Imperial Petroleum Inc. Q2 FY2024 earnings call

• Crude and product rates hardly changed from Q1 '24 to Q2 '24, allowing a profitable quarter despite seasonal effects. Q2 '24 generated a profit of about $20 million, the second best quarterly performance so far, with operational utilization at 81% and 80% of fleet calendar days dedicated to spot activity.
• In May 2024, entered agreements to acquire a handysize drybulk carrier and a product tanker. Neptulus 2012 (handysize drybulk carrier) was delivered on August 24, 2022, and Clean Imperial 2009 (product tanker) will be delivered end of this year. Aggregate consideration is $40 million, with payment scheduled in Q1 '25 or Q2 '25.
• Past three quarters have seen escalating profitability. Revenues in Q2 '24 were 14% higher than Q1 '24 and profits 15% higher. Expected Q3 '24 market soft due to summer, but winter season expected to firm up for crude tankers if fundamentals remain.
• High liquidity with debt-free balance sheet. Cash as of end of June '24 was ~$130 million, currently ~$190 million. Fleet employment: all handysize drybulk carriers on short time charters, one MR tanker Clean Justice fixed on three-year time charter with ~$30 million secured revenues.
• Geopolitical tensions like war in Gaza and Ukraine affect tanker market, elevating rates but Suez Canal transits down ~50% in 2024 vs 2023, product tanker transits down 69%. Majority product tankers deviated via Cape of Good Hope. Global oil demand expected to grow 2.3 million bbl/day in second-half of 2024, driven by U.S., China, etc.
• Product tanker rates held firm due to longer travel distances and limited vessel supply. Fleet growth for product tankers expected to be low (~1.2%) in 2024, scrapping activity at all-time low. Crude tanker rates firm with very limited free growth, potential normalization in Red Sea might lead to freight rate decline. Dry bulk market outlook positive with Q4 '24 handysize drybulk carrier earnings 60% above long-term averages.

In Q2 '24, leveraging strong rates and efficient fleet utilization, especially product tankers deployed West of Suez where the market was tight, Imperial Petroleum generated a profit of about $20 million. Revenues in Q2 '24 were $47 million, a 20.3% decrease compared to Q2 '23 ($59 million) due to a decrease in average fleet by 1.5 vessels and a 25% decrease in suezmax's market rates. For the product tanker segment, rates were higher in the first-half of 2024 compared to the same period last year, especially towards the end of Q2 '24, with higher activity in the Atlantic Basin from higher U.S. exports. Suezmax rates were lower in the first-half of 2024 compared to the same period last year. In the dry bulk market, earnings for handysize drybulk carriers in Q4 '24 were 60% above long-term averages, benefiting from increased ton-miles due to the Red Sea detour caused by Houthi attacks, with Chinese iron ore imports healthy and global gold trade strong.

• Expect Q3 '24 market soft due to summer, but if fundamentals remain, winter season expected to firm up for crude tankers.
• Global oil demand anticipated to grow by 2.3 million barrels per day in the second-half of 2024, mainly driven by U.S., China, and slight growth in Europe and Asia Pacific.

• Russia-Ukraine conflict has long-lasting impact on European energy sources and Red Sea diversions likely to last beyond 2024, unknown effect on tanker market if geopolitical tensions subside.
• Houthi attacks still threaten shipping in the Red Sea, with Suez Canal transits down ~50% in 2024 vs 2023 and product tanker transits down 69%, affecting freight rates.
• About 20% of product tanker fleet expected to be above 20-years of age by 2026 and 34% of suezmax and 50% of aframax maxes crude tankers above 15-years of age, potentially affecting fleet condition.

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