Pyxis Tankers - Well Positioned to Capitalize from Improving Charter Rates

Summary 

• Positive Product Tanker Industry Fundamentals
• Balanced Chartering Strategy, with a Mix of Time-Charters and Spot Market Employment
• Fleet Renewal with Sale of Non-core Assets and Acquisition of Two Eco - Efficient MRs
• Key Focus on Improving Balance Sheet 
• Improved Liquidity Position to Pursue Debt Reduction and Vessel Acquisitions

The Chairman & CEO of Pyxis Tankers, Inc. PXS, Eddie Valentis discussed with Barry Parker of Capital Link TV, PXS’ operational and financial performance, corporate strategy going forward and the current state and outlook of the product tanker shipping market. Pyxis Tankers remains overall positive on the outlook of the product tanker market and the company’s prospects. 

Company Performance 

The CEO highlighted that despite the poor product tanker sector environment over the past two years, management embarked on an operating and financial plan which led to substantial repositioning of the company and at the same time enhanced its competitive position as a pure Eco-MR2 player. 

The plan which was geared towards fleet renewal, extensive vessel upgrades and attractive debt and equity financings was initiated in early 2020 starting with the sale of the oldest tanker, a non-eco/standard 2006 built MR. During the fourth quarter of 2021, the Company announced the non-core sale of two small tankers which was completed in the first quarter of 2022. These vessel sales generated aggregate proceeds of $22.5 million. 

Mr. Valentis further stressed that the Company raised approximately $36 million of convertible preferred and common stock on attractive terms and at levels that were above PXS net asset value. As a result, these proceeds strengthened the Company’s balance sheet by loan prepayments, enhanced working capital, and most importantly funded vessel acquisitions and increased share float and trading liquidity. 

Furthermore, in the second half of 2021, the Company acquired two eco efficient MR tankers; ‘Pyxis Karteria’, built in 2013 and ‘Pyxis Lamda’ built in 2017 which were constructed in South Korea, for a total of $52 million. Also, PXS completed approximately $61 million of loan refinancing at more attractive terms than previously was in place. 

Operationally, the Company completed four special surveys, including the installation of ballast water treatment systems on two vessels. On May 31, 2022, the company announced that it had regained compliance with Nasdaq's minimum closing bid price rule after the recent reverse split and it now has 10.6 million common shares outstanding with a public float of 4.8 million shares. 

Current State of the Product Tanker Sector  

The CEO said that after a prolonged, difficult period, we are currently experiencing a tide turning on the product tanker sector that was two years in the making. In this context, he maintained that product tanker sector is making a comeback and western economies are seemingly recovering from COVID-19 amid improved demand for refined petroleum products, historically low global inventories that have been met by the effects of the war which has resulted in market dislocation, arbitrage opportunities, ton-mile expansion and higher charter rates for product tankers. This was first evident in March 2022 in the Atlantic basin and one month later, the Pacific basin had also shown significant improvement. This demand surge has led to high utilization of refineries achieving near record spreads especially in the US where utilization rate is running above 90% capacity. He further added that greater global demand of diesel/gasoil, especially from Europe and Latin America, is competing with rising demand of jet fuel and gasoline as summer travel unfolds in the northern hemisphere, further stressing tight inventory positions. The maintenance schedule of the remaining refinery units signals additional capacity coming into the market and although an estimated 3.8 million b/d of refining capacity had previously closed since March 2020, refinery closures are unlikely to return. 

Sector Outlook Remains Favorable 

Despite recent headwinds of slowing economic activity, including the impact of Covid-19 -Omicron on China, rising inflation and tightening monetary policies, the chartering environment should remain favorable for the near-term given demand for refined products. The International Monetary Fund (IMF) still forecasts annual global GDP growth of 3.6% for this year and 2023 while seaborne trade of refined products is estimated to grow 4% in 2022. The vessel supply outlook continues to look very positive with little new ordering of product tankers and an estimated 2% annual net supply growth for MRs over the next two years.

Recent dramatic improvement in demand for product tankers is further supported by long-term fundamentals. However, concerns loom over possible demand destruction if refined petroleum prices remain at record levels for an extended period of time. While there are significant uncertainties regarding the impact from Russian -Ukrainian war and Russian sanctions on global shipping markets, product tanker markets have historically benefited from market disruptions, where inefficiencies and dislocations typically stimulate longer-haul trades and ton-mile demand. Overall, the product tanker sector outlook appears to be balanced going forward. 

PXS Operating Strategy 

The Company’s operating strategy focuses on modern Eco - MR's which offers lower bunker fuel consumption, emissions and running costs than the industry average MR. The Company uses a mixed chartering strategy of time and spot charters with a focus on diversification by charterer and duration whereby three of our vessels are currently in the spot market and the remaining two vessels are under short-term T/C’s. This balanced employment strategy provides upside opportunities as rates improve in the spot market and stable, visible cash flows from T/C's. PXS fixed 67% of available days in 2Q22 at an estimated $27,900/day. The avg T/C rate is $19,725, which indicates that spot charter rates are substantially higher than the bookings rate.  

Fleet Renewal 

The CEO when asked about the company’s plans for fleet expansion, he quickly pointed out that it is relative to capital raising efforts and this can be achieved amid an improving market in conjunction with PXS stock price trading at comfortable levels. PXS expects to stay on course with its disciplined ways in raising external capital and any financing on future acquisitions will likely involve a combination of bank debt and the proceeds from an equity offering. Regarding capital allocation, the key focus going forward is deploying cash from operations that will be used to amortize bank debt, add to liquidity, and thus improve balance sheet. The company plans to take advantage of attractive asset values in the product tanker sector to selectively expand its fleet through acquisitions. 

Investment Highlights 

When outlining Pyxis Tankers investment thesis, one cannot fail to notice the transformation that took place over the past two years through the completion of various initiatives which allowed the Company to be better positioned to take advantage of the market trends. PXS main characteristic is that it is focused on the most commercial segment the MR tankers which provide high quality and reliable cargo transportation at competitive operating costs and operational flexibility. MR2 are the workhorse of the product tanker sector due to its operating flexibility. It offers cost competitive structure - daily vessel operational costs are on par with larger peers. The fleet average age is approximately 8.8 years which represents a remaining 2/3 of economic life and about 4 years younger than the industry average. Senior management owns ~55% of outstanding common shares and its interests are fully aligned to PXS shareholders. 

Capital Link is the investor relations advisor to Pyxis Tankers.This content is for informational purposes only and not intended to be investing advice.