part, that stock of a foreign corporation will be considered to be "primarily traded"“primarily traded” on an established securities market if the number of shares of each class of stock that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during that year on established securities markets in any other single country. After the initial public offering, ourOur ordinary shares which constitute our sole class of issuedare “primarily traded” on Euronext for this purpose even though the ordinary shares are also listed and outstanding stock, will continue to be "primarily traded"traded on the NYSE.
Under the Treasury Regulations, our ordinary shares will be considered to be "regularly traded" on an established securities market if one or more classes of our stock representing more than 50% of our outstanding shares, by total combined voting power of all classes of stock entitled to vote and total value, is listed on the market which we refer to as the listing threshold. Our ordinary shares our sole class of stock, are listed on the NYSE and therefore we satisfy the listing requirement.
It is further required that with respect to each class of stock relied upon to meet the listing threshold, (i) such class of stock be traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or one-sixth of the days in a short taxable year, which we refer to as the "trading frequency test"; and (ii) the aggregate number of shares of such class of stock traded on such market is at least 10% of the average number of shares of such class of stock outstanding during such year or as appropriately adjusted in the case of a short taxable year, which we refer to as the "trading volume test". We believe we will satisfysatisfied the trading frequency and trading volume tests beginning with our 2015for the 2017 taxable year. Even if this werewas not the case, the Treasury Regulations provide that the trading frequency and trading volume tests will be deemed satisfied if, as is the case with our ordinary shares, such class of stock is traded on an established securities market in the United States and such stock is regularly quoted by dealers making a market in such stock.
Notwithstanding the foregoing, the Treasury Regulations provide, in pertinent part, that a class of our stock will not be considered to be "regularly traded" on an established securities market for any taxable year if 50% or more of the vote and value of the outstanding shares of such class of stock are owned, actually or constructively under specified stock attribution rules, on more than half the days during the taxable year by persons who each own 5% or more of the vote and value of the outstanding shares of such class of stock, which we refer to as the "5 Percent Override Rule."
For purposes of being able to determine the persons who own 5% or more of our stock, or "5% Shareholders," the Treasury Regulations permit us to rely on those persons that are identified on Schedule 13G and Schedule 13D filings with the SEC, as having a 5% or more beneficial interest in our ordinary shares. The Treasury Regulations further provide that an investment company identified on a SEC Schedule 13G or Schedule 13D filing which is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% shareholder for such purposes.
In the event the 5 Percent Override Rule is triggered, the Treasury Regulations provide that the 5 Percent Override Rule will not apply if we can establish that among the closely-held group of 5% Shareholders, there are sufficient 5% Shareholders that are considered to be qualified shareholders for purposes of Section 883 of the Code to preclude non-qualified 5% Shareholders in the closely-held group from owning 50% or more of each class of our stock for more than half the number of days during such year.
We believe that we and each of our subsidiaries qualify for exemption under Section 883 of the Code for our 20152017 taxable year. We also expect that we and each of our subsidiaries will qualify for this exemption for our subsequent taxable years. However, there can be no assurance in this regard. For example, if our 5% Stockholders own 50% or more of our ordinary shares, we would be subject to the 5% Override Rule unless we can establish that among the closely-held group of 5% Stockholders, there are sufficient 5% Stockholders that are qualified stockholders for purposes of Section 883 of the Code to preclude non-qualified 5% Stockholders in the closely-held group from owning 50% or more of our ordinary shares for more than half the number of days during the taxable year. In order to establish this, sufficient 5% Stockholders that are qualified stockholders would have to comply with certain documentation and certification requirements designed to substantiate their identity as qualified stockholders. These requirements are onerous and there is no assurance that we will be able to satisfy them.
Taxation in the Absence of Exemption under Section 883 of the Code
To the extent the benefits of Section 883 of the Code are unavailable, our U.S.-source shipping income, to the extent not considered to be "effectively connected" with the conduct of a U.S. trade or business, as described below, would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, which we refer to as the "4% gross basis tax regime". Since under the sourcing rules described above, no more than 50% of our shipping income would be treated as being derived from U.S. sources, the maximum effective rate of U.S. federal income tax on our shipping income would never exceed 2% under the 4% gross basis tax regime.
To the extent the benefits of the exemption under Section 883 of the Code are unavailable and our U.S.-source shipping income is considered to be "effectively connected" with the conduct of a U.S. trade or business, as described below, any such "effectively connected" U.S.-source shipping income, net of applicable deductions, would be subject to the U.S. federal corporate income tax currently imposed at rates of up to 35%. In with respect to the 2017 taxable year. The U.S. federal corporate income tax rate will be 21% for tax years beginning after December 31, 2017.In addition, we may be subject to the 30% "branch profits" tax on earnings effectively connected with the conduct of such U.S. trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of such U.S. trade or business.
Our U.S.-source shipping income would be considered "effectively connected" with the conduct of a U.S. trade or business only if:
| · | we have, or are considered to have, a fixed place of business in the United States involved in the earning of shipping income; and |
| · | substantially all of our U.S.-source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States. |
We do not currently have, nor intend to have or permit circumstances that would result in having, any vessel operating to the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other activities, we believe that none of our U.S.-source shipping income will be "effectively connected" with the conduct of a U.S. trade or business.
U.S. Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883 of the Code, we will not be subject to U.S. federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under U.S. federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.
United States Federal Income Taxation of U.S. Holders
As used herein, the term "U.S. Holder" means a beneficial owner of ordinary shares that is a United States citizen or resident, United States corporation or other United States entity taxable as a corporation, an estate the income of which is subject to United States federal income taxation regardless of its source, or a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or (ii) the trust has a valid election in effect to be treated as a United States person for United States federal income tax purposes.
If a partnership holds our ordinary shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our ordinary shares, you are encouraged to consult your tax advisor.
Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to our ordinary shares to a U.S. Holder will generally constitute dividends, which may be taxable as ordinary income or "qualified dividend income" as described in more detail below, to the extent of our current and accumulated earnings and profits, as determined under United States federal income tax principles. Distributions in excess of our earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holder's tax basis in the holder's ordinary shares on a dollar-for-dollar basis and thereafter as capital gain. Because we are not a United States corporation, U.S. Holders that are corporations will generally not be entitled to claim a dividends received deduction with respect to any distributions they receive from us. Dividends paid with respect to our ordinary shares will generally be treated as "passive category income" or, in the case of certain types of U.S. Holders, "general category income" for purposes of computing allowable foreign tax credits for United States foreign tax credit purposes.
Dividends paid on our ordinary shares to a U.S. Holder who is an individual, trust or estate (a "U.S. Non-Corporate Holder") will generally be treated as "qualified dividend income" that is taxable to such U.S. Non-Corporate Holders at preferential tax rates provided that (1) either we qualify for the benefits of the Belgian Treaty (which we expect to be the case) or the ordinary shares are readily tradable on an established securities market in the United States (such as the NYSE, on which our ordinary shares are listed); (2) we are not a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year (as discussed below); (3) the U.S. Non-Corporate Holder has owned the ordinary shares for more than 60 days in the 121-day period beginning 60 days before the date on which the ordinary shares become ex-dividend (and has not entered into certain risk limiting transactions with respect to such ordinary share); and (4) the U.S. Non-Corporate Holder is not under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar related property. There is no assurance that any dividends paid on our ordinary shares will be eligible for these preferential tax rates in the hands of a U.S. Non-Corporate Holder.
As discussed below, our dividends may be subject to Belgian withholding taxes. A U.S. Holder may elect to either deduct his share of any foreign taxes paid with respect to our dividends in computing his Federal taxable income or treat such foreign taxes as a credit against U.S. federal income taxes, subject to certain limitations. No deduction for foreign taxes may be claimed by an individual who does not itemize deductions. Dividends paid with respect to our ordinary shares will generally be treated as "passive category income" or, in the case of certain types of U.S. Holders, "general category income" for purposes of computing allowable foreign tax credits for United States foreign tax credit purposes. The rules governing foreign tax credits are complex and U.S. Holders are encouraged to consult their tax advisors regarding the applicability of these rules in a U.S. Holder's specific situation.
Amounts taxable as dividends generally will be treated as passive income from sources outside the U.S. However, if (a) Euronav is 50% or more owned, by vote or value, by U.S. persons and (b) at least 10% of Euronav’s earnings and profits are attributable to sources within the U.S., then for foreign tax credit purposes, a portion of its dividends would be treated as derived from sources within the U.S. With respect to any dividend paid for any taxable year, the U.S. source ratio of our dividends for foreign tax credit purposes would be equal to the portion of Euronav’s earnings and profits from sources within the U.S. for such taxable year divided by the total amount of Euronav’s earnings and profits for such taxable year. The rules related to U.S. foreign tax credits are complex and U.S. holders should consult their tax advisors to determine whether and to what extent a credit would be available.
Special rules may apply to any "extraordinary dividend" generally, a dividend paid by us in an amount which is equal to or in excess of ten percent of a U.S. Non-Corporate Holder's adjusted tax basis (or fair market value in certain circumstances) in a share of ordinary shares paid by us. If we pay an "extraordinary dividend" on our ordinary shares that is treated as "qualified dividend income," then any loss derived by a U.S. Non-Corporate Holder from the sale or exchange of such ordinary shares will be treated as long-term capital loss to the extent of such dividend.
Dividends will be generally included in the income of U.S. Holders at the U.S. dollar amount of the dividend (including any non-U.S. taxes withheld therefrom), based upon the exchange rate in effect on the date of the distribution. In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss. However an individual whose realized foreign exchange gain does not exceed U.S. $200 will not recognize that gain, to the extent that there are not expenses associated with the transaction that meet the requirement for deductibility as a trade or business expense (other than travel expenses in connection with a business trip or as an expense for the production of income).
Sale, Exchange or other Disposition of Ordinary shares
Subject to the discussion of passive foreign investment companies below, a U.S. Holder generally will recognize taxable gain or loss upon a sale, exchange or other disposition of our ordinary shares in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder's tax basis in such shares. The U.S. Holder's initial tax basis in its shares generally will be the U.S. Holder's purchase price for the shares and that tax basis will be reduced (but nonot below zero) by the amount of any distributions on the shares that are treated as non-taxable returns of capital (as discussed above under "—United States Federal Income Taxation of U.S. Holders—Distributions"). Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder's holding period is greater than one year at the time of the sale, exchange or other disposition. Such capital gain or loss will generally be treated as United States source income or loss, as applicable, for United States foreign tax credit purposes. A U.S. Holder's ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company
Special United States federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a passive foreign investment company, or PFIC for United States federal income tax purposes. In general, a foreign corporation will be treated as a PFIC with respect to a United States shareholder in such foreign corporation, if, for any taxable year in which such shareholder holds stock in such foreign corporation, either:
| · | at least 75 percent of the corporation's gross income for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or |
| · | at least 50 percent of the average value of the assets held by the corporation during such taxable year produce, or are held for the production of, passive income. |
For purposes of determining whether a foreign corporation is a PFIC, it will be treated as earning and owning its proportionate share of the income and assets, respectively, of any of its subsidiary corporations in which it owns at least 25 percent of the value of the subsidiary's stock.
Income earned by a foreign corporation in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute "passive income" unless the foreign corporation is treated under specific rules as deriving its rental income in the active conduct of a trade or business or receiving the rental income from a related party.
Based on our current operations and future projections, we do not believe that we are, nor do we expect to become a PFIC with respect to any taxable year. Although there is no legal authority directly on point, our belief is based principally on the position that, for purposes of determining whether we are a PFIC, the gross income we derive or are deemed to derive from the time chartering and voyage chartering activities of our wholly-owned subsidiaries should constitute services income, rather than rental income. Correspondingly, such income should not constitute passive income, and the assets that we or our wholly-owned subsidiaries own and operate in connection with the production of such income, in particular, the vessels, should not constitute passive assets for purposes of determining whether we are a PFIC. We believe there is substantial legal authority supporting our position consisting of case law and IRS pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. We have not sought, and we do not expect to seek, a ruling from the Internal Revenue Service, or the IRS, on this matter. As a result, the IRS or a court could disagree with our position. No assurance can be given that this result will not occur. In addition, although we intend to conduct our affairs in a manner to avoid, to the extent possible, being classified as a PFIC with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future, or that we can avoid PFIC status in the future.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. Holder would be subject to different taxation rules depending on whether the U.S. Holder makes an election to treat us as a "Qualified Electing Fund," which election we refer to as a "QEF election." As an alternative to making a QEF election, a U.S. Holder should be able to make a "mark-to-market" election with respect to our ordinary shares, as discussed below.
If we were to be treated as a PFIC for any taxable year, a U.S. Holder would be required to file an annual report with the IRS for that year with respect to such U.S. Holder's ordinary shares.
Taxation of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF election, which U.S. Holder we refer to as an "Electing Holder," the Electing Holder must report each year for United States federal income tax purposes his pro rata share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with or within the taxable year of the Electing Holder, regardless of whether or not distributions were received from us by the Electing Holder. The Electing Holder's adjusted tax basis in the ordinary shares will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the ordinary shares and will not be taxed again once distributed. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our ordinary shares. A U.S. Holder would make a QEF election with respect to any year that our company is a PFIC by filing IRS Form 8621 with his United States federal income tax return. If we were aware that we or any of our subsidiaries were to be treated as a PFIC for any taxable year, we would, if possible, provide each U.S. Holder with all necessary information in order to make the QEF election described above. If we were to be treated as a PFIC, a U.S. Holder would be treated as owning his proportionate share of stock in each of our subsidiaries which is treated as a PFIC and such U.S. Holder would need to make a separate QEF election for any such subsidiaries. It should be noted that we may not be able to provide such information if we did not become aware of our status as a PFIC in a timely manner.
Taxation of U.S. Holders Making a "Mark-to-Market" Election
Alternatively, if we were to be treated as a PFIC for any taxable year and, as we anticipate, our shares are treated as "marketable stock," a U.S. Holder would be allowed to make a "mark-to-market" election with respect to our ordinary shares, provided the U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. The "mark-to-market" election will not be available for any of our subsidiaries. If that election is made, the U.S. Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the ordinary shares at the end of the taxable year over such holder's adjusted tax basis in the ordinary shares. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder's adjusted tax basis in the ordinary shares over its fair market value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder's tax basis in his ordinary shares would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our ordinary shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the ordinary shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included in income by the U.S. Holder. It should be noted that the mark-to-market election would likely not be available for any of our subsidiaries which are treated as PFICs.
Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
Finally, if we were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF election or a "mark-to-market" election for that year, whom we refer to as a "Non-Electing Holder," would be subject to special rules with respect to (1) any excess distribution (i.e., the(the portion of any distributions received by the Non-Electing Holder on our ordinary shares in a taxable year in excess of 125 percent of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder's holding period before the taxable year for the ordinary shares), and (2) any gain realized on the sale, exchange or other disposition of our ordinary shares. Under these special rules:
| · | the excess distribution or gain would be allocated ratably over the Non-Electing Holders' aggregate holding period for the ordinary shares; |
104the amount allocated to the current taxable year and any taxable year before we became a PFIC would be taxed as ordinary income; and
| · | the amount allocated to the current taxable year and any taxable year before we became a PFIC would be taxed as ordinary income; and |
| · | the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. |
These rules would not apply to a pension or profit sharing trust or other tax-exempt organization that did not borrow funds or otherwise utilize leverage in connection with its acquisition of our ordinary shares. If a Non-Electing Holder who is an individual dies while owning our ordinary shares, such holder's successor generally would not receive a step-up in tax basis with respect to such shares.
United States Federal Income Taxation of "Non-U.S. Holders"
A beneficial owner of our ordinary shares that is not a U.S. Holder or an entity treated as a partnership is referred to herein as a "Non-U.S. Holder."
If a partnership holds our ordinary shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our ordinary shares, you are encouraged to consult your tax advisor.
Dividends on Ordinary shares
Non-U.S. Holders generally will not be subject to United States federal income tax or withholding tax on dividends received from us with respect to our ordinary shares, unless that income is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of a United States income tax treaty with respect to those dividends, that income may be taxable only if it is also attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.
Sale, Exchange or Other Disposition of Ordinary shares
Non-U.S. Holders generally will not be subject to United States federal income tax or withholding tax on any gain realized upon the sale, exchange or other disposition of our ordinary shares, unless:
| · | the gain is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States. If the Non-U.S. Holder is entitled to the benefits of an income tax treaty with respect to that gain, that gain may be taxable only if it is also attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States or |
| · | the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met. |
If the Non-U.S. Holder is engaged in a United States trade or business for United States federal income tax purposes, the income from the ordinary shares, including dividends and the gain from the sale, exchange or other disposition of the ordinary shares that are effectively connected with the conduct of that trade or business will generally be subject to regular United States federal income tax in the same manner as discussed in the previous section relating to the taxation of U.S. Holders. In addition, in the case of a corporate Non-U.S. Holder, its earnings and profits that are attributable to the effectively connected income, subject to certain adjustments, may be subject to an additional branch profits tax at a rate of 30 percent, or at a lower rate as may be specified by an applicable United States income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, made within the United States to you will be subject to information reporting requirements. Such payments will also be subject to backup withholding tax if paid to a non-corporate U.S. Holder who:
| · | fails to provide an accurate taxpayer identification number; |
105is notified by the IRS that he has failed to report all interest or dividends required to be shown on his federal income tax returns; or
| · | is notified by the IRS that he has failed to report all interest or dividends required to be shown on his federal income tax returns; or |
| · | in certain circumstances, fails to comply with applicable certification requirements. |
Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on an appropriate IRS Form W-8.
If a Non-U.S. Holder sells his ordinary shares to or through a United States office of a broker, the payment of the proceeds is subject to both United States backup withholding and information reporting unless the Non-U.S. Holder certifies that he is a non-U.S. person, under penalties of perjury, or otherwise establishes an exemption. If a Non-U.S. Holder sells his ordinary shares through a non-United States office of a non-United States broker and the sales proceeds are paid to the Non-U.S. Holder outside the United States then information reporting and backup withholding generally will not apply to that payment. However, United States information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made to a Non-U.S. Holder outside the United States, if the Non-U.S. Holder sells ordinary shares through a non-United States office of a broker that is a United States person or has some other contacts with the United States.
Backup withholding is not an additional tax. Rather, a taxpayer generally may obtain a refund of any amounts withheld under backup withholding rules that exceed the taxpayer's income tax liability by filing a refund claim with the IRS.
Individuals who are U.S. Holders (and to the extent specified in applicable Treasury Regulations, certain individuals who are Non-U.S. Holders and certain United States entities) who hold "specified foreign financial assets" (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury Regulations). Specified foreign financial assets would include, among other assets, our ordinary shares, unless the shares are held through an account maintained with a United States financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, in the event an individual U.S. Holder (and to the extent specified in applicable Treasury Regulations, an individual Non-U.S. Holder or a United States entity) that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of United States federal income taxes of such holder for the related tax year may not close until three years after the date that the required information is filed. U.S. Holders (including United States entities) and Non-U.S. Holders are encouraged to consult their own tax advisors regarding their reporting obligations under this legislation.
Belgian Tax Considerations
In the opinion of Argo Law, our Belgian counsel, the following are the material Belgian federal income tax consequences of the acquisition, ownership and disposal of ordinary shares by an investor, but this summary does not purport to address all tax consequences of the ownership and disposal of ordinary shares, and does not take into account the specific circumstances of particular investors, some of which may be subject to special rules, or the tax laws of any country other than Belgium. The followingThis summary does not describe the tax treatment of investors that are subject to special rules, such as banks, insurance companies, collective investment undertakings, dealers in securities or currencies, persons that hold, or will hold, ordinary shares as a position in a straddle, share-repurchase transaction, conversion transactions, synthetic security or other integrated financial transactions. This summary does not address the tax regime applicable to ordinary shares held by Belgian tax residents through a fixed basis or a permanent establishment situated outside Belgium. This summary does principally not address the local taxes that may be due in connection with the ownership and disposal of ordinary shares.
AFor purposes of this summary, a Belgian resident is (i) is:
an individual subject to Belgian personal income tax, (i.e.i.e., an individual who has his domicileis domiciled in Belgium or has thehis seat of his estatewealth in Belgium or a person assimilated to a resident for purposes of Belgian resident), (ii) tax law;
a company (as defined by Belgian tax law) subject to Belgian corporate income tax, (i.e.i.e., a companycorporate entity that has its registered office,statutory seat, its main establishment, its administrative seat or its placeseat of management in Belgium), (iii) Belgium;
an Organization for Financing Pensions or an OFP, subject to Belgian corporate income tax, (i.e.i.e., a Belgian pension fund incorporated under the form of an OFP),Organization for Financing Pensions; or (iv)
a legal entity subject to the Belgian income tax on legal entities, (i.e.i.e., a legal entity other than a company subject to theBelgian corporate income tax, that has its registered office,statutory seat, its main establishment, its administrative seat or its placeseat of management in Belgium). Belgium.
A Belgian non-resident is aany person that is not a Belgian resident.
Investors are encouraged toshould consult their own advisers as toregarding the tax consequences of the acquisition, ownership and disposal of the shares.ordinary shares in the light of their particular circumstances, including the effect of any state, local or other national laws.
Dividends
For Belgian income tax purposes, the gross amount of all distributions made bybenefits paid on or attributed to the company to its shareholdersordinary shares is generally taxedtreated as a dividend except fordistribution. By way of exception, the repayment of statutory capital carried out in accordance with the Belgian Companies Code is not treated as a dividend distribution to the extent that such repayment is imputed to the statutory capital qualifies as "fiscal"fiscal capital. TheThis fiscal capital includes, in principle, the actual paid-up statutory share capital and, subject to certain conditions, the paid issuepaid-up issuance premiums and the cash amounts subscribed to at the time of the issue of profit sharing certificates. However, as of 1 January 2018, a repayment of capital is partly considered to be a distribution of the existing taxed reserves (irrespective of whether they are incorporated into the capital) and/or of the tax-free reserves incorporated into the capital whereby such portion is determined on the basis of the ratio of the taxed reserves and tax-free reserves incorporated into the capital versus the aggregate of such reserves and the fiscal capital.
In general, a Belgian withholding tax of (currently) 27%30% is normally levied on dividends. Individends, subject to such relief as may be available under applicable domestic or tax treaty provisions.
If the case of a redemption ofCompany redeems its own ordinary shares, the redemption pricedistribution (after deduction of the partportion of the paid-up fiscal capital represented by the shares redeemed)redeemed ordinary shares) will be treated as a dividend that is subject to a Belgian withholding tax of 27% unless this30%, subject to such relief as may be available under applicable domestic or tax treaty provisions. No withholding tax will be triggered if such redemption is carried out on a stock exchange and meets certain conditions.
In the eventcase of liquidation of the Company, a withholding tax of 27% will be levied on any amounts distributed amount exceeding the paid-up fiscal capital.
Belgian tax law provides for certain exemptions from Belgian withholding tax on Belgian source dividends. If there is no exemption applicable under Belgian domestic tax law, the Belgian withholding tax can potentially be reduced for investors who are non-residents pursuant to the treaties regarding the avoidance of double taxation concluded between the Kingdom of Belgium and the state of residencein excess of the non-resident shareholder (see below).
Belgian resident individuals who hold ordinary shares offered in the initial public offering as a private investment do not have to declare the dividend income in their personal income tax return since 27% Belgian withholding tax has been withheld which is the final tax due. If the dividend income would be declared in the personal income tax return, itfiscal capital will be taxed at 27% or, if lower, at the progressive personal income tax rates applicable to the taxpayer's overall declared income.
If the dividends are declared in the personal income tax return, the Belgian withholding tax paid can be credited against the final personal income tax liability of the investor and may also be refunded if it exceeds the final income tax liability with at least EUR 2.50, provided that the dividend distribution does not result in a reduction in value of, or capital loss on, the shares. This condition is not applicable if the Belgian individual can demonstrate that he has had full ownership of the shares during an uninterrupted period of 12 months prior to the attribution of the dividends.
Belgian resident individuals who acquire and hold the shares for professional purposes must always declare the dividend income in their personal income tax return and will be taxable at the individual's personal income tax rate increased with local surcharges. Withholding tax withheld at source may be credited against the personal income tax due and is reimbursable if it exceeds the income tax due with at least EUR 2.50, subject to two conditions: (i) the taxpayer must own the shares in full legal ownership at the time the dividends are paid or attributed, and (ii) the dividend distribution may not result in a reduction in value of or a capital loss on the shares. The latter condition is not applicable if the individual can demonstrate that he has held the full legal ownership of the shares for an uninterrupted period of 12 months prior to the payment or attribution of the dividends.
For Belgian resident companies, the gross dividend income, including the Belgian withholding tax and excluding the foreign withholding tax, if any, must be added to their taxable income, which is, in principle, taxed at the ordinary corporate income tax rate of 33.99%. In certain circumstances lower tax rates may apply.
Belgian resident companies can generally deduct up to 95% of the gross dividend received from the taxable income ("dividend received deduction"), provided that at the time of a dividend payment or attribution: (1) the Belgian resident company holds shares representing at least 10% of the share capital of the company or a participation in the company with an acquisition value of at least EUR 2,500,000; (2) the shares have been held or will be held in full legal ownership for an uninterrupted period of at least one year; and (3) the conditions relating to the taxation of the underlying distributed income, as described in article 203 of the Belgian Income Tax Code ("ITC") are met (together the "Conditions for the application of the dividend received deduction regime").
For qualifying investment companies and for financial institutions and insurance companies, certain of the aforementioned conditions with respect to the dividend received deduction do not apply.
The Conditions for the application of the dividend received deduction regime depend on a factual analysis and for this reason the availability of this regime should be verified upon each dividend distribution.
The Belgian withholding tax may, in principle be credited against the corporate income tax and is reimbursable if it exceeds the corporate income tax payable with at least EUR 2.50, subject to the two following conditions: (i) the taxpayer must own the shares in full legal ownershipwithholding tax at the timea rate of payment30%, subject to such relief as may be available under applicable domestic or attribution of the dividends and (ii) the dividend distribution may not give rise to a reduction in the value of, or a capital loss on, the shares. The latter condition is not applicable if the company proves that it held the shares in full legal ownership during an uninterrupted period of 12 months prior to the attribution of thetax treaty provisions.
As mentioned above any dividends or if, during that period, the shares never belonged to a taxpayer who was not a resident company or who was not a non-resident company that held the shares through a permanent establishment in Belgium.
No Belgian withholding tax will be due on dividends paidother distributions made by the Company to shareholders owning its ordinary shares will, in principle, be subject to withholding tax in Belgium at a residentrate of 30%, except for shareholders which qualify for an exemption of withholding tax such as, among others, qualifying pension funds or a company providedqualifying as a parent company in the resident company owns, at the timesense of the distributionCouncil Directive (90/435/EEC) of July 23, 1990, or the dividend, at least 10%Parent-Subsidiary Directive, or that qualify for a lower withholding tax rate or an exemption by virtue of a tax treaty. Various conditions may apply and shareholders residing in countries other than Belgium are advised to consult their advisers regarding the share capitaltax consequences of dividends or other distributions made by the Company. Shareholders of the Company for an uninterrupted period of at least one year and, provided further, that the resident company provides the Company or its paying agent with a certificate asresiding in countries other than Belgium may not be able to its status as a resident company and as to the fact that it has owned a 10% shareholding for an uninterrupted period of one year. For those companies owning a share participation of at least 10% in the share capital of the Company for less than one year, the Company will levy the withholding tax but, provided the company certifies its resident status and the date on which it acquired the shareholding, will not transfer it to the Belgian Treasury. As soon as the investor owns the share participation of at least 10% in the capital of the Company for one year, it will receivecredit the amount of this temporarily levied withholding tax.
For Belgian pension funds incorporated under the form of an Organization for Financing Pensions, the dividend income is generally tax-exempt. Subject to certain limitations, any Belgian dividendsuch withholding tax levied at source may be credited against the corporate incometo any tax due and is reimbursable to the extent that it exceeds the corporate income tax due.
The Belgian legal entities willon such dividends or other distributions in any other country than Belgium. As a result, such shareholders may be subject to the Belgian withholding tax on the dividends distributed by the Company. Under the current Belgian tax rules, Belgian withholding tax will represent the final tax liability and the dividends should, therefore, not be includeddouble taxation in the tax returns of the legal entities.
For non-resident individuals and companies, the dividend withholding tax will be the only tax on dividends in Belgium, unless the non-resident holds the shares in connection with a business conducted in Belgium through a fixed base in Belgium or a Belgian permanent establishment.
If the shares are acquired by a non-resident in connection with a business in Belgium, the investor must report any dividends received, which will be taxable at the applicable non-resident individual or corporate income tax rate, as appropriate. Belgian withholding tax levied at source may be credited against non-resident individual or corporate income tax and is reimbursable if it exceeds the income tax due with at least EUR 2.50 and subject to two conditions: (1) the taxpayer must own the shares in full legal ownership at the time the dividends are paid or attributed and (2) the dividend distribution may not result in a reduction in value of or a capital loss on the shares. The latter condition is not applicable if (a) the non-resident individual or the non-resident company can demonstrate that the shares were held in full legal ownership for an uninterrupted period of 12 months prior to the payment or attribution of the dividends or (b) with regard to non-resident companies only, if, during the relevant period, the shares have not belonged to a taxpayer other than a resident company or a non-resident company which has, in an uninterrupted manner, invested the shares in a Belgian establishment.
For non-resident companies whose shares are invested in a fixed base in Belgium or Belgian establishment the dividend received deduction will apply on the same conditions as for Belgian resident companies.
Belgian tax law provides for certain exemptions from withholding tax on Belgian source dividends distributed to non-resident investors. No Belgian withholding tax is due on dividends paid by the Company to a non-resident organization that is not engaged in any business or other profit making activity and is exempt from income taxes in its country of residence, provided that it is not contractually obligated to redistribute the dividends to any beneficial ownerrespect of such dividends for whom it would manage the shares. The exemption will only apply if the organization signs a certificate confirming that it is the full legal owner or usufruct holder of shares, that it is a non-resident that is not engaged in any business or other profit making activity and is exempt from income taxes in its country of residence and that it has no contractual redistribution obligation. The organization must then forward that certificate to the Company or the paying agent.
If there is no exemption applicable under Belgian domestic tax law, the Belgian dividend withholding tax can potentially be reduced for investors who are non-residents pursuant to the treaties regarding the avoidance of double taxation concluded between the Kingdom of Belgium and the state of residence of the non-resident shareholder. Belgium has concluded tax treaties with more than 95 countries, reducing the dividend withholding tax rate to 15%, 10%, 5% or 0% for residents of those countries, depending on conditions related to the size of the shareholding and certain identification formalities.distributions.
Belgium and the United States have concluded a double tax treaty concerning the avoidance of double taxation, (the "U.S.—Belgium Treaty").or the U.S.-Belgium Tax Treaty. The U.S.—BelgiumU.S.-Belgium Tax Treaty reduces the applicability of Belgian withholding tax to 15%, 5% or 0% for U.S. taxpayers, provided that the U.S. taxpayer meets the limitation of benefits conditions imposed by the U.S.—BelgiumU.S.-Belgium Tax Treaty. The Belgian withholding tax is generally reduced to 15% under the U.S.—BelgiumU.S.-Belgium Tax Treaty. The 5% withholding tax applies in case where the U.S. shareholder is a company which holds at least 10% of the ordinary shares in the Company. A 0% Belgian withholding tax applies when the shareholder is a U.S. company which has held at least 10% of the ordinary shares in the Company duringfor at least 12 months, or is, subject to certain conditions, a U.S. pension fund. The U.S. shareholders are encouraged to consult their own tax advisers to determine whether they can invoke the benefits and meet the limitation of benefits conditions as imposed by the U.S.—BelgiumU.S.-Belgium Tax Treaty.
108For Belgian resident individuals who acquire and hold the ordinary shares as a private investment, the Belgian dividend withholding tax fully discharges their personal income tax liability. They may nevertheless elect to report the dividends in their personal income tax return. Where such individual opts to report them, dividends will normally be taxable at the lower of the generally applicable 30% withholding tax rate on dividends or at the progressive personal income tax rates applicable to the taxpayer's overall declared income. In addition, if the dividends are reported, the dividend withholding tax withheld at source may be credited against the income tax due and is reimbursable to the extent that it exceeds the final income tax liability with at least EUR 2.50, provided that the dividend distribution does not result in a reduction in value of or a capital loss on the ordinary shares. This condition is not applicable if the individual can demonstrate that he has held the ordinary shares in full legal ownership for an uninterrupted period of twelve months prior to the attribution of the dividends.
For Belgian resident individuals who acquire and hold the ordinary shares for professional purposes, the Belgian withholding tax does not fully discharge their income tax liability. Dividends received must be reported by the investor and will, in such case, be taxable at the investor’s personal income tax rate increased with local surcharges. Withholding tax withheld at source may be credited against the income tax due and is reimbursable to the extent that it exceeds the income tax due with at least EUR 2.50, subject to two conditions: (1) the taxpayer must own the ordinary shares in full legal ownership at the time the dividends are paid or attributed and (2) the dividend distribution may not result in a reduction in value of or a capital loss on the ordinary shares. The latter condition is not applicable if the investor can demonstrate that he has held the full legal ownership of the ordinary shares for an uninterrupted period of twelve months prior to the attribution of the dividends.For Belgian resident companies, the dividend withholding tax does not fully discharge the corporate income tax liability. For such companies, the gross dividend income (including withholding tax) must be declared in the corporate income tax return and will be subject to a corporate income tax rate of currently 29.58% for assessment year 2019 in relation to financial years starting as of 1 January 2018, unless the reduced corporate income tax rates apply. The corporate income tax rate will be reduced to 25% as of assessment year 2021 for financial years starting as of 1 January 2020. The dividends received during a financial year starting before 1 January 2018 or ending before 31 December 2018 will be subject to the standard corporate income tax rate of 33.99%, unless the reduced corporate income tax rates apply.
Additionally,Any Belgian dividend withholding tax levied at source may be credited against the corporate income tax due and is reimbursable to the extent that it exceeds the corporate income tax due, subject to two conditions: (1) the taxpayer must own the ordinary shares in full legal ownership at the time the dividends are paid or attributed; and (2) the dividend distribution may not result in a reduction in value of or a capital loss on the ordinary shares. The latter condition is not applicable (a) if the taxpayer can demonstrate that it has held the ordinary shares in full legal ownership for an uninterrupted period of twelve months prior to the attribution of the dividends; or (b) if, during said period, the ordinary shares never belonged to a taxpayer other than a resident company or a non-resident company which has, in an uninterrupted manner, invested the ordinary shares in a permanent establishment (“PE”) in Belgium.
As a general rule, Belgian resident companies can (as of assessment year 2019 and subject to certain limitations) deduct 100% of gross dividends received from their taxable income (“dividend received deduction”), provided that at the time of a dividend payment or attribution: (1) the Belgian resident company holds ordinary shares representing at least 10% of the share capital of the Company or a participation in the Company with an acquisition value of at least EUR 2,500,000; (2) the ordinary shares have been held or will be held in full ownership for an uninterrupted period of at least one year; and (3) the conditions relating to the taxation of the underlying distributed income, as described in Article 203 of the Belgian Income Tax Code (the “Article 203 ITC Taxation Condition”) are met; and (4) the anti-abuse provision contained in Article 203, §1, 7° of the Belgian Income Tax Code is not applicable (together, the “Conditions for the application of the dividend received deduction regime”). Under certain circumstances the conditions referred to under (1) and (2) do not need to be fulfilled in order for the dividend received deduction to apply. Dividends received during a financial year starting before 1 January 2018 or ending before 31 December 2018 are only be deductible up to 95%.
The Conditions for the application of the dividend received deduction regime depend on a factual analysis, upon each dividend distribution, and for this reason the availability of this regime should be verified upon each dividend distribution.
Dividends distributed to a Belgian resident company will be exempt from Belgian withholding tax provided that the Belgian resident company holds, upon payment or attribution of the dividends, at least 10% of the share capital of the Company and such minimum participation is held or will be held during an uninterrupted period of at least one year.
In order to benefit from this exemption, the Belgian resident company must provide the Company or its paying agent with a certificate confirming its qualifying status and the fact that it meets the required conditions. If the Belgian resident company holds the required minimum participation for less than one year, at the time the dividends are paid on or attributed to the ordinary shares, the Company will levy the withholding tax but will not transfer it to the Belgian Treasury provided that the Belgian resident company certifies its qualifying status, the date from which it has held such minimum participation, and its commitment to hold the minimum participation for an uninterrupted period of at least one year.
The Belgian resident company must also inform the Company or its paying agent if the one-year period has expired or if its shareholding will drop below 10% of the share capital of the Company before the end of the one-year holding period. Upon satisfying the one-year shareholding requirement, the dividend withholding tax which was temporarily withheld, will be refunded to the Belgian resident company.
Please note that the above described dividend received deduction regime and the withholding tax exemption will not be applicable to dividends which are connected to an arrangement or a series of arrangements (“rechtshandeling of geheel van rechtshandelingen”/”acte juridique ou un ensemble d’actes juridiques”) for which the Belgian tax administration, taking into account all relevant facts and circumstances, has proven, unless evidence to the contrary, that this arrangement or this series of arrangements is not genuine (“kunstmatig”/”non authentique”) and has been put in place for the main purpose or one of the main purposes of obtaining the dividend received deduction, the above dividend withholding tax exemption or one of the advantages of the EU Parent-Subsidiary Directive of November 30, 2011 (2011/96/EU) (“Parent-Subsidiary Directive”) in another EU Member State. An arrangement or a series of arrangements is regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.
For organizations for financing pensions (“OFPs”), i.e., Belgian pension funds incorporated under the form of an OFP ("organismen voor de financiering van pensioenen"/"organismes de financement de pensions") within the meaning of Article 8 of the Belgian Act of October 27, 2006, the dividend income is generally tax exempt.
Subject to certain limitations, any Belgian dividend withholding tax levied at source may be credited against the corporate income tax due and is reimbursable to the extent that it exceeds the corporate income tax due.
For taxpayers subject to the Belgian income tax on legal entities, the Belgian dividend withholding tax in principle fully discharges their income tax liability.
For non-resident individuals and companies, the dividend withholding tax will be the only tax on dividends in Belgium, unless the non-resident holds the ordinary shares in connection with a business conducted in Belgium through a fixed base in Belgium or a Belgian PE.
If the ordinary shares are acquired by a non-resident in connection with a business in Belgium, the investor must report any dividends received, which will be taxable at the applicable non-resident personal or corporate income tax rate, as appropriate. Belgian withholding tax levied at source may be credited against non-resident personal or corporate income tax and is reimbursable to the extent that it exceeds the income tax due with at least EUR 2.50 and, subject to two conditions: (1) the taxpayer must own the ordinary shares in full legal ownership at the time the dividends are paid or attributed and (2) the dividend distribution may not result in a reduction in value of or a capital loss on the ordinary shares. The latter condition is not applicable if (a) the non-resident individual or the non-resident company can demonstrate that the ordinary shares were held in full legal ownership for an uninterrupted period of twelve months prior to the payment or attribution of the dividends or (b) with regard to non-resident companies only, if, during said period, the ordinary shares have not belonged to a taxpayer other than a resident company or a non-resident company which has, in an uninterrupted manner, invested the ordinary shares in a Belgian PE.
Non-resident companies whose ordinary shares are invested in a Belgian PE may, as of assessment year 2019, deduct 100% of the gross dividends received from their taxable income if, at the date the dividends are paid or attributed, the Conditions for the application of the dividend received deduction regime are met. Application of the dividend received deduction regime depends, however, on a factual analysis to be made upon each distribution and its availability should be verified upon each dividend distribution.
Under Belgian tax law, withholding tax is not due on dividends paid to a foreign pension fund which satisfies the following conditions: (i) it is a non-resident saver in the meaning of Article 227, 3° of the ITC which implies that it has separate legal personality and fiscal residence outside of Belgium; (ii) whose corporate purpose consists solely in managing and investing funds collected in order to pay legal or complementary pensions; (iii) whose activity is limited to the investment of funds collected in the exercise of its statutory mission, without any profit making aim; (iv) which is exempt from income tax in its country of residence; and (v) except in specific circumstances, provided that it is not contractually obligated to redistribute the dividends to any ultimate beneficiary of such dividends for whom it would manage the ordinary shares, nor obligated to pay a manufactured dividend with respect to the ordinary shares under a securities borrowing transaction. The exemption will only apply if the foreign pension fund provides a certificate confirming that it is the full legal owner or usufruct holder of the ordinary shares and that the above conditions are satisfied. The organization must then forward that certificate to the Company or its paying agent.
Dividends distributed to non-resident qualifying parent companies that (i) are either established in a Member State of the EU or in a country with which Belgium has concluded a double tax treaty where that treaty or any other treaty concluded between Belgium and that jurisdiction includes a qualifying exchange of information clause; and (ii) qualify as a parent company,clause, will, under certain conditions, be exempt from Belgian withholding tax provided that the ordinary shares held by the non-resident company, upon payment or attribution of the dividends, amount to at least 10 per cent.10% of the Company's share capital of the Company and aresuch minimum participation is held or will be held during an uninterrupted period of at least one year. A non-resident company qualifies as a parent company if:provided that (i) for companies established in a Member State of the EU, it has a legal form as listed in the annex to the EU Parent-Subsidiary Directive of July 23, July 1990 (90/435/EC), as amended by Directive 2003/123/EC of December 22, 2003, or, for companies established in a country with which Belgium has concluded a qualifying double tax treaty, and where that treaty or any other treaty concluded between Belgium and that country includes a qualifying exchange of information clause, it has a legal form similar to the ones listed in such annex,annex; (ii) it is considered to be a tax resident according to the tax laws of the country where it is established and the double tax treaties concluded between such country and third countriescountries; and (iii) it is subject to corporate income tax or a similar tax without benefiting from a tax regime that derogates from the ordinary tax regime.
In order to benefit from this exemption, the investor must provide the Company or its paying agent with a certificate confirming its qualifying status and the fact that it satisfies the required conditions. If the investor holds the shares for less than one year, at the time the dividends are paid on or attributed to the shares, the Company must deduct the withholding tax but does not need to transfer it to the Belgian Treasury provided that the investor certifies its qualifying status, the date from which the investor has held the shares, and the investor's commitment to hold the shares for an uninterrupted period of at least one year. The investor must also inform the Company or its paying agent when the one-year period has expired or if its shareholding drops below 10 per cent. of the Company's share capital before the end of the one-year holding period. Upon satisfying the one-year shareholding requirement, the deducted dividend withholding tax will be paid to the investor.
Dividends paid or attributable to non-resident companies will under certain conditions be subject to a reduced 1.6995% withholding tax (5% of 33.99%), provided that the non-resident companies (i) are either established in a Member State of the EEA or in a country with which Belgium has concluded a double tax treaty, where that treaty, or any other treaty concluded between Belgium and that jurisdiction, includes a qualifying exchange of information clause; and (ii) have a legal form as listed in Annex I, Part A to Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, as amended by the Council Directive of 8 July 2014 (2014/86/EU), or a legal form similar to the legal forms listed in the aforementioned annex and which is governed by the laws of another Member State of the EEA or a similar legal form in a country with which Belgium has concluded a double tax treaty; and (iii) hold a share participation in the Belgian dividend distributing company, upon payment or attribution of the dividends, of less than 10% of the Company's share capital but with an acquisition value of at least EUR 2,500,000; and (iv) have held this share participation in full legal ownership during an uninterrupted period of at least one year.
The reduced 1.6995% withholding tax is only applied to the extent that the Belgian withholding tax cannot be credited nor reimbursed at the level of the qualifying, dividend receiving company. The non-resident company must provide the Company or its paying agent with a certificate confirming its qualifying status and the fact that it meets the requiredthree abovementioned conditions.
If the non-resident company holds a minimum participation for less than one year at the time the dividends are paid on or attributed to the ordinary shares, the Company must deduct the withholding tax but does not need to transfer it to the Belgian Treasury provided that the non-resident company provides the Company or its paying agent with a certificate confirming, in addition to its qualifying status, the date as of which it has held the ordinary shares, and its commitment to hold the ordinary shares for an uninterrupted period of at least one year. The reduced 1.6995%non-resident company must also inform the Company or its paying agent when the one-year period has expired or if its shareholding drops below 10% of the Company’s share capital before the end of the one-year holding period. Upon satisfying the one-year shareholding requirement, the deducted dividend withholding tax which was temporarily withheld, will be refunded to the non-resident company.
Dividends paid or attributed to a non-resident company will be exempt from withholding tax, provided that (i) the non-resident company is established in the European Economic Area or in a country with whom Belgium has concluded a tax treaty that includes a qualifying exchange of information clause, (ii) the non-resident company is subject to corporate income tax or a similar tax without benefiting from a tax regime that derogates from the ordinary tax regime, (iii) the non-resident company does not satisfy the 10%-participation threshold but has a participation in the Belgian company with an acquisition value of at least EUR 2,500,000 upon the date of payment or attribution of the dividend, (iv) the dividends relate to ordinary shares which are or will be held in full ownership for at least one year without interruption; (v) the non-resident company has a legal form as listed in the annex to the Parent-Subsidiary Directive, as amended from time to time, or, has a legal form similar to the ones listed in such annex and that is governed by the laws of another Member State of the EEA, or, by the law of a country with whom Belgium has concluded a qualifying double tax treaty, (vi) the ordinary Belgian withholding tax is, in principle, neither creditable nor reimbursable in the hands of the non-resident company.
In order to benefit from the exemption of withholding tax, the non-resident company must provide the Company or its paying agent with a certificate confirming (i) it has the above described legal form, (ii) it is subject to corporate income tax or a similar tax without benefiting from a tax regime that deviates from the ordinary domestic tax regime, (iii) it holds a participation of less than 10% in the capital of the Company but with an acquisition value of at least EUR 2,500,000 upon the date of payment or attribution of the dividend, (iv) the dividends relate to ordinary shares in the Company which it has held or will hold in full legal ownership for an uninterrupted period of at least one year, (v) to which extent it could in principle, would this exemption not exist, credit the levied Belgian withholding tax or obtain a reimbursement according to the legal provisions applicable upon 31 December of the year preceding the year of the payment or attribution of the dividends, and (vi) its full name, legal form, address and fiscal identification number, if applicable.
Belgian dividend withholding tax is subject to such relief as may be available under applicable double tax treaty provisions. Belgium has concluded double tax treaties with more than 95 countries, reducing the dividend withholding tax rate to 20%, 15%, 10%, 5% or 0% for residents of those countries, depending on dividends paid or made attributableconditions, among others, related to non-resident companies after 28 December 2015.the size of the shareholding and certain identification formalities.
Prospective holders are encouraged toshould consult their own tax advisersadvisors to determine whether they qualify for an exemption or a reduction of thein withholding tax rate upon payment or attribution of dividends, and, if so, to understand the procedural requirements for obtaining such an exemption or a reductionreduced withholding tax upon the payment of dividends or for making claims for reimbursement.
Capital gains and losses
In principle, Belgian resident individuals acquiring theordinary shares as a private investment should in general not be subject to Belgian capital gains tax on thea later disposal of the ordinary shares and capital losses arewill not be tax deductible.
However, as of 1 January 2016,Capital gains realised by a new tax on capital gains entered into effect, referred to as the Speculation Tax. The Speculation Tax introduces a withholding tax of 33% on the capital gains realized by Belgian resident individuals on listed shares acquired for consideration after 1 January 2016 and disposed within 6 months following the acquisition, outside the exercise of a professional activity. The Speculation Tax also applies on short sales as defined under article 2, 1st ind., b of EU Regulation n° 236/2012 dd. 14 March 2012. The speculation tax also applies on the capital gains on shares acquired by way of (direct or indirect) gift and disposed of for consideration within 6 months after the date of the acquisition/gift of the shares.
The Speculation Tax is applicable on shares (as well as other qualifying financial instruments) listed on a Belgian or foreign-regulated market (pursuant Art. 2, 1st ind., 3° of the Law of 2 August 2002), or a multilateral trading facility (pursuant Art. 2, 1st ind., 4° of the Law of 2 August 2002) (provided there is at least one daily transaction and a central order book), or a trading platform situated in a third country fulfilling a similar function. The Speculation Tax could therefore apply to capital gains on shares in the Company.
Certain capital gainsindividual are however excluded from the Speculation Tax such as the capital gains realized on shares where the acquisition has triggered a taxable professional income in the hands of the beneficiary, according to the Belgian ITC or similar foreign law provisions. Capital gains realized following the transfer of listed shares where the transfer took place solely on the issuer's initiative and where no choice was presented to the taxpayer (mandatory corporate actions such as mergers, demergers and squeeze outs) are also excluded from the Speculation Tax.
The taxable base of the speculation tax is equal to the difference between (i) the price received when disposing of the Shares (in whatever form), reduced with the levied Belgian tax on stock exchange transactions (see "Belgian Tax on Stock Exchange Transactions" below) borne by the taxpayer on the transfer, and (ii) the acquisition price paid by the taxpayer (or the donor in case of a gift) increased with the Belgian tax on stock exchange transactions borne by the taxpayer (or donor) upon the acquisition of the shares. If the acquisition price is unknown, the withholding tax is applied on the full price received for the shares (reduced with the Belgian tax on stock exchange transactions) and any excess Speculation Tax may be reclaimed through the personal income tax return.
If multiple acquisitions occur of shares with the same ISIN-code, by the same person, within 6 months before the disposal of these shares, the shares are to be regarded as acquired at the same time. The total selling price, reduced by the total acquisition price of said shares will then be subject to the Speculation Tax. The result of this reduction may however not be lower than 0.
For the calculation of the six month period the "Last In, First Out" method is used. This method implies that the last share that was acquired by the shareholder is also deemed to be the first share that is sold. The six month period is calculated per share with an identical ISIN-code. In case of short-selling the six month period is calculated by looking at the time elapsed between the date of the short sale and the date of the acquisition of the concerned shares.
The Speculation Tax is levied by the intermediary if that intermediary is based in Belgium and intervenes "in whatever way" in the disposal of the shares. The Speculation Tax is final. This entails that, if the Speculation Tax has been levied, the capital gains no longer have to be declared in the personal income tax return of the shareholder/taxpayer. Resident individuals who have a foreign custody account and who realize the capital gains without the intervention of a Belgian based intermediary have to declare the realized capital gains in their personal income tax return.
Capital losses incurred when disposing shares within 6 months after the date of acquisition are generally not tax deductible even if the capital gains on these shares would have been subject to the Speculation Tax.
Capital gains realized by a private individual are taxable at 33% (plus local surcharges) if the capital gain on the ordinary shares is deemed to be realizedrealised outside the scope of the normal management of the individual'sits private estate. Capital losses incurred in such transactions are, generallyhowever, not tax deductible.
Capital Moreover, capital gains realizedrealised by Belgian resident individuals on the disposal of the ordinary shares for consideration, outside the exercise of a professional activity, to a non-resident company (or a body constituted in a similar legal form), to a foreign stateState (or one of its political subdivisions or local authorities) or to a non-resident legal entity, each time established outside the European Economic Area, are in principle taxable at a rate of 16.5% (plus local surcharges) if, at any time during the five years preceding the sale, the Belgian resident individual has owned, directly or indirectly, alone or with his/her spouse or with certain relatives, a substantial shareholding in the Company (i.e., a shareholding of more than 25% in the Company). This capitalCapital losses arising from such transactions are, however, not tax deductible.
Capital gains tax does,realised by Belgian resident individuals in principal, not apply ifcase of redemption of the ordinary shares are transferred toor in case of liquidation of the above-mentioned persons provided that they are established in the European Economic Area (EEA).Company will generally be taxable as a dividend.
Belgian resident individuals who hold the ordinary shares for professional purposes are taxedtaxable at the ordinary progressive personal income tax rates increased by the applicable(plus local surchargessurcharges) on any capital gains realizedrealised upon the disposal of the shares. Ifordinary shares, except for the ordinary shares were held for at leastmore than five years, prior to such disposal, the capital gains tax would, however, be leviedwhich are taxable at a reducedseparate rate of, in principle, 10% (capital gains realised in framework of cessation of activities in certain circumstances) or 16.5% (plus(other occasions), both plus local surcharges). Lossessurcharges. Capital losses on the ordinary shares incurred by such an investorBelgian resident individuals who hold the ordinary shares for professional purposes are in principle tax deductible.
Belgian resident companies are normally not subject to Belgian capital gains taxation on gains realizedrealised upon the disposal of the ordinary shares provided that (i) the conditions relating toConditions for the taxation of the underlying distributed income in the frameworkapplication of the dividend received deduction as describedregime are met. Such capital gains realized by non-small and medium-sized companies in article 203a financial year starting before 1 January 2018 or ending before 31 December 2018 will still be subject to a corporate income tax of the Belgian ITC, are satisfied, and (ii) that the shares have been held in full legal ownership for an uninterrupted period of at least one year, except for companies which do not qualify as a small-and-medium sized company as any realized capital gain will be taxed at 0.412%.
If the one-year minimum holding period condition mentioned under (ii) is not met (but the condition relating toother Conditions for the taxationapplication of the underlying distributed income mentioned under (i) isdividend received deduction regime are met) then, the capital gain will begains realised upon the disposal of the ordinary shares by Belgian resident companies are taxable at a separate corporate income tax rate of 25.75%25.50%. If the condition mentioned under (i) would not be met, theSuch capital gains realized in a financial year starting before 1 January 2018 or ending before 31 December 2018 will still be taxable at the ordinarysubject to a separate corporate income tax rate of principally25.75%. From assessment year 2019 (financial years from 1 January 2018) this separate rate for the non-fulfillment of the one-year detention condition does not apply to SMEs, insofar as the capital gain qualifies for the reduced rate of 20.40% (this is, with a taxable basis up to 100,000 EUR). This separate rate will be fully abolished as of the assessment year 2021 (financial years from 1 January 2020), since at that time the standard corporate tax rate will be reduced to 25% (or 20% for qualifying SMEs).
If the Conditions for the application of the dividend received deduction regime would not be met, any capital gain realised would be taxable at the standard corporate income tax rate of 29.58%, unless the reduced corporate income tax rates apply. Such capital gain realized in a financial year starting before 1 January 2018 or ending before 31 December 2018 will still be subject to the standard corporate income tax rate of 33.99%., unless the reduced corporate income tax rates apply. The corporate income tax rate will be reduced to 25% as of assessment year 2021 for financial years starting on or after 1 January 2020.
Capital losses on the ordinary shares incurred by Belgian resident companies are in principle,as a general rule not tax deductible. However,
Ordinary shares held in the trading portfolios of Belgian qualifying credit institutions, investment enterprises and management companies of collective investment undertakings are subject to a different regime. In general, theThe capital gains on such ordinary shares are taxable at the ordinary corporate income tax rate of 33.99%29.58% and the capital losses on such ordinary shares are tax deductible. Internal transfers to and from the trading portfolio are assimilated to a realization. Such capital gain realized in a financial year starting before 1 January 2018 or ending before 31 December 2018 will still be subject to the standard corporate income tax rate of 33.99%, unless the reduced corporate income tax rates apply. The corporate income tax rate will be reduced to 25% as of assessment year 2021 for financial years starting as of 1 January 2020.
Capital gains realised by Belgian pension funds incorporated underresident companies in case of redemption of the formordinary shares or in case of an OFPliquidation of the Company will, in principle, be subject to the same taxation regime as dividends.
Capital gains on the ordinary shares realised by OFPs within the meaning of Article 8 of the Belgian Act of October 27, 2006 are exempt from corporate income tax and capital losses are not tax deductible.
Capital gains realised upon disposal of the ordinary shares by Belgian resident legal entities are in principle not subject to Belgian capital gains taxation on the disposal of the shares,income tax and capital losses are not tax deductible.
Capital gains realised upon disposal of (part of) a substantial participation in a Belgian company (i.e., a participation representing more than 25% of the share capital of the Company at any time during the last five years prior to the disposal) may, however, under certain circumstances be subject to income tax in Belgium at a rate of 16.5% (plus crisis surcharge of 2%; such surcharge will however be abolished as of 1 January 2020).
Capital gains realised by Belgian resident legal entities in case of redemption of the ordinary shares or in case of liquidation of the Company will, in principle, be subject to the legal entities income taxsame taxation regime as dividends.
Non-resident individuals or companies are, in principle, not subject to Belgian income tax on capital gains taxation on therealised upon disposal of the ordinary shares, except inunless the caseordinary shares are held as part of the transfer of a substantial shareholding to an entity established outside the EEA (see the sub-section regarding Belgian resident individuals above).
Capital losses on shares incurred by Belgian resident legal entities are not tax deductible.
Capital gains realized on the shares by a Belgian non-resident individual that has not acquired the shares in connection with a business conducted in Belgium through a fixed base in Belgium or a Belgian permanent establishment are generally not subject to taxation, unless inPE. In such a case, the gain wouldsame principles apply as described with regard to Belgian individuals (holding the ordinary shares for professional purposes) or Belgian companies.
Non-resident individuals who do not use the ordinary shares for professional purposes and who have their fiscal residence in a country with which Belgium has not concluded a tax treaty or with which Belgium has concluded a tax treaty that confers the authority to tax capital gains on the ordinary shares to Belgium, might be subject to tax in Belgium if the above described Speculation tax or unless the gain is deemedcapital gains arise from transactions which are to be realized outside the scope ofconsidered speculative or beyond the normal management of the individual'sone's private estate and the capital gain is obtained or received in Belgium. However, Belgium has concluded tax treaties with more than 95 countries which generally provide for a full exemption from Belgian capital gain taxation on capital gains realized by residentscase of those countries. Capital losses are principally not tax deductible.
Capital gains will be taxable at the ordinary progressive income tax rates and capital losses will be tax deductible, if those gains or losses are realized on shares by a non-resident individual that holds shares in connection with a business conducted in Belgium through a fixed base in Belgium.
Capital gains realized by non-resident individuals on the transferdisposal of a substantial shareholdingparticipation in a Belgian company as mentioned in the tax treatment of the disposal of the ordinary shares by Belgian individuals. Such non-resident individuals might therefore be obliged to an entity established outside the EEAfile a tax return and should consult their own tax advisor.
Annual tax on securities accounts
As of 10 March 2018, a new annual tax on securities accounts has been introduced, whereby both (i) Belgian resident private individuals holding one or more securities accounts via a financial intermediary based in Belgium or abroad, and (ii) non-resident private individuals holding one or more securities accounts via a financial intermediary based in Belgium, are generally subject to tax at a rate of 0.15 % on the same regime as Belgian resident individuals. However, Belgium has concluded tax treaties with more than 95 countries which generally providetotal amount of qualifying assets (including listed ordinary shares, bonds, funds) held on these securities accounts if during the preceding reference period of 12 months the combined average value of qualifying assets across all securities accounts exceeded EUR 500,000 per individual account holder (i.e., EUR 1,000,000 for a full exemption frommarried couple holding a common securities account). Pension savings accounts and life insurances are excluded. The tax is, in principle, collected by the intermediary financial institution, who also determine the combined average value of the accounts concerned, in case this financial institution is a Belgian capital gain taxation on such gains realized by residents of those countries. Capital losses are generally not tax deductible.
Capital gains realized on the shares by non-resident companiesfinancial institution or non-resident entities that have not acquired the shares in connection with a business conductedforeign financial institution which has appointed a representative in Belgium through a Belgian permanent establishment are generallyto do so. If not, subject to taxationthe securities account holder is responsible for calculating, reporting and losses are notpaying the annual tax deductible.on securities accounts.
Capital gains realized by non-resident companies or other non-resident entities that hold the sharesInvestors should consult their own professional advisors in connection with a business conducted in Belgium through a Belgian permanent establishment are generally subjectrelation to the same regime as Belgian resident companies.annual tax on securities accounts.
Belgian Taxtax on Stock Exchange Transactionsstock exchange transactions
A stock market tax is normally levied on theThe purchase and the sale and on any other acquisition andor transfer for consideration in Belgium of existing ordinary shares (secondary market transactions) is subject to the Belgian tax on stock exchange transactions (“taks op de beursverrichtingen” / “taxe sur les opérations de bourse”) if (i) it is executed in Belgium through a professional intermediary, establishedor (ii) deemed to be executed in Belgium, onwhich is the secondary market,case if the order is directly or "secondary market transactions."indirectly made to a professional intermediary established outside of Belgium, either by private individuals with habitual residence in Belgium, or legal entities for the account of their seat or establishment in Belgium (both referred to as a “Belgian Investor”). The tax on stock exchange transactions is not due by bothupon the transferor and the transferee separately. issuance of new ordinary shares.
The applicabletax on stock exchange transactions is levied at a rate amounts to 0.27%of 0.35% of the consideration paid but with a cap of 800 eurospurchase price, capped at EUR 1,600 per transaction and per party.
111A separate tax is due by each party to the transaction, and both taxes are collected by the professional intermediary. However, if the intermediary is established outside of Belgium, the tax will in principle be due by the Belgian Investor, unless that Belgian Investor can demonstrate that the tax has already been paid. Professional intermediaries established outside of Belgium can, subject to certain conditions and formalities, appoint a Belgian stock exchange tax representative (“Stock Exchange Tax Representative”), which will be liable for the tax on stock exchange transactions in respect of the transactions executed through the professional intermediary. If such a Stock Exchange Tax Representative would have paid the tax on stock exchange transactions due, the Belgian Investor will, as per the above, no longer be the debtor of the tax on stock exchange transaction.
Belgian non-residents who purchase or otherwise acquire or transfer, for consideration, shares in BelgiumNo tax on stock exchange transactions is due on transactions entered into by the following parties, provided they are acting for their own account through aaccount: (i) professional intermediary may be exempt fromintermediaries described in Article 2.9° and 10° of the stock market tax ifBelgian Law of August 2, 2002 on the supervision of the financial sector and financial services; (ii) insurance companies defined in Article 5 of the Belgian Law of March 13, 2016 on the supervision of insurance companies; (iii) pension institutions referred to in Article 2,1° of the Belgian Law of October 27, 2006 concerning the supervision of pension institutions; (iv) undertakings for collective investment; (v) regulated real estate companies; and (vi) Belgian non-residents provided they deliver a sworn affidavitcertificate to thetheir financial intermediary in Belgium confirming their non-resident status.
In addition to the above, no stock market tax is payable by: (i) professional intermediaries described in Article 2, 9° and 10° of the Law of August 2, 2002 acting for their own account, (ii) insurance companies described in Article 2, §1 of the Law of July 9, 1975 acting for their own account, (iii) professional retirement institutions referred to in Article 2, 1° of the Law of October 27, 2006 relating to the control professional retirement institutions acting for their own account, (iv) collective investment institutions acting for their own account, (v) non-residents acting for their own account (upon delivery of a certificate of non-residency in Belgium) or (vi) regulated real estate companies acting for their own account.
Application of the tonnage tax regime to the Company
The Belgian Ministry of Finance approved our application on October 23, 2013 for beneficial tax treatment of certain of our vessel operations income.
Under this Belgian tax regime, our taxable basis is determined on a lump-sum basis (which is, on(Tonnage Tax Regime - An alternative way of calculating taxable income of operating qualifying ships. Taxable profits are calculated by reference to the basis of thenet tonnage of the qualifying vessels it operates), rather than ona company operates, independent of the basis of our accounting results, as adjusted,actual earnings (profit or loss) for Belgian corporate income tax purposes.purposes). This tonnage tax regime was initially granted for 10 years and was renewed for an additional 10-year period in 2013.
Certain of ourThe subsidiaries Euronav Shipping NV and Euronav Tankers NV that were formed in connection with our acquisition of the 2014 Fleet Acquisition Vessels are subject to the ordinary Belgian corporate income tax regime, however, which benefit from a tax investment allowance due to the acquisition. However, we have decided to applyapplied for the Belgian tonnage tax regime for those subsidiaries and obtained approval for Euronav Shipping NV and Euronav Tankers NV effective January 1, 2016.
We cannot assure the Company will be able to continue to take advantage of these tax benefits in the future or that the Belgian Ministry of Finance will approve the Company's future applications. Changes to the tax regimes applicable to the Company, or the interpretation thereof, may impact the future operatingnet results of the Company.
Other Income Tax Considerationsincome tax considerations
In addition to the income tax consequences discussed above, wethe Company may be subject to tax in one or more other jurisdictions where we conductthe Company conducts activities. The amount of any such tax imposed upon our operations may be material.
Potential Application of Article 228, §3 Belgian ITCThe proposed Financial Transaction Tax (FTT)
UnderOn February 14, 2013 the EU Commission adopted a strict reading of Article 228, §3Draft Directive on a common Financial Transaction Tax (the “FTT”). Earlier negotiations for a common transaction tax among all 28 EU Member States had failed. The current negotiations between Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain (the Participating Member States) are seeking a compromise under “enhanced cooperation” rules, which require consensus from at least nine nations. Earlier Estonia dropped out of the Belgian ITC, capital gains realizednegotiations by declaring it would not introduce the FTT.
The Draft Directive currently stipulates that once the FTT enters into force, the Participating Member States shall not maintain or introduce taxes on shares by non-residents couldfinancial transactions other than the FTT (or VAT as provided in the Council Directive 2006/112/EC of November 28, 2006 on the common system of value added tax). For Belgium, the tax on stock exchange transactions should thus be abolished once the FTT enters into force.
However, the Draft Directive on the FTT remains subject to Belgian taxation, levied innegotiations between the formParticipating Member States. It may therefore be altered prior to any implementation, of a professional withholding tax, ifwhich the following three conditions are cumulatively met: (i)eventual timing and outcome remains unclear. Additional EU Member States may decide to participate or drop out of the capital gainnegotiations. If the number of Participating Member States would have been taxable if the non-resident were a Belgian tax resident, (ii) the income is "borne by" a Belgian resident or by a Belgian establishment of a foreign entity (whichfall below nine, it would in such a context, mean that the capital gain is realized upon a transfer of shares to a Belgian resident or to a Belgian establishment of a foreign entity, together a "Belgian Purchaser"), and (iii) Belgium has the right to tax such capital gain pursuantput an end to the applicable double tax treaty, or, if no such tax treaty applies, the non-resident does not demonstrate that the capital gain is effectively taxedproject.
Prospective investors should consult their own professional advisors in its state of residence.
However, it is unclear whether a capital gain included in the purchase price of an asset can be considered to be "borne by" the purchaser of the asset within the meaning of the second condition mentioned above.
Furthermore, applying this withholding tax would require that the Belgian Purchaser is aware of (i) the identity of the non-resident (to assess the third condition mentioned above), and (ii) the amount of the capital gain realized by the non-resident (since such amount determines the amount of professional withholding tax to be levied by the Belgian Purchaser). Consequently, the application of this professional withholding tax on transactions with respectrelation to the shares occurring on the stock exchange would give rise to practical difficulties as the sellerFTT.
F.Dividends and purchaser typically do not know each other.
In addition to these uncertainties, the parliamentary documents of the law that introduced Article 228, §3 of the Belgian ITC support the view that the legislator did not intend for Article 228, §3 of the Belgian ITC to apply to a capital gain included in the purchase price of an asset, but only to payments for services.
On July 23, 2014, formal guidance on the interpretation of article 228, §3 of the Belgian ITC has been issued by the Belgian tax authorities (published in the Belgian Official Gazette on July 23, 2014). The Belgian tax authorities state therein that article 228, §3 of the Belgian ITC only covers payments for services, as a result of which no professional withholding tax should apply to capital gains realized by non-residents in the situations described above. It should, however, be noted that a formal guidance issued by the tax authorities does not supersede and cannot amend the law if the latter is found to be sufficiently clear in itself.
F. | Dividends and paying agents. |
paying agents.Not applicable.
Not applicable.
We are subject to the informational requirements of the Exchange Act. In accordance with these requirements we file reports and other information with the SEC. These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the Commission at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330, and you may obtain copies at prescribed rates from the Public Reference Section of the Commission at its principal office in Washington, D.C. 20549. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information that we and other registrants have filed electronically with the SEC. Our filings are also available on our website at www.euronav.com.www.euronav.com. This web address is provided as an inactive textual reference only. Information contained on our website does not constitute part of this annual report.
Shareholders may also request a copy of our filings at no cost, by writing or telephoning us at the following address:
Euronav NV
De Gerlachekaai 20, 2000 Antwerpen
Belgium
Telephone: 011-32-3-247-4411
Not applicable.
ITEM 11. | ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to market risk from changes in interest rates related to the variable rate of the borrowings under our secured and unsecured credit facilities. Amounts borrowed under the credit facilities bear interest at a rate equal to LIBOR plus a margin. Increasing interest rates could affect our future profitability. In certain situations, we may enter into financial instruments to reduce the risk associated with fluctuations in interest rates. A one percentage point increase in LIBOR would have increased our interest expense for the year ended December 31, 20152017 by approximately $11.3$9.4 million ($8.510.6 million in 2014)2016).
We are exposed to currency risk related to our operating expenses and treasury notes expressed in euros. In 2015,2017, about 17%16.5% of the total operating expenses were incurred in euros (2014: 13.5%(2016: 17.4%). Revenue and the financial instruments are expressed in U.S. dollars only. A 10 percent strengthening of the Euro against the dollar at December 31, 20152017 would have decreased our profit or loss by $9.6$7.1 million (2014: $9.1(2016: $10.0 million). A 10 percent weakening of the euro against the dollar at December 31, 20152017 would have had the equal but opposite effect.
We are exposed to credit risk from our operating activities (primarily for trade receivables)receivables and available liquidity under our credit revolving facilities) and from our financing activities, including credit risk related to undrawn portions of our facilities and deposits with banks and financial institutions. We seek to diversify the credit risk on our cash deposits by spreading the risk among various financial institutions. The cash and cash equivalents are held with bank and financial institution counterparties, which are rated A- to AA+, based on the rating agency, Standard & Poor's Financial Services LLC.
Historically, the tanker markets have been volatile as a result of the many conditions and factors that can affect the price, supply and demand for tanker capacity. Changes in demand for transportation of oil over longer distances and supply of tankers to carry that oil may materially affect our revenues, profitability and cash flows. A significant part of our vessels are currently exposed to the spot market. Every increase (decrease) of $1,000 on a spot tanker freight market (VLCC and Suezmax) per day would have increased (decreased) profit or loss by $13.0$13.4 million in 2015 (2014: $9.92017 (2016: $14.1 million).
113For further information, please see Note 18 to our consolidated financial statements included herein.
ITEM 12. | ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Not applicable.
PART II
ITEM 13. | ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
None.
We evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2015.2017. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
In accordance with Rule 13a-15(f) of the Exchange Act, the management of the Company is responsible for the establishment and maintenance of adequate internal controls over financial reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. Management has performed an assessment of the effectiveness of the Company's internal controls over financial reporting as of December 31, 20152017 based on the provisions of Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in 2013. Based on our assessment, management determined that the Company's internal controls over financial reporting were effective as of December 31, 20152017 based on the criteria in Internal Control—Integrated Framework issued by COSO (2013).
There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In accordance with the rules of the NYSE, the exchange on which our ordinary shares are listed, we have appointed an audit committee, referred to as Audit and Risk Committee, whose members as of December 31, 20152017 are Mrs.Ms. Monsellato, as Chairman, Mrs. Wingfield Digby,Mr. Steen, Mr. Thomson and Mr. Bradshaw, and Mrs.Bradshaw. Ms. Monsellato has been determined to be a financial expert by our board of directors and independent, as that term is defined in the listing standards of the NYSE.
Audit fees are fees billed for services that provide assurance on the fair presentation of financial statements and encompass the following specific elements:
Audit-related fees are fees for assurance or other work traditionally provided to us by external audit firms in their role as statutory auditors. These services usually result in a certification or specific opinion on an investigation or specific procedures applied, and include opinion/audit reports on information provided by us at the request of a third party (for example, prospectuses, comfort letters).
None.
None.
Pursuant to an exception for foreign private issuers, we, as a Belgian company, are not required to comply with the corporate governance practices followed by U.S. companies under the NYSE listing standards. Set forth below is a list of those differences.
Information about our corporate governance practices may also be found on our website, http://www.euronav.com, in the section "Investors" under "Legal & Corporate", item "Governance."Corporate Governance."
Not applicable.
See "Item 18. Financial Statements."
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
consolidated financial statements.
consolidated financial statements.
consolidated financial statements.
Euronav NV is a fully-integrated provider of international maritime shipping and offshore services engaged in the transportation and storage of crude oil. The Company was incorporated under the laws of Belgium on June 26, 2003, and grew out of three companies that had a strong presence in the shipping industry; Compagnie Maritime Belge NV, or CMB,("CMB"), formed in 1895, Compagnie Nationale de Navigation SA, or CNN,("CNN"), formed in 1938, and Ceres Hellenic formed in 1950. The Company started doing business under the name "Euronav" in 1989 when it was initially formed as the international tanker subsidiary of CNN.
Euronav NV charters its vessels to leading international energy companies. The Company pursues a balanced chartering strategy byof primarily employing its vessels on a combination ofthe spot market, voyages,including through the Tankers International (TI) Pool (the "TI Pool") and also under fixed-rate contracts and long-term time charters, which typically include a profit sharing component.
These financial statements have been prepared in accordance with International Financial Reporting Standards as(IFRS) issued by the International Accounting Standards Board ("IASB"), collectively "IFRS"(IASB).
All accounting policies have been consistently applied for all periods presented in the consolidated financial statements, unless disclosed otherwise.
The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:
The consolidated financial statements are presented in USD, which is the Company's functional and presentation currency. All financial information presented in USD has been rounded to the nearest thousand except when otherwise indicated.
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which are the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognisedrecognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognisedrecognized in the consolidated financial statement is included in the following note:
Information about assumptions and estimation uncertainties that have a significant risk onof resulting in a material adjustment within the next financial year areis included in the following note:
A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.
The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the CFO.
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorisedcategorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.
If the inputs used to measure the fair value of an asset or a liability might be categorisedcategorized in different levels of the fair value hierarchy, then the fair value measurement is categorisedcategorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
Except for the changes below, the accounting policies adopted in the preparation of the consolidated financial statements for the year ended December 31, 20152017 are consistent with those applied in the preparation of the consolidated financial statements for the year ended December 31, 2014.2016. The Group has adopted the following new standards, interpretations and amendments to standards, including any consequential amendments to other standards, with a date of initial application of January 1, 2015:2017:
The adoption of these standards, interpretations and amendments to standards did not have a material impact on the Group's consolidated financial statements.
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the financial and operating policies ofThe Group controls an entity so aswhen it is exposed to, obtain benefitsor has rights to, variable returns from its activities. In assessing control,involvement with the Group takes into consideration potential voting rights that currently are exercisable.
For acquisitions on or after January 1, 2010, the Group measures goodwill at the acquisition date as:
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts generally are recognisedrecognized in profit or loss.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.
Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognisedrecognized in profit or loss.
Subsidiaries are those entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which the control commences until the date on which control ceases.
The Group's interests in equity-accounted investees comprise interest in associates and joint ventures.
Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement.arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in associates and joint ventures include any long-term interests that, in substance, form part of the Group's investment in those associates or joint ventures and include unsecured shareholder loans for which settlement is neither planned nor likely to occur in the foreseeable future, which, therefore, are an extension of the Group's investment in those associates and joint ventures. The Group's share of losses that exceeds its investment is applied to the carrying amount of those loans. After the Group's interest is reduced to zero, a liability is recognized to the extent that the Group has a legal or constructive obligation to fund the associates' or joint ventures' operations or has made payments on their behalf.
Transactions in foreign currencies are translated to USD at the foreign exchange rate applicable at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to USD at the foreign exchange rate applicable at that date. Foreign exchange differences arising on translation are recognisedrecognized in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to USD at exchange rates at the reporting date. The income and expenses of foreign operations are translated to USD at rates approximating the exchange rates at the dates of the transactions.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realiserealize the asset and settle the liability simultaneously.
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer's specific circumstances.
The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, loans and receivables, cash and cash equivalents, held-to-maturity financial assets and available-for-sale financial assets. The Company determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date.
A financial asset is classified as at fair value through profit or loss if it is classified as held for trading or is designated as such on initial recognition. Financial assets are designated as at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group's documented risk management or investment strategy.treasury policy. Attributable transaction costs are recognisedrecognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, which takes into account any dividend income, are recognisedrecognized in profit or loss.
Assets in this category are classified as current assets if they are expected to be realisedrealized within 12 months of the balance sheet date.
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognisedrecognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortisedamortized cost using the effective interest method, less any impairment losses.
They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are included in trade and other receivables in the statement of financial position.
If the Group has the positive intent and ability to hold debt securities to maturity, then such financial assets are classified as held-to-maturity. Held-to-maturity financial assets are recognisedrecognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortisedamortized cost using the effective interest method, less any impairment losses. Held-to-maturity financial assets comprise debentures.
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. Available-for-sale financial assets are recognisedrecognized initially at fair value plus any directly attributable transaction costs.
Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale debt instruments, are recognisedrecognized in other comprehensive incomeOCI and presented in the fair value reserve in equity. When an investment is derecognised,derecognized, the gain or loss accumulated in equity is reclassified to profit or loss.
Available-for-sale financial assets comprise equity securities and debt securities.
They are included in non-current assets unless the Company intends to dispose of the investment within 12 months of the balance sheet date.
Non-derivative financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other payables.
Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Ordinary share capital is classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognisedrecognized as a deduction from equity, net of any tax effects.
The Group from time to time may enter into derivative financial instruments to hedge its exposure to market fluctuations, foreign exchange and interest rate risks arising from operational, financing and investment activities.
On initial designation of the derivative as hedging instrument, the Group formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be "highly effective" in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125 percent. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported net income.
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognisedrecognized asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognisedrecognized in other comprehensive incomeOCI and presented in the hedging reserve in equity.
When the hedged item is a non-financial asset, the amount accumulated in equity is included in the carrying amount of the asset when the asset is recognised.recognized. In other cases, the amount accumulated in equity is reclassified to profit or loss in the same period that the hedged item affects profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the balance in equity is reclassified to profit or loss.
When a derivative financial instrument is not held for trading, and is not designated in a qualifying hedge relationship, all changes in its fair value are recognisedrecognized immediately in profit or loss.
Compound financial instruments issued by the Group comprise Notes denominated in USD that can be converted to ordinary shares at the option of the holder, when the number of shares is fixed and does not vary with changes in fair value.
Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortisedamortized cost using the effective interest method. The equity component of a compound financial instrument is not remeasured.
Goodwill that arises on the acquisition of subsidiaries is presented as an intangible asset. For the measurement of goodwill at initial recognition, see accounting policy (f).
After initial recognition goodwill is measured at cost less accumulated impairment losses (refer to accounting policy (k)). In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and any impairment loss is allocated to the carrying amount of the equity accounted investee as a whole.
The cost of an intangible asset acquired in a separate acquisition is the cash paid or the fair value of any other consideration given. The cost of an internally generated intangible asset includes the directly attributable expenditure of preparing the asset for its intended use.
Vessels and items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation (see below) and impairment losses (refer to accounting policy (k)).
Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment (refer to accounting policy (j) viii)vii).
Gains and losses on disposal of a vessel or of another item of property, plant and equipment are determined by comparing the net proceeds from disposal with the carrying amount of the vessel or the item of property, plant and equipment and are recognisedrecognized in profit or loss.
For the sale of vessels or other items of property, plant and equipment, transfer of risk and rewards usually occurs upon delivery of the vessel to the new owner.
Leases in terms of which the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. PlantVessels, property, plant and equipment acquired by way of finance lease is stated at an amount equal to the lower of its fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation (see below) and impairment losses (refer accounting policy (k)). Lease payments are accounted for as described in accounting policy (q).
Assets under construction, especially newbuilding vessels, are accounted for in accordance with the stage of completion of the newbuilding contract. Typical stages of completion are the milestones that are usually part of a newbuilding contract: signing or receipt of refund guarantee, steel cutting, keel laying, launching and delivery. All stages of completion are guaranteed by a refund guarantee provided by the shipyard.
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalisedcapitalized as part of the cost of that asset.
Depreciation is charged to the consolidated statement of profit or loss on a straight-line basis over the estimated useful lives of vessels and items of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.
Vessels and items of property, plant and equipment are depreciated from the date that they are available for use, in respect of internallyuse. Internally constructed assets are depreciated from the date that the asset isassets are completed and ready for use.
The estimated useful lives of significant items of property, plant and equipment are as follows:
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
Where an item of property, plant and equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment. Costs associated with routine repairs and maintenance are expensed as incurred including routine maintenance performed whilst the vessel is in dry-dock. After eachComponents installed during dry-dock all the components installed (as replacements or as additional components) during the dry-dock are classified in two categories (according to their estimated lifetime and their respective cost).
A financial asset not classified as at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired.
A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that loss event(s) had an impact on the estimated future cash flows of that asset that can be estimated reliably.
In assessing collective impairment, the Group uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management's judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.
An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognisedrecognized in profit or loss, and is reversed if there has been a favourablefavorable change in the estimates used to determine the recoverable amount.
Goodwill and indefinite-lived intangible assets are tested annually for impairment. An impairment loss is recognisedrecognized whenever the carrying amount of an asset or its cash-generating unit (CGU) exceeds its recoverable amount.
The recoverable amount of an asset or CGU is the greater of its fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. Future cash flows are based on current market conditions, historical trends as well as future expectations. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU's.CGUs. Goodwill acquired in a business combination is allocated to groups of CGU'sCGUs that are expected to benefit from the synergies of the combination.
Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, the assets, or components of a disposal group, are remeasured in accordance with the Group's accounting policies. Thereafter generally the assets or disposal group are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets or investment property, which continue to be measured in accordance with the Group's accounting policies. Impairment losses on initial classification as held for sale and subsequent gains and losses on remeasurement are recognisedrecognized in profit or loss. Gains are not recognisedrecognized in excess of any cumulative impairment loss.
Once classified as held for sale, intangible assets and property, plant and equipment are no longer amortisedamortized or depreciated, and any equity-accounted investee is no longer equity accounted.
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognisedrecognized as an employee benefit expense in profit or loss in the periods during which related services are rendered by employees. Prepaid contributions are recognisedrecognized as an asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months after the end of the period in which the employees render the services are discounted to their present value.
The Group's net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognisedrecognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return of plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognisedrecognized immediately in OCI. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognisedrecognized in profit and loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognisedrecognized immediately in profit or loss. The Group recognisesrecognizes gains and losses on the settlement of a defined plan when the settlement occurs.
The Group's net obligation in respect of long-term employee benefits, other than pension plans, is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using the projected unit credit method and is discounted to its present value and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on AA credit rated bonds that have maturity dates approximating the terms of the Group's obligations and that are denominated in the currency in which the benefits are expected to be paid. Remeasurements are recognisedrecognized in profit or loss in the period in which they arise.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognisedrecognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
The grant-date fair value of equity-settled share-based payment awards granted to employees is generally recognisedrecognized as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognisedrecognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognisedrecognized is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.
Aggregated revenue recognized on a daily basis from vessels operating on voyage charters in the spot market and on contract of affreightment ("COA") within the pool is converted into an aggregated net revenue amount by subtracting aggregated voyage expenses (such as fuel and port charges) from gross voyage revenue. These aggregated net revenues are combined with aggregated time charter revenues to determine aggregated pool Time Charter Equivalent revenue ("TCE"). Aggregated pool TCE revenue is then allocated to pool partners in accordance with the allocated pool points earned for each vessel that recognisesrecognizes each vessel's earnings capacity based on its cargo, capacity, speed and fuel consumption performance and actual on hire days. The TCE revenue earned by our vessels operated in the pools is equal to the pool point rating of the vessels multiplied by time on hire, as reported by the pool manager.
Revenues from time charters and bareboat charters are accounted for as operating leases and are recognized on a straight line basis over the periods of such charters, as service is performed.
The Group does not recognize time charter revenues during periods that vessels are offhire.
Within the shipping industry, there are two methods used to account for voyage revenues: rateablyratably over the estimated length of each voyage and completed voyage.
In view of their importance the Group reports capital gains and losses on the sale of vessels as a separate line item in the consolidated statement of profit or loss. For the sale of vessels, transfer of risks and awards usually occurs upon delivery of the vessel to the new owner.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant period rate of interest on the remaining balance of the liability.
Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, dividends on redeemable preference shares, interest receivable on funds invested, dividend income, foreign exchange gains and losses, and gains and losses on hedging instruments that are recognisedrecognized in the consolidated statement of profit or loss (refer to accounting policy (h)).
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognisedrecognized in profit or loss except to the extent that it relates to a business combination, or items recognisedrecognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. The Group distinguishes two segments: the operation of crude oil tankers onin the international markets and the floating storage and offloading operations (FSO/FpSO). The Group's internal organisationalorganizational and management structure does not distinguish any geographical segments.
A discontinued operation is a component of the Group's business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative statement of profit or loss is represented as if the operation had been discontinued from the start of the comparative period.
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December, 2015,2017, and have not been applied in preparing these consolidated financial statements:
The Group distinguishes two operating segments: the operation of crude oil tankers onin the international markets (Tankers)(the Tankers Segment) and the floating production, storage and offloading operations (FSO/FpSO)(the FSO/FpSO Segment). These two divisions operate in completely different markets, where in the latter the assets are tailor made or converted for specific long term projects. The tanker market requires a different marketing strategy as this is considered a very volatile market, contract duration is often less than two years and the assets are to a biglarge extent standardized. The segment profit or loss figures and key assets as set out below are presented to the Executive Committeeexecutive committee on at least a quarterly basis to help the key decision makers in evaluating the respective segments. It was decided by theThe Chief Operating Decision MakersMaker (CODM) to presentalso receives the figuresinformation per segment based on proportionate consolidation for the joint ventures and not by applying equity accounting. The reconciliation between the figures of all segments combined on the one hand and with the consolidated statements of financial position and profit or loss on the other hand is presented in a separate column Equity-accounted investees.
For the accounting treatment of revenue, we refer to the accounting policies (o) - Revenue.
The operating expenses relate mainly to the crewing, technical and other costs to operate tankers. In 20152017 these expenses increasedwere lower compared to 2014, which is mainly related2016 because technical operating expenses were lower thanks to a higher number of vessels operated by the Group following the delivery of the vessels acquiredcost optimization strategies applied in 2014.2017.
The above finance income and expenses include the following in respect of assets (liabilities) not at fair value through profit or loss: