Okeanis Eco Tankers(US:ECO)2024-04-30 10:01PART I The first part of the report covers key company information, including director identities, offer statistics, capitalization, and a comprehensive analysis of various risk factors impacting the business and common shares ITEM 1. Identity of Directors, Senior Management and Advisers Information on directors, senior management, and advisers is not applicable for this report - Information regarding the identity of directors, senior management, and advisers is not applicable27 ITEM 2. Offer Statistics and Expected Timetable Information on offer statistics and expected timetable is not applicable for this report - Information on offer statistics and expected timetable is not applicable28 ITEM 3. Key Information This section provides key company information, including capitalization, offer proceeds, and comprehensive risk factors impacting business and financial performance - The company's business, financial condition, operating results, cash flows, and common share trading price could be materially and adversely impacted by various risks32 A. [Reserved] This sub-section is reserved and contains no specific information - This section is reserved29 B. Capitalization and Indebtedness Information on capitalization and indebtedness is not applicable for this report - Information on capitalization and indebtedness is not applicable30 C. Reasons for the Offer and Use of Proceeds Reasons for the offer and use of proceeds are not applicable for this report - Reasons for the offer and use of proceeds are not applicable31 D. Risk Factors This section details various risks, categorized by industry, business, common shares, and technical manager relationship, that could significantly impact the company's financial and operational performance Summary of Risk Factors This summary outlines key speculative risks for common stock investment, covering market conditions, regulatory compliance, operational stability, and management capabilities - Key risks include general tanker market conditions (charter rates, vessel values, supply/demand), economic/political disruptions (sanctions, public health, piracy), compliance liabilities (governmental, tax, environmental, safety laws), changes in regulation, inherent operational risks, reliance on information systems, borrowing availability and financial covenants, capital expenditures, dependence on limited customers, ability to attract/retain key personnel, and delays in newbuilding construction3336 RISKS RELATING TO OUR INDUSTRY The highly cyclical tanker industry faces volatility from supply/demand, geopolitical events, environmental regulations, and energy shifts, impacting profitability and operating costs - The international tanker industry is cyclical and volatile, with charter hire rates and vessel values fluctuating widely. For example, the Baltic Dirty Tanker Index (BDTI) ranged from a high of 1,648 to a low of 713 in 202338 - Geopolitical events like the war in Ukraine, sanctions on Russian exports, and conflicts in the Middle East (e.g., Israel-Hamas, Houthi attacks in the Red Sea) have increased volatility and pose adverse consequences for the tanker industry386197 - Factors influencing demand for tanker capacity include oil supply/demand, oil prices, OPEC/non-OPEC production restrictions, global economic conditions, and increased use of renewable energy and electric vehicles, which could reduce crude oil and petroleum product movement4142455355 - Factors influencing the supply of tanker capacity include newbuilding deliveries, scrapping rates, financing availability, and environmental regulations that may limit vessel useful lives or require costly modifications4550 - An over-supply of tanker capacity, coupled with volatile market conditions, could lead to declining charter rates and vessel values, negatively impacting profitability and compliance with loan covenants5052 - Operating results are subject to seasonal fluctuations, with stronger tanker markets typically in winter months due to increased oil consumption in the northern hemisphere56 - Global public health threats (e.g., COVID-19) and macroeconomic factors (inflation, rising interest rates) can disrupt global financial markets, increase operating costs, and reduce demand for shipping services57585960 - The transition from LIBOR to SOFR as a benchmark interest rate, combined with rising interest rates, could increase borrowing costs and affect profitability, earnings, and cash flow6667 - Compliance with complex international and national environmental laws and regulations (e.g., MARPOL, OPA, BWM Convention, EU ETS) requires costly equipment, operational changes, and may result in significant liabilities, penalties, or operational restrictions69707374757677 - Vessels are exposed to inherent operational risks such as marine disasters, mechanical failures, and human error, which can lead to damage, loss of life, environmental pollution, and unexpected drydocking costs8182 - The market value of vessels fluctuates significantly due to general economic conditions, charter rates, competition, and regulations, potentially leading to impairment losses or breaches of financial covenants838485 - The company faces risks from economic sanctions (U.S., EU, etc.) against countries like Iran, Syria, North Korea, Cuba, and Russia, which could lead to fines, penalties, reputational harm, or termination of contracts8689919395100 - Political instability, terrorist attacks, war, international hostilities (e.g., Ukraine-Russia, Israel-Hamas, Red Sea attacks), and trade protectionism can disrupt shipping routes, increase insurance premiums, and negatively impact global trade and economic conditions949596979899101102 - An economic slowdown or changes in the economic and political environment in the Asia Pacific region, particularly China, could adversely affect the company's business due to reduced trade and potential policy shifts favoring domestic shipping107108109110 - Increased inspection procedures and tighter import/export controls can lead to delays, seizures, or penalties, making certain cargo shipments uneconomical111 - Information systems are vulnerable to security breaches and failures, which could disrupt business operations, increase costs, and lead to adverse financial impacts, especially with new SEC disclosure requirements for cybersecurity incidents112113114 RISKS RELATING TO OUR BUSINESS Business risks include restrictive loan covenants, debt servicing, inflation, customer dependence, growth management, operational issues, and vulnerability to crude oil tanker market downturns - Loan agreements contain restrictive covenants (e.g., limits on dividends, indebtedness, asset sales, mergers) that can limit liquidity and corporate activities. Breaches could lead to acceleration of debt and foreclosure on vessels115116117118119 - Servicing current and future debt (totaling $698.5 million as of December 31, 2023) limits funds for other purposes and increases vulnerability to economic downturns and competitive conditions120122 - Worldwide inflationary pressures can increase operating costs (crew, insurance, fuel) and interest rates on floating-rate debt, potentially reducing profit margins if charter rates do not offset these increases124125 - A limited number of financial institutions hold the company's cash, with balances exceeding government-backed deposit insurance in some EU and Swiss banks, posing a risk of loss if these institutions fail126127128 - Capital expenditures for vessel maintenance, upgrades, and compliance with new standards may increase, requiring vessels to be out of service and incurring revenue losses129 - The company is dependent on a limited number of customers (80% of 2023 revenues from 17 customers) and charterers fulfilling their obligations. Defaults could lead to significant losses and difficulty re-deploying vessels profitably131132133134135136 - Future growth plans, including fleet expansion, carry risks such as undisclosed liabilities, difficulty in hiring qualified personnel, and integrating new operations137 - Delays or defaults by shipyards in newbuilding construction could adversely affect financial position and results of operations, potentially leading to breaches of commitments138 - Inability to clear the 'Oil Majors' vetting process, a strict due diligence process for selecting commercial partners, could lead to termination of charter agreements and negatively impact future vessel employment140143144 - The tanker industry is highly competitive, with competition from other vessel owners, including major oil companies and independent shipping companies with greater resources145 - Dependence on key management personnel and the technical manager (KMC) means loss or unavailability of these individuals or KMC's inability to attract/retain staff could adversely affect business operations146149 - Executive officers not devoting all their time to the business and involvement in competing activities could create conflicts of interest147 - Labor interruptions could prevent or hinder operations, impacting business, results, cash flows, and available cash148 - Acquiring secondhand vessels carries risks of undiscovered defects, expensive repairs, and lack of builder warranties, potentially increasing operating costs and off-hire time159160 - Inadequate insurance coverage for operational risks (mechanical failure, collision, oil spills, war, piracy) could lead to significant uninsured or underinsured losses, impacting financial condition and ability to pay dividends161163164165166 - Increased scrutiny and changing expectations regarding Environmental, Social, and Governance (ESG) policies from investors and lenders may impose additional costs, hinder access to capital, and cause reputational damage168169170171 - Technological innovation and evolving quality/efficiency requirements from customers could reduce charter hire income and vessel values if the company's fleet becomes less competitive172 - Revenue is primarily in U.S. dollars, but a significant portion of expenses (especially crew and administrative staff) is in Euros, creating foreign currency exchange rate risk that could impact net profit173174 - Trading and hedging activities in freight derivatives (e.g., Forward Freight Agreements) expose the company to market risks and potential trading losses if expectations are incorrect175176177 - The inherent risk of fraud and fraudulent behavior in the shipping industry could have a material adverse effect on future performance178 - Dependence on short-term or spot charters in volatile shipping markets makes the company vulnerable to declining rates and off-hire periods, impacting profitability and cash flows179 RISKS RELATING TO OUR COMMON SHARES Common share risks include inactive trading, delisting, dual listing costs, major shareholder influence, anti-takeover provisions, and implications of 'emerging growth company' and Marshall Islands incorporation status - An active trading market for common shares listed on the NYSE and Oslo Børs may not develop or be sustained, potentially reducing fair market value and increasing price volatility196 - Delisting from the NYSE could lead to limited market quotations, reduced analyst coverage, decreased ability to raise capital, limited liquidity for shareholders, and potential breaches of financing arrangements197 - Maintaining a dual listing on the NYSE and Oslo Børs incurs additional costs (legal, accounting, investor relations) and requires substantial management time for compliance, potentially diluting liquidity and affecting share value198199203 - Compliance with Section 404 of Sarbanes-Oxley (effective for the year ending December 31, 2024) requires documenting and evaluating internal controls, which is costly and challenging. Failure to maintain effective controls could adversely affect investor confidence201204205 - The company may be subject to litigation (contract disputes, environmental claims, etc.) that, if not resolved favorably or sufficiently insured against, could have a material adverse effect206207 - Fluctuations in the exchange rate between the U.S. dollar and the Norwegian krone may cause differences in share value across exchanges and lead to heavy trading by investors208 - The market price of common shares may be highly volatile due to various factors, including operating results, market valuations, analyst reports, strategic actions, regulatory developments, and general economic conditions209211 - The Chairman and his family collectively own a majority of outstanding common shares (53.7% as of April 26, 2024), giving them significant influence over shareholder votes and corporate actions, potentially discouraging change of control213219 - Anti-takeover provisions in the company's articles of incorporation and bylaws, along with covenants in credit arrangements requiring the Alafouzos family to maintain minimum ownership, could discourage or prevent mergers/acquisitions and affect share price220221222 - As an 'emerging growth company,' the company benefits from reduced disclosure requirements, which may make its common shares less attractive to some investors and increase share price volatility223224 - Incorporation in the Republic of the Marshall Islands, which has a less developed body of corporate law compared to typical U.S. jurisdictions, may offer shareholders fewer rights and protections225 - The ability to declare and pay dividends is discretionary and depends on earnings, financial condition, market prospects, capital expenditures, loan agreement restrictions, and Marshall Islands law, with no assurance of future payments226227230231232 - As a holding company, dividend payments depend on subsidiaries' ability to distribute funds, which may be limited by Marshall Islands and Liberian law233 - The international nature of operations and non-resident directors/officers may make it difficult for investors to serve process or enforce U.S. judgments against the company234 - The company's Marshall Islands incorporation and principal executive offices in Greece may subject it to economic substance requirements, with potential penalties for non-compliance238239240241 RISKS RELATING TO OUR RELATIONSHIP WITH OUR TECHNICAL MANAGER AND ITS AFFILIATES Dependence on KMC for technical management poses risks from service disruption, conflicts of interest due to Chairman's ownership, and fixed management fees regardless of profitability - The company is dependent on Kyklades Maritime Corporation (KMC) for day-to-day technical management, including vessel operations, repairs, insurance, supplies, and crewing. KMC also handles EU Emissions Trading Scheme (ETS) compliance and provides corporate, accounting, and financial support243 - Adverse impacts could arise if KMC becomes unable or unwilling to provide services at the same quality or cost, or if KMC's reputation is harmed, affecting the company's ability to operate, secure charters, and obtain financing/insurance244 - KMC has termination rights in case of a change of control of a ship-owning subsidiary or for convenience (with 36-month notice), requiring continued management fee payments for 36 months unless KMC defaults245247 - KMC is a privately held company, limiting public information about its financial strength, which could impact the company without prior warning246 - Management fees are payable to KMC regardless of the company's profitability or vessel employment, potentially increasing expenses during downturns247 - The Chairman's significant ownership in KMC (50%) and other shipping businesses creates potential conflicts of interest, as KMC may prioritize other clients or affiliated companies, or the Chairman's other interests may compete with the company's business opportunities248249 ITEM 4. Information on the Company This section details the company's history, business overview, fleet management, customer base, ESG practices, regulatory compliance, organizational structure, and property - The company owns and operates a modern, fuel-efficient Eco fleet of 14 tanker vessels (6 Suezmax, 8 VLCCs) for crude oil transportation265 - As of December 31, 2023, the fleet has a carrying capacity of approximately 3.5 million deadweight tons (DWT) and an average age of 4.4 years265 - Vessels are equipped with exhaust gas cleaning systems (scrubbers) and comply with ballast water treatment regulations265 Fleet Details as of April 30, 2024 | Vessel Name | Year Built | Dwt | Flag | Yard | Type of Employment | | :------------ | :--------- | :---- | :----- | :---- | :----------------- | | Milos | 2016 | 157,525 | Greece | Sungdong | Spot | | Poliegos | 2017 | 157,525 | Marshall Islands | Sungdong | Spot | | Kimolos | 2018 | 159,159 | Marshall Islands | JMU | Spot | | Folegandros | 2018 | 159,221 | Marshall Islands | JMU | Spot | | Nissos Sikinos| 2020 | 157,447 | Marshall Islands | HSHI | Spot | | Nissos Sifnos | 2020 | 157,447 | Marshall Islands | HSHI | Spot | | Nissos Rhenia | 2019 | 318,953 | Marshall Islands | HHI | Spot | | Nissos Despotiko| 2019 | 318,953 | Marshall Islands | HHI | Spot | | Nissos Donoussa| 2019 | 318,953 | Marshall Islands | HHI | Spot | | Nissos Kythnos| 2019 | 318,953 | Marshall Islands | HHI | Spot | | Nissos Keros | 2019 | 318,953 | Marshall Islands | HHI | Spot | | Nissos Anafi | 2020 | 318,953 | Marshall Islands | HHI | Spot | | Nissos Kea | 2022 | 300,323 | Marshall Islands | HHI | Spot | | Nissos Nikouria| 2022 | 300,323 | Marshall Islands | HHI | Spot | A. History and Development of the Company Okeanis Eco Tankers Corp., incorporated April 30, 2018, in Marshall Islands, has evolved through fleet changes, dual listings on Oslo Børs and NYSE, and recent financing activities - Okeanis Eco Tankers Corp. was incorporated on April 30, 2018, in the Republic of the Marshall Islands250 - The company's common shares began trading on Euronext Growth (ex-Merkur Market) on July 3, 2018, then moved to Euronext Expand (ex-Oslo Axess) on March 8, 2019, and subsequently to the Oslo Børs on January 29, 2021. On December 11, 2023, shares began primary trading on the NYSE, with Oslo Børs becoming a secondary listing252 - In 2021, the company sold its Aframax/LR2 fleet (three vessels) for $120.75 million and two VLCC crude tankers for $180 million253254 - In June 2021, the company agreed to acquire two Gas Ready (MEc), Eco-design, scrubber-fitted 300,000 DWT VLCC newbuildings (Nissos Kea and Nissos Nikouria) for $194 million, funded by cash, senior secured debt, and an unsecured Sponsor Loan255 - The company initiated a share buy-back plan in November 2021, repurchasing 181,809 shares for $1,515,670 as of the report date, with no repurchases in 2023256 - Recent developments in early 2024 include a new $34.7 million secured credit facility for the Suezmax vessel Milos, amendments to existing sale and leaseback agreements for Nissos Kea and Nissos Nikouria, and a new $73.5 million sale and leaseback agreement for Nissos Anafi260261262263 - In March 2024, the company paid a $21.2 million dividend ($0.66 per share) and repaid $16.7 million of the Sponsor's loan principal264 B. Business Overview The company operates a modern, fuel-efficient fleet of 14 crude oil tankers, primarily using voyage charters to leverage Eco-design and scrubbers, while adhering to ESG practices and extensive environmental regulations Management of Our Fleet Fleet commercial management is by OET Chartering Inc., technical management by KMC for a $900 daily fee per vessel, with both agreements containing termination clauses and change of control provisions - OET Chartering Inc. (wholly owned subsidiary) provides commercial management, and Kyklades Maritime Corporation (KMC) provides technical management269 - KMC charges a daily fee of $900 per vessel for technical support, crew management, maintenance, and insurance consulting. Total technical management fees were $4,599,000 in 2023 and $4,381,200 in 2022270 - Technical management agreements can be terminated for cause or convenience (36-month notice). KMC can terminate with 30-days' notice upon a change of control of the ship-owning subsidiary without its consent270 - OET Chartering Inc. also entered a shared services agreement with KMC for corporate, accounting, financial, and administrative services without additional fees271 - ETS Services Agreements were entered with KMC, effective January 1, 2024, for obtaining, transferring, and surrendering EU Emissions Trading Scheme allowances, with no additional fee beyond the technical management fee273 Employment of Our Fleet The company primarily uses voyage charters to capitalize on its fuel-efficient fleet's lower fuel costs, while opportunistically employing time charters for stable cash flow and seasonal mitigation - The company primarily employs vessels under voyage charters to benefit from lower fuel oil costs due to Eco-design and scrubbers274 - Voyage charters involve carrying specific cargo for an agreed freight, with the company paying voyage expenses (port, canal, bunker costs). Rates are volatile but can yield higher profit margins in improving markets275 - Time charters provide fixed and stable cash flow over a set period, with charterers bearing voyage expenses. These are used opportunistically to mitigate spot market seasonality276 Customers Accounting for >10% of Revenues | Customer | 2023 | 2022 | 2021 | | :------- | :--- | :--- | :--- | | A | — | 18 % | 13 % | | B | — | 14 % | 11 % | | C | — | 11 % | — | | Total| —| 43 %| 24 %| Seasonality Tanker markets are historically stronger in winter and weaker in summer, though new oil uses have evened consumption; long-term charters can mitigate seasonal impacts - Tanker markets are typically stronger in winter months due to increased oil consumption in the northern hemisphere and weaker in summer months due to lower consumption and refinery maintenance278 - The tanker industry has become less dependent on seasonal heating oil transport, with new oil uses spreading consumption more evenly278 - Long-term fixed-rate charters can reduce the direct impact of seasonal factors on operating results278 Our Environmental, Social, and Governance, or ESG, Practices The company monitors ESG data, publishes an ESG Report aligned with GRI/SASB, adheres to UN SDGs, and utilizes KMC's VMPS and SEEMP for environmental performance and GHG compliance - The company monitors sustainability and ESG data according to internationally accepted standards (GRI 2021, SASB for Marine Transportation) and published its 2022 ESG Report in January 2024279 - The company aligns its operations with the United Nations Sustainable Development Goals (UN SDGs)279 - KMC developed an in-house Vessel Monitoring & Performance System (VMPS) for real-time fuel capacity and emissions monitoring, and a Ship Energy Efficiency Management Plan (SEEMP) to manage and improve fleet energy efficiency280 Environmental and Other Regulations Operations are subject to extensive international and national environmental and safety regulations, requiring significant compliance expenditures and ongoing monitoring, with the company believing its vessels are substantially compliant despite evolving rules - Operations are subject to numerous international conventions (MARPOL, SOLAS, STCW, LL Convention) and national laws/regulations related to safety, health, and environmental protection281284 - Compliance with these regulations requires costly equipment installation, operational changes, and permits/licenses, affecting vessel resale value or useful lives69281283 - Vessels are subject to scheduled and unscheduled inspections by port authorities, classification societies, flag states, terminal operators, and charterers282 - The company believes its vessels are in substantial compliance with applicable environmental laws and regulations and hold necessary permits283 International Maritime Organization The IMO sets maritime safety and pollution standards via MARPOL and SOLAS, with recent amendments imposing stricter sulfur limits, NOx standards, fuel consumption data collection, and energy efficiency measures; company vessels use scrubbers and BWT systems for compliance - IMO's MARPOL Annex VI sets limits on sulfur oxide and nitrogen oxide emissions. A global cap of 0.5% m/m sulfur content in fuel oil has been effective since January 1, 2020, with stricter 0.1% limits in Emission Control Areas (ECAs)286287288 - Compliance with sulfur limits can be achieved by using low-sulfur fuels, installing scrubbers (EGCS), or retrofitting for LNG. All company vessels currently have scrubbers installed74287 - Amended Annex VI also establishes new tiers of nitrogen oxide (NOx) emission standards for marine diesel engines, with Tier III applying to new vessels operating in ECAs289 - Mandatory data collection system (IMO DCS) requires vessels over 5,000 gross tons to report annual fuel oil consumption data since January 1, 2019290336 - MARPOL made energy efficiency measures mandatory for ships, including Ship Energy Efficiency Management Plans (SEEMPs) and Energy Efficiency Design Index (EEDI) for new ships291 - Revised Annex VI (effective November 2022) includes new regulations to reduce greenhouse gas emissions, requiring Energy Efficiency Existing Ship Index (EEXI) and operational Carbon Intensity Indicator (CII) certification for ships292338 - The 2023 IMO Strategy on Reduction of GHG Emissions from Ships aims for at least 40% reduction in carbon dioxide emissions per transport work by 2030 and net-zero GHG emissions by or around 205073290334 - The SOLAS Convention and ISM Code impose safety management system requirements, with vessels needing a Safety Management Certificate and managers a Document of Compliance. The company's vessels are ISM Code certified296297299 Pollution Control and Liability Requirements The BWM Convention mandates ballast water management, with all ships meeting D-2 standard by September 8, 2024; CLC and Bunker Convention impose strict liability for oil pollution, requiring insurance; company vessels have BWT systems and P&I insurance - The BWM Convention (effective September 9, 2017) requires ships to manage ballast water to prevent invasive aquatic organisms, with all ships needing to meet the D-2 standard by September 8, 2024305306 - All company vessels have Ballast Water Treatment Systems to ensure compliance with new environmental regulations306 - The CLC and Bunker Convention impose strict liability on vessel owners for oil pollution damage in territorial waters, requiring insurance coverage. The company maintains protection and indemnity insurance for environmental incidents307308 - The Anti-fouling Convention prohibits organotin compound coatings; the company's vessels use cybutryne-free products310 United States Regulations U.S. regulations (OPA, CERCLA, CAA, CWA) impose strict liability for oil/hazardous substance discharges and regulate emissions/ballast water, requiring permits and costly equipment; the company maintains $1 billion in pollution liability coverage - The U.S. Oil Pollution Act of 1990 (OPA) and Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) establish strict, joint, and several liability for oil and hazardous substance discharges in U.S. waters312313 - OPA liability caps (e.g., $2,500 per gross ton or $21,521,000 for tank vessels over 3,000 gross tons) do not apply if the incident is caused by regulatory violation, gross negligence, or willful misconduct316 - OPA and CERCLA require vessel owners/operators to maintain evidence of financial responsibility. The company complies by providing applicable certificates318 - The U.S. Clean Air Act (CAA) and Clean Water Act (CWA) regulate emissions and ballast water discharge, requiring permits and potentially costly equipment for compliance322323324 - The company maintains pollution liability coverage insurance of $1 billion per incident for each vessel321 European Union Regulations EU regulations impose criminal sanctions for discharges, mandate CO2 MRV, and introduced the ETS for ships on January 1, 2024, with FuelEU Maritime (2025) and CSRD adding new reporting, all increasing compliance costs - EU directives impose criminal sanctions for illicit ship-source discharges and require monitoring, reporting, and verification (MRV) of CO2 emissions for ships over 5,000 gross tonnage325 - The EU Emissions Trading Scheme (ETS) for ships became effective January 1, 2024, applying gradually from 2024-2026. It requires surrendering allowances for emissions, with 100% of allowances to be auctioned76326 - The FuelEU Maritime Regulation is expected to take effect January 1, 2025, requiring a 'FuelEU certificate of compliance' for ships over 5,000 gross tonnage76326 - The Corporate Sustainability Reporting Directive (CSRD), adopted November 10, 2022, will create new, detailed sustainability reporting requirements for EU and non-EU companies, phased in from 2024-2028331 - The Hong Kong Ship Recycling Convention, setting standards for ship recycling, is expected to enter into force on June 26, 2025. The EU Ship Recycling Regulation (SRR) already requires an Inventory of Hazardous Materials (IHM) for ships calling at EU ports327328 International Labor Organization The ILO's MLC 2006 mandates Maritime Labor Certificates and insurance for seafarer liabilities for ships over 500 gross tons in international trade; the company's vessels are MLC 2006 certified - The ILO's Maritime Labor Convention 2006 (MLC 2006) requires ships over 500 gross tons in international trade to have a Maritime Labor Certificate and Declaration of Maritime Labor Compliance332 - Ships must also display a certificate confirming insurance or financial security for seafarer wages, repatriation, and compensation for death/disability332 - The company believes its vessels are in substantial compliance with and certified to meet MLC 2006332 Greenhouse Gas Regulation International shipping GHG emissions are not under Kyoto/Paris, but the IMO's 2023 Strategy targets net-zero by 2050, with IMO DCS and MARPOL Annex VI (EEXI, CII) mandating data and intensity measures; EU and U.S. EPA also regulate, potentially incurring significant company expenditures - International shipping GHG emissions are not subject to the Kyoto Protocol or Paris Agreement, but the IMO adopted the 2023 IMO Strategy on Reduction of GHG Emissions from Ships, targeting net-zero by or around 2050333334 - The IMO Data Collection System (DCS) requires ships over 5,000 gross tons to report annual fuel consumption data to an IMO database336 - Revised MARPOL Annex VI (effective November 1, 2022) includes carbon intensity measures like the Energy Efficiency Existing Ship Index (EEXI) and operational Carbon Intensity Indicator (CII)338 - The EU adopted a European Climate Law (2021/1119) aiming for net-zero GHG emissions by 2050 and a 55% reduction by 2030, supported by the 'Fit for 55' package339 - The U.S. EPA also regulates greenhouse gas emissions, with recent final rules to reduce methane from the oil and natural gas industry340 - Passage of climate control legislation or regulatory initiatives could require significant, unpredictable expenditures341 Vessel Security Regulations Post-9/11, MTSA and SOLAS Chapter XI-2 (ISPS Code) enhanced vessel security, requiring ISSC for international trade; the company's fleet complies, but piracy in regions like the Gulf of Guinea and Red Sea continues to impact security costs and risks - Vessel security regulations, including the U.S. Maritime Transportation Security Act (MTSA) and SOLAS Chapter XI-2 (ISPS Code), enhance security against terrorism342343344 - International trading requires vessels to attain an International Ship Security Certificate (ISSC). The company's fleet complies with MTSA, SOLAS, and ISPS Code344345 - Escalating piracy acts in regions like the Gulf of Guinea and Red Sea increase vessel security costs and risks, potentially leading to uninsured losses346 Surveys by Classification Societies Commercial vessels require classification by societies for safety and seaworthiness, undergoing various surveys; failure to maintain class renders vessels unemployable and uninsurable, potentially breaching loan covenants; the company's vessels are 'in class' by American Bureau of Shipping - Commercial vessels must be classed by a classification society to certify safety and seaworthiness, which is a condition for insurance coverage and lending347 - Vessels undergo annual, intermediate, drydocking, and special surveys. Failure to maintain class or pass surveys makes a vessel unemployable and uninsurable, potentially breaching loan covenants348 - The company's vessels are certified 'in class' by the American Bureau of Shipping347 Risk of Loss and Liability Insurance Cargo vessel operations entail risks like mechanical failure and environmental mishaps; the company holds hull, war, and P&I insurance (up to $1 billion for oil pollution), but lacks strike or off-hire coverage, meaning extended off-hire could significantly impact earnings - Operating cargo vessels involves inherent risks such as mechanical failure, collision, and environmental mishaps, leading to potential loss of revenues, increased costs, and decreased cash flows349 - The company carries hull and machinery, war risks, and protection and indemnity (P&I) insurance. P&I coverage includes third-party liabilities, with standard sub-limits for oil pollution at $1 billion351352 - The company does not maintain strike or off-hire insurance, meaning loss of revenue during extended off-hire periods (e.g., unscheduled drydocking) could materially adversely affect business and operating cash flow163351 - Not all risks can be insured, specific claims may be rejected, and adequate insurance coverage at reasonable rates may not always be obtainable350 Permits and Authorizations The company must obtain various permits, licenses, and certificates from governmental and quasi-governmental agencies for its vessels, and believes it has secured all currently required authorizations for planned operations - The company must obtain permits, licenses, and certificates from governmental and quasi-governmental agencies for its vessels353 - The company believes it has obtained all currently required permits, licenses, and certificates to operate its vessels as planned353 The Tanker Shipping Industry The tanker shipping industry, vital for global energy, is cyclical and volatile, with charter rates influenced by supply/demand, newbuilding/secondhand prices, and vessel characteristics; employment options include bareboat, time, pool, and spot/voyage charters - The oil tanker shipping industry is a vital link in the global energy supply chain, with tanker vessels offering the lowest cost per oil barrel for intercontinental crude oil transportation354 - Revenues are earned from freight rates for transportation capacity, with costs for repositioning vessels between ports borne by owners unless on time charter355 Main categories of crude tanker vessels Crude tankers are categorized by DWT and routes: VLCCs (200,000-320,000 DWT) for long-haul, Suezmax (120,000-200,000 DWT) for various trades, and Aframax (80,000-120,000 DWT) for regional trades - VLCCs (Very Large Crude Carriers) have a capacity exceeding 200,000 DWT (typically 300,000-320,000 DWT) and primarily operate on long-haul routes from the Middle East and West Africa to Asia, Europe, and the U.S. Gulf/Caribbean356 - Suezmax tankers have a capacity of approximately 120,000 to 200,000 DWT (typically 150,000-160,000 DWT) and are engaged in various crude oil trades across major loading zones362 - Aframax tankers have a capacity of approximately 80,000 to 120,000 DWT and are employed in shorter regional trades, mainly in North West Europe, the Caribbean, the Mediterranean, and Asia362 Tanker Newbuilding Prices Newbuilding prices are affected by ship type, shipyard capacity, demand, order book, buyer-yard relationships, design specifications (e.g., fuel efficiency), and material costs like steel and machinery - Newbuilding prices are influenced by ship type, shipyard capacity, demand, 'berth cover' (forward book of business), buyer relationships, design specifications (fuel efficiency, environmental features), and the price of ship materials (steel, engine/machinery equipment)358 Tanker Secondhand Prices Secondhand tanker prices are primarily driven by vessel capacity supply/demand, appreciating with high charter rates and declining with low demand, also influenced by age, specifications, and replacement cost, with younger vessels showing less fluctuation - Secondhand prices are primarily driven by supply and demand for vessel capacity, appreciating with high charter rates and declining with low rates359 - Vessel values are also influenced by age, specification, and replacement cost (for vessels up to five years old)359 - Younger vessels tend to have less percentage fluctuation in value than older vessels due to their longer remaining economic life361 The Crude Oil Tanker Market Crude oil tankers are employed via Bareboat (charterer pays all costs), Time (owner pays operating, charterer pays voyage), Pool (owner earns revenue share), and Spot/Voyage (owner covers all expenses for single trip) charters - Bareboat Charter: Vessels employed for several years; charterer pays all voyage-related and daily operating expenses; owner receives monthly charter hire and covers capital costs363 - Time Charter: Vessel used for months/years or specific trip; charterer covers voyage costs; owner receives monthly charter hire and pays operating/capital costs363 - Pool Charter: Owner earns a portion of total pool revenues, net of expenses, allocated based on vessel characteristics363 - Spot or Voyage Charter: Single voyage for specific cargo; owner covers repositioning, voyage, operating, and capital costs363 Tanker Vessels Charter Rates Tanker charter rates are primarily driven by supply/demand; shorter periods are market-sensitive, longer periods offer stability; other factors include vessel age, characteristics, newbuilding/secondhand prices, and overall market conditions - Main factors affecting vessel charter rates are supply and demand for tanker shipping364 - Shorter charter periods are more affected by current supply-demand balance and market cycle phase, while longer periods tend to be more stable364 - Other influencing factors include vessel age, characteristics (fuel consumption, speed), new-built and secondhand ship prices, and market conditions364 C. Organizational Structure This section refers to Exhibit 8.1 for a list of significant subsidiaries, detailing the company's holding company structure with various vessel-owning entities - The organizational structure, including a list of significant subsidiaries, is detailed in Exhibit 8.1 of the Annual Report365 D. Property, Plants and Equipment The company owns no real estate property; its principal executive offices are in Greece, and its material property consists solely of its vessels - The company does not own any real estate property366 - Principal executive offices are located at c/o OET Chartering Inc., Ethnarchou Makariou Ave.,&2 D. Falireos St., 185 47 N. Faliro, Greece366 - Other than its vessels, the company does not have any material property366 ITEM 4A. Unresolved Staff Comments There are no unresolved staff comments applicable to the company - This section is not applicable366 ITEM 5. Operating and Financial Review and Prospects This section reviews operating results, financial condition, and future prospects, covering key business factors, critical accounting policies, financial/operational terms, liquidity, capital resources, and market trends A. Operating Results Operating results are driven by vessel count, charter rates, and charter mix; 2023 revenue increased significantly due to higher Daily TCE Rates and fleet expansion, while expenses rose from increased voyage charters, fleet size, and NYSE listing costs Principal Factors Affecting Our Business Business performance is primarily influenced by vessel count, charter rates, charter duration, repositioning, operating/voyage costs, maintenance, vessel age, financing, and the mix of spot versus period charters affecting cash flow and profit margins - Principal factors affecting the business include the number of vessels, various charter rates (voyage, time charter trip, period time charter), charter duration, vessel repositioning, operating expenses, maintenance, vessel age/condition, equity/debt issuances, and financing costs368369 - Period time charters offer predictable cash flows but potentially lower profit margins, while spot market charters are less predictable but can yield higher profit margins during favorable market conditions371372 Critical Accounting Policies Critical accounting policies are vital for financial reporting, requiring significant management judgment and estimates due to inherent uncertainties; full details are in Note 4 of the annual audited financial statements - Critical accounting policies involve significant management judgment and estimates due to inherent uncertainties373 - For a description of all significant accounting policies, refer to Note 4 in the annual audited financial statements373 Important Financial and Operational Terms and Concepts This section defines key financial and operational terms for performance analysis, including revenues, commissions, voyage expenses, vessel operating expenses, drydocking, depreciation, G&A, management fees ($900/vessel/day), inflation impacts, finance costs, and derivative gains/losses - Revenues include time and voyage charters, affected by hire rates, operating days, and charter mix374 - Voyage charters involve specific cargo movement, with the company paying voyage expenses (port, canal, bunker costs). Time charters lease vessels for a set period, with charterers paying voyage expenses375 - Commissions (up to 6.25% of charter hire) are paid to ship brokers376 - Vessel operating expenses cover crewing, insurance, repairs, maintenance, stores, and lubricants, fluctuating due to factors like unplanned repairs and insurance premiums378 - Drydocking costs are capitalized and depreciated over the estimated period to the next scheduled survey (typically 5 years, then 2.5 years after 10 years of age)379 - Vessels are depreciated on a straight-line basis over an estimated useful life of 25 years, considering a residual value based on lightweight tonnage and an estimated scrap rate of $400 per ton380 - General and administrative expenses include employee costs, directors' fees, executive compensation, and professional fees381 - Management fees of $900 per vessel per day are paid to the technical manager (KMC)382 - Inflation has a moderate impact on operating expenses and overheads, with insurance and crew costs anticipated to rise. Interest on SOFR-based loans increases with interest rate hikes383 - Interest and other finance costs include interest on outstanding indebtedness and fees for debt facilities384 - Unrealized/realized gain/loss from derivatives reflects fair value fluctuations and actual amounts from derivative instrument terminations385 Implications of Being an Emerging Growth Company and a Foreign Private Issuer As an 'emerging growth company' and 'foreign private issuer,' the company benefits from reduced reporting obligations but opted out of extended accounting standard transition; these statuses may deter some investors and risk higher compliance costs if foreign private issuer status is lost - As an 'emerging growth company' (revenue less than $1.235 billion), the company benefits from reduced reporting burdens, including exemption from auditor attestation on internal controls under Section 404(b) of Sarbanes-Oxley386387 - The company has opted out of the extended transition period for complying with new or revised financial accounting standards, making this decision irrevocable388 - As a 'foreign private issuer,' the company is exempt from certain Exchange Act provisions applicable to U.S. domestic companies, such as proxy solicitation rules, insider trading reporting, and quarterly reports on Form 10-Q389 - These exemptions and scaled disclosure requirements may make common shares less attractive to some investors or harm the stock price192 - Losing foreign private issuer status would significantly increase regulatory and compliance costs and require adherence to more stringent U.S. domestic issuer requirements193 Results of Operations In 2023, revenue grew 52% to $413.1 million from higher Daily TCE Rates and fleet expansion; commissions, voyage, vessel operating, and depreciation expenses rose with increased activity and fleet size, while G&A surged 87% due to NYSE listing costs and other expenses increased 118% from lower derivative gains and higher interest Revenue (in millions of U.S. dollars) | (In millions of U.S. dollars) | 2023 | 2022 | Increase | | :---------------------------- | :---- | :---- | :------- | | Revenue | 413.1 | 271.0 | 52 % | - Revenue increased by $142.1 million (52%) in 2023, primarily due to a 48% average increase in Daily Time Charter Equivalent Rates and the addition of Nissos Kea and Nissos Nikouria390 Commissions (in millions of U.S. dollars) | (In millions of U.S. dollars) | 2023 | 2022 | Increase | | :---------------------------- | :--- | :--- | :------- | | Commissions | (5.8)| (3.4)| 71 % | - Commissions increased by $2.4 million (71%) in 2023, reflecting a strong voyage charter market, increased cargos, and longer ton-miles391 Voyage Expenses (in millions of U.S. dollars) | (In millions of U.S. dollars) | 2023 | 2022 | Increase | | :---------------------------- | :----- | :----- | :------- | | Voyage expenses | (109.6)| (74.1) | 48 % | - Voyage expenses increased by $35.5 million (48%) in 2023, mainly due to higher utilization of vessels in voyage charters (80% in 2023 vs. 60% in 2022), leading to higher bunker fuel and port expenses394395 - Fuel cost increased from $55.7 million in 2022 to $76.2 million in 2023, driven by longer ton-mile voyages despite a 19% decrease in fuel prices396 - Port expenses increased from $18.0 million in 2022 to $30.4 million in 2023 due to substantially more port calls in the strong spot market397 Vessel Operating Expenses (in millions of U.S. dollars) | (In millions of U.S. dollars) | 2023 | 2022 | Increase | | :---------------------------- | :--- | :--- | :------- | | Vessel operating expenses | (41.7)| (35.7)| 17 % | - Vessel operating expenses increased by $6.0 million (17%) in 2023, mainly due to a 5% increase in vessels' calendar days from fleet additions and pre-operating expenses for drydocking398 Management Fees (in millions of U.S. dollars) | (In millions of U.S. dollars) | 2023 | 2022 | Increase | | :---------------------------- | :--- | :--- | :------- | | Management fees | (4.6)| (4.4)| 5.0 % | - Management fees increased by $0.2 million (5.0%) in 2023, primarily due to the addition of Nissos Kea and Nissos Nikouria to the fleet399 Depreciation (in millions of U.S. dollars) | (In millions of U.S. dollars) | 2023 | 2022 | Increase | | :---------------------------- | :--- | :--- | :------- | | Depreciation | (40.4)| (38.0)| 6.0 % | - Depreciation increased by $2.4 million (6.0%) in 2023, mainly due to the addition of Nissos Kea and Nissos Nikouria400 General and Administrative Expenses (in millions of U.S. dollars) | (In millions of U.S. dollars) | 2023 | 2022 | Increase | | :---------------------------- | :--- | :--- | :------- | | General and administrative expenses| (9.9)| (5.3)| 87 % | - General and administrative expenses increased by $4.6 million (87%) in 2023, driven by higher shore-based employee costs and $1.7 million in professional fees related to the NYSE listing402 Other Income/(Expenses) (in millions of U.S. dollars) | (In millions of U.S. dollars) | 2023 | 2022 | Increase | | :---------------------------- | :--- | :--- | :------- | | Other income/(expenses) | (55.9)| (25.6)| 118 % | - Other expenses, net, increased by $30.3 million (118%) in 2023, primarily due to lower net gains from derivatives ($0.5 million in 2023 vs. $11.5 million in 2022) and higher interest expense ($61.2 million in 2023 vs. $38.1 million in 2022) due to rising SOFR, partially offset by a $3.4 million increase in interest income403404 B. Liquidity and Capital Resources Liquidity is primarily from operating cash flow and long-term borrowings, funding acquisitions, maintenance, and distributions; as of December 31, 2023, total indebtedness was $698.5 million, with $54.9 million cash, and the company expects to meet liquidity needs and comply with all loan covenants - Principal sources of funds are operating cash flow and long-term borrowing; principal uses are capital expenditures for vessels, maintenance, working capital, debt service, and shareholder distributions405 - Future success depends on maintaining a high-quality fleet through acquisitions and selective sales, funded by cash from operations, new debt, equity offerings, or asset sales406407 Total Indebtedness (in millions of U.S. dollars) | Indicator | 2023 (millions) | 2022 (millions) | | :-------- | :-------------- | :-------------- | | Indebtedness | $698.5 | $744.8 | Cash and Cash Equivalents (in millions of U.S. dollars) | Indicator | 2023 (millions) | 2022 (millions) | | :-------- | :-------------- | :-------------- | | Cash & Cash Equivalents | $54.9 | $88.3 | | Restricted Cash | $4.9 | $6.9 | - The company has no contractual commitments for vessel acquisition as of the report date and expects cash on hand and operating cash flows to cover liquidity needs for the next twelve months414426 Working Capital Requirements and Sources of Capital Working capital decreased from $61.6 million in 2022 to $32.3 million in 2023; capital expenditures for vessels are funded by operations, new credit, or equity/debt, while drydocking is funded by cash on hand Working Capital (in millions of U.S. dollars) | Indicator | 2023 (millions) | 2022 (millions) | | :-------- | :-------------- | :-------------- | | Working Capital | $32.3 | $61.6 | - Capital expenditures for vessel acquisitions or improvements are expected to be funded by cash from operations, new credit facilities, or equity/debt issuances416 - Expenditures for vessel surveys and drydocking, which reduce operating days and increase cash flow needs, are expected to be funded with cash on hand417 - The company believes cash flows from operations, available borrowing under financing agreements, and cash balance will meet liquidity requirements for at least the next twelve months418 Cash Flows Net cash from operating activities significantly increased by $91.5 million to $174.0 million in 2023 due to improved spot rates and fleet expansion; investing activities provided $1.0 million (vs. used $178.7 million in 2022), while financing activities used $207.1 million for loan refinancings, repayments, and capital distributions Cash and Cash Equivalents Balances (in millions of U.S. dollars) | Indicator | 2023 (millions) | 2022 (millions) | | :-------- | :-------------- | :-------------- | | Cash & Cash Equivalents | $54.9 | $88.3 | | Restricted Cash | $4.9 | $6.9 | - Net cash from operating activities increased by $91.5 million to $174.0 million in 2023 (from $82.5 million in 2022), attributed to improved spot rates and fleet expansion420 - Net cash provided by investing activities was $1.0 million in 2023 (compared to $178.7 million used in 2022), driven by increased interest income ($2.2 million) and reduced restricted cash ($2.0 million), partially offset by drydock expenses ($3.3 million)422423 - Net cash used in financing activities was $207.1 million in 2023, primarily due to loan refinancings ($197.0 million), repayments ($197.5 million), prepayment of scrubber loan ($1.4 million), and capital distributions ($159.4 million)424 Credit Facilities and Financing Obligations As of December 31, 2023, outstanding borrowings totaled $698.5 million (down from $744.8 million in 2022), with all loans transitioned to SOFR; the company maintains various secured facilities and leaseback agreements, subject to financial and restrictive covenants, and was in compliance with