U.S. Markets open in 4 hrs 37 mins

Edited Transcript of TNP earnings conference call or presentation 17-Mar-17 2:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Tsakos Energy Navigation Ltd Earnings Call

Athens Mar 17, 2017 (Thomson StreetEvents) -- Edited Transcript of Tsakos Energy Navigation Ltd earnings conference call or presentation Friday, March 17, 2017 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Nicolas Bornozis

Capital Link, Inc. - IR Advisor

* Nikolas Tsakos

Tsakos Energy Navigation Limited - Presider & CEO

* George Saroglou

Tsakos Energy Navigation Limited - COO

* Paul Durham

Tsakos Energy Navigation Limited - CFO

================================================================================

Conference Call Participants

================================================================================

* Jon Chappell

Evercore ISI - Analyst

* Noah Parquette

J.P. Morgan Securities - Analyst

* Ben Nolan

Stifel, Nicolaus & Company - Analyst

* Spiro Dounis

UBS Securities - Analyst

* Donald Bogden

Wells Fargo Securities - Analyst

* Fotis Giannakoulis

Morgan Stanley - Analyst

* Joe Nelson

Credit Suisse - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Thank you for standing by, ladies and gentlemen, and welcome to Tsakos Energy Navigation conference call on the fourth quarter 2016 financial results. We have with us Mr. Nikolas Tsakos, President and CEO; Mr. Paul Durham, Chief Financial Officer; and Mr. George Saroglou, Chief Operating Officer of the Company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today. And I now pass the floor to Mr. Nicolas Bornozis, President of Capital Link, Investor Relation Advisor of Tsakos Energy Navigation. Please go ahead, sir.

--------------------------------------------------------------------------------

Nicolas Bornozis, Capital Link, Inc. - IR Advisor [2]

--------------------------------------------------------------------------------

Thank you very much and good morning to all of our participants. This is Nicolas Bornozis of Capital Link, Investor Relations Advisor to Tsakos Energy Navigation. This morning the Company publicly released its financial results for the fourth quarter and full-year 2016. In case you do not have a copy of today's earnings release, please call us at 212-661-7566 or email us at ten@capitallink.com and we will email a copy to you right away. Please note that parallel to today's conference call, there is also a live audio and slide webcast which can be accessed on the Company's website on the front page at www.tenn.gr. The conference call will follow the presentation slides so please we urge you to access the presentation on the webcast on the website. Please note that the slides of the webcast will be available as an archive on the Company's website after the conference call.

Also please note that the slides of the webcast presentation are user controlled and that means that by clicking on the proper button, you can move to the next or to the previous slide on your own. At this time, I would like to read the Safe Harbor statement. This conference call and slide presentation of the webcast contain certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, which may affect TEN's business prospects and results of operations. Such risks are more fully disclosed in TEN's filings with the Securities and Exchange Commission. Ladies and gentlemen, at this point I would like to turn the call over to Mr. Nikolas Tsakos, President and CEO of Tsakos Energy Navigation, and Mr. Tsakos is also Chairman of INTERTANKO. Mr. Tsakos, please go ahead, sir.

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [3]

--------------------------------------------------------------------------------

Thank you, Nicolas. And good morning or good afternoon to all of you. Happy St Patrick's Day, drive safely and drink responsibly. Our logo in INTERTANKO is build responsibly. So, I think it's a good day to be in the green today and like to thank you for participating in our year-end and fourth quarter results. On our 24-year history, another year building on success and profitability. We're looking to many more and to much more profitable going forward. 2016 has been a very exciting year for us. It's been the year that we have laid the foundation for TEN's new phase or next phase, which has to do with building state-of-the-art fleet; 15 new vessels, one option, and all of those ships on long-term charters. So far we have taken delivery, including in the first quarter of 2017, 11 of those vessels with very accretive charters that are contributing significantly to our bottom line.

Four more vessels to be delivered in April, July, and then in September and December. And after that, we will the enter the next year 2018 in full force with our whole program as designed and all the vessels earning very accretive rate and making sure that the Company can maintain its profitability. With this, I would like to thank all of our onshore and offshore personnel and our new building design team, our chartering, our technical managers that have been able to achieve such a herculean task of building in two different continents state-of-the-art vessels and all of them being delivered without a single day of delay. And I think for those that are very involved in the nitty gritty of shipping, you understand how important that is to be able not to lose a single day of employment, not to risk any of your long and accretive charters because of delays. We are very proud of that factor.

And I think our continuous utilization in excess of 95%, I think for 2016 it was 98%, is another very important milestone to why this Company has been able to maintain profitability for so long. And with that, I will ask George Saroglou to give us the developments of 2016 and recent developments for 2017.

--------------------------------------------------------------------------------

George Saroglou, Tsakos Energy Navigation Limited - COO [4]

--------------------------------------------------------------------------------

Thank you Nikolas. The Company reported today another profitable and year-end results. 2016 was a landmark year for TEN as the Company embarked on the largest growth program since inception in 1993 with 15 newbuilding plus one option. We took delivery of eight vessels during 2016. All delivered vessels had medium to long-term employment attached to first class charters. Taking delivery of the remaining newbuilding vessels continues unabated during 2017. All seven 2017 deliveries are also fixed on medium- to long-term time charters that range from minimum 1.5 years to up to 12 years for six of the seven vessels. For those of you who are connected through the Internet on our website, there is an online slide presentation whose format we will follow during the call.

Let's turn to slide number 3 that contains the key corporate highlights. TEN has currently a pro forma fleet of 65 vessels. We have 61 vessels currently in operation and 25 vessels from the fleet have ice-class capabilities. The average age of the corporate fleet is 7.5 years versus 10 years for the world tanker fleet. We have a balanced employment strategy that takes advantage of market peaks with profit sharing arrangements. Currently 43 vessels are in secured employment with average time chart tenure of 2.7 years. As a result, we have minimum contracted secured revenue of $1.4 billion with potential additional revenue from profit sharing arrangements. The fleet is modern diversified covering client transportation requirements in crude products, shuttle, and LNG. We are a very high and efficient operator with consistent high fleet utilization and as has been reported today, 98% for the last quarter.

The next slide has the main financial highlights of the press release, which Paul will present in more detail. I would like to just highlight the profitability and the Company's strong financial position. The next slide again is a picture of the fleet. We operate 61 vessels in four market sectors. During the fourth of 2016 we took delivery of the Company's second LNG carrier, the Maria Energy and two Aframax tankers, Leontios H and Parthenon TS. Overall in addition to the eight newbuilding delivery vessel, TEN acquired two modern Suezmaxes during last year. All newbuilding vessels were delivered with long-term employment attached ranging from 3 to 12 years including charter renewal options. During the first quarter of 2017 we took delivery of VLCC Hercules I, Aframax tanker Marathon TS, and the Company's third shuttle tanker Lisboa; which are also all employed under long-time charters.

We expect four more Aframax tankers to be delivered until the end of the fourth quarter of this year. Again, all these vessels are fully financed and fixed on long-time charters. The next slide shows the clients of TEN, all blue-chip names with whom the Company is doing repeat business over the years thanks to the quality of service, fleet modernity, and the safety record of the enterprise fleet. Strong secured coverage thanks to the mix, the balanced employment strategy, as 47 vessels out of the 65 vessels in the pro forma fleet are fixed under secured revenue contracts through a combination of time charters, time charters with profit sharing, and COAs. Out of the 47 vessels, 29 are market related charters including spots securing the Company's ability to immediately capture the market upside.

The breakeven cost for the various vessel types is on slide 8 and the cost as you can see is very low as we have built most of the fleet before the significant rise of newbuilding prices. The purchasing power of Tsakos Columbia Shipmanagement and the stringent cost control by management is reducing the fleet operating expenses levels and this should also to be highlighted. 63% of the remaining fleet available days of 2017 are on secured revenue contracts. And as you can see in addition thanks to the combination of spot profit sharing arrangement and COAs, TEN is guaranteed a share of the market upside when that thing takes place. What we see in the market. Global oil demand continues to grow above past trend growth levels. The average oil demand growth level since 1990 has been 1.1 million barrels per day. In 2016, oil demand grew 1.6 million barrels per day.

The forecast for oil demand growth in 2017 is 1.4 million barrels per day, again a growth number above the trend line. Lower oil prices continue to support strong demand especially in the United States and China, a combination of consumer demand and stockpiling for strategic reserves, and obviously India. This led to upward revisions of global oil demand by various agencies including the International Energy Agency while they reported the oil market during the year. We hope and expect for this trend to continue during this year as well. The order book is coming down as we can see with a bulk of the new building orders expected to be delivered until the end of the first half of this year. However, a big part of the existing tanker fleet is over 15 years. The implementation of new regulations with high compliance cost and charter discriminations against older tonnage could lead to an increase in scrapping.

We should note that Far Eastern shipyards are restructuring and therefore reduce capacity while available bank finance is very selective and shrinking. We have seen no significant orders after 2018, which should be positive for freight rates and the start of another upcycle for tankers. We announced today our next dividend of $0.05 per share to be paid on April 28 to shareholders of record on April 25. In total since 2002, TEN paid $10.46 in cash dividends or approximately $445 million and this compares with a listing price in our IPO of $7.50. The average yield since the IPO is 5.25% per annum. That concludes the operational part of our presentation. Paul will walk you through the financial highlights of the fourth quarter and the year. Paul?

--------------------------------------------------------------------------------

Paul Durham, Tsakos Energy Navigation Limited - CFO [5]

--------------------------------------------------------------------------------

Thank you, George. I guess you all have in front of you or have seen the financial data sheet that came with the press release. So, I'll just go through a number of bullet points now. First of all, TEN achieved Q4 net income of almost $12 million in a market that was moderately better than Q3. Net income for the year was a strong $56 million. An upturn in rates in quarter four although welcome was too late and too small to impact total revenue. However, our vessels remained fully employed at a remarkable 98% productivity. And clearly the addition of nine new vessels before and during the quarter helped with the contribution of $15 million to the revenue. Tanker demand remain relatively buoyant, but excess tanker capacity squeezed rates. Nevertheless, the annual average rate was $20,400, a respectable rate given an overall lackluster market.

Our Aframaxes achieved average daily TCE rates of $19,600 and our Suezmaxes $23,600. Product carrier rates fell although Panamax rates were higher due to attractive time charters starting in the year. The quarter four revenue of the LNG carrier, Neo Energy, was $6 million down from the previous fourth quarter due to charter expiring and repositioning. Both LNG carriers are now fixed on long-term employment with earnings covering operating costs. Both are expected to secure more favorable contracts within the next 18 months. Daily average OpEx per vessel remained low at $7,600 in Q4 and for the year, daily OpEx per vessel fell by 2% to $10,800. Increases in finance costs in the quarter and in the year were mainly due to new debt from newbuilding program offset by positive bunker hedge valuations. In Q4 outstanding debt increased by $177 million mainly as a result of the new deliveries.

Net debt to capital was 52.5%. At the end of 2016, there were seven new vessels still to be delivered with $274 million to be paid. Three of these vessels have now been delivered. For the remaining four, $95 million is covered by arranged debt and $39 million will be paid from cash. And finally with about 40 vessels on time charter in quarter one with a secured cash flow and recent positive market indications, we all have a growing confidence for TEN in 2017 and the following quarters and well beyond. And that concludes my comments and now I'll turn the call back to Nikolas.

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [6]

--------------------------------------------------------------------------------

Thank you, Paul. And now I hope that the good news will continue to come. Thank you very much. I think as Paul and George mentioned, 2016 has been a very formative year for the development of the Company. A new face of the Company, much more industrial shipping. As we speak today, we have 200 years of forward employment and I hope we will be all around to enjoy those 200 years. That is a staggering figure, which is about close to five years for all our ships on long-term employment on average and 2.7 years for the whole fleet. So if we decided to stop all our vessels from the spot market today, they would still operate or still have business for 2.5 years fixed. But I think those 200 years is something that we are looking to grow. We are a company that we look at ourselves as an industrial shipping company rather we do not criticize any other.

Every company have their own strategies. Our strategy is to have a longer term business and actually to add on top of that by having a significant period of either profit sharing or spot exposure. We're looking at the first quarter that started bumpy, I would say it took a while for people to get over our Western New Year's hangover which was then added up to the Chinese New Year's period, but since then the market started coming back. And what we're seeing is I would say the sister market to tankers, which is the dry cargo market, has been bouncing on the bottom for a very long period of time and in the recent month we have seen values in that market turning a corner too. So, things are looking more positive for shipping in general.

The oversupply, I think we have self-inflicted oversupply, is being absorbed in the market and we hope that 2017 would be a stronger year than 2016. And then 2018 where there's really very little supply of new ships coming in. And a lot of regulation, as you all know, with the water ballast changes as of September and with shocks and the scrubber discussion about fuel oil, we're going to have again another reason for older ships to be out of the market. So with this positive note, we would like to open the floor to any questions. Thank you very much.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Thank you very much, sir. (Operator Instructions) Jon Chappell, Evercore.

--------------------------------------------------------------------------------

Jon Chappell, Evercore ISI - Analyst [2]

--------------------------------------------------------------------------------

George and Nick, I wanted to ask about some of the commentary in the press release. So, it sounds like you want to sign up more of the fleet that's not contracted already on some long-term contracts. However, there's also a lot of optimism and also Nick's just recent comments too about 2018, obviously 2017 is going to be difficult. Are we thinking about balancing too much fixed rate coverage at the bottom of the cycle versus keeping some of your exposure for when the market inevitably does turn up?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [3]

--------------------------------------------------------------------------------

I think this is a very good point and it's a balance that we'll always try. And as you know a significant amount, about one-third of our charter vessels today are in profit sharing arrangements and just recently two weeks ago we chartered HCI, one of our newbuilding VLCCs with that in mind. So, the vessel has a minimum that covers, it's breakeven, and then significant upside 100% going to us as owners. If the market skyrockets, then we would be happy to share the upside with our clients. So, these are the type of businesses we are looking. We are very proud of our utilization rate of always being in excess of 95%. I think if you go back to your records, you will see that even in the worst market conditions of 2011, 2012, and 2013 we still maintained a very high utilization rate because of this volume. Whereas we want to secure the Company's long-term health and healthy balances, we don't want to sacrifice the upside. That's why we would like to have the profit sharing arrangements and still maintain a significant part of the fleet on the spot market.

--------------------------------------------------------------------------------

Jon Chappell, Evercore ISI - Analyst [4]

--------------------------------------------------------------------------------

Okay. And then also kind of along the same lines of the balance, you spoke in the press release about looking for opportunities which we inferred from a lot of companies, obviously asset values are approaching multi-year lows and people want to be able to play offense at a time when the market's weak versus also you talked about selling some of your older vessels that may not fit into the core strategy longer term. Do you need to dispose of some of the older assets to get liquidity then to be aggressive on purchasing other ships or do you feel like you have the liquidity today to play offense in the market without any disposals?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [5]

--------------------------------------------------------------------------------

It's not a matter of I think the older ships are actual cash cows. So, they are ships that we build ourselves that were maintained and there are ships that because they've been depreciated over much longer period of time and because their debt has been repaid to very low levels, they are as you say cash cow. So, we love to have the older ships along. But of course we are facing the fact that we would like the Company to maintain its profile of seven years, I think that's what is our other date. We want to maintain a young profile. So, that would be the only reason that we'll be selling older ships. The Company has the capacity to participate. We are now in the final part of a huge expansion. We are a company that we are completely against and where INTERTANKO had also speculative newbuildings. So, we're not looking to go and order ships without employment. We are there to buy ships in the second market if values are attractive. But I think right now we are quite full with business that is coming.

--------------------------------------------------------------------------------

Jon Chappell, Evercore ISI - Analyst [6]

--------------------------------------------------------------------------------

Okay. Two quick ones for Paul. Paul, what's the debt amortization schedule look like for 2017?

--------------------------------------------------------------------------------

Paul Durham, Tsakos Energy Navigation Limited - CFO [7]

--------------------------------------------------------------------------------

In 2017, we have about $160 million of scheduled repayments. We have balloons, but those balloons we believe will be refinanced 100% so you can eliminate that factor. We are already in discussion and our banks with whom we have great relationships are always knocking on our door asking if they can participate in refinancing our debt so we don't have a problem in that respect.

--------------------------------------------------------------------------------

Jon Chappell, Evercore ISI - Analyst [8]

--------------------------------------------------------------------------------

Okay. And just to be clear that $160 million, does that include any of the balloons or the $160 million is the amortization and there's balloons on top of that?

--------------------------------------------------------------------------------

Paul Durham, Tsakos Energy Navigation Limited - CFO [9]

--------------------------------------------------------------------------------

That's straight scheduled repayments of the core balloon.

--------------------------------------------------------------------------------

Jon Chappell, Evercore ISI - Analyst [10]

--------------------------------------------------------------------------------

Okay. And then finally a quick one, there was a press release last week or maybe earlier this week on the Hercules, but not a lot of detail surrounding that. Is there any way you can provide the rate associated with that ship?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [11]

--------------------------------------------------------------------------------

As I said, we try to give you information without being criticized of industrial espionage, which is becoming very popular now around the world. So, what I can say is the vessel is covering here all-in costs as the minimum rate. I think this is a very responsible way to run industrial shipping because we often criticize our clients that they are not paying full quality and chartering ships that can cover their all-in breakeven costs and then sharing the upside is something. So as you know because we try to buy ships at the low cycles, our all-in breakevens are quite competitive. I think George has a slide in there where you see that the VLCCs and then above that we our net profit share. So, it's a good range that keeps the Company always operating in the black and gives us an upside.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

Noah Parquette, J.P. Morgan.

--------------------------------------------------------------------------------

Noah Parquette, J.P. Morgan Securities - Analyst [13]

--------------------------------------------------------------------------------

One thing that was brought up in the past when dry bulk was kind of more troubled was that private owners with mixed fleets were being hurt by the dry bulk sector on the tanker side. Do you guys see any passthrough from what's going on in dry bulk now to the tanker side?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [14]

--------------------------------------------------------------------------------

The dry bulk market and the tanker market are related and we believe there is a lag usually of six to nine months between the markets. Usually the dry cargo being an inventory market is the one that starts moving first creating increase in the inventory and the energies required to develop this inventory. So, that's why we believe that by the fourth quarter the tanker market will have even stronger signs. So, we see the market fluctuating some strength right now also.

--------------------------------------------------------------------------------

Noah Parquette, J.P. Morgan Securities - Analyst [15]

--------------------------------------------------------------------------------

Okay. And then really quick, if you've had any discussions on new orders. I know you say you don't want to do any speculative ones. But can you let us know when the earliest delivery date you could get on a order would be?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [16]

--------------------------------------------------------------------------------

I think today you could see perhaps early 2019 orders.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

Ben Nolan, Stifel.

--------------------------------------------------------------------------------

Ben Nolan, Stifel, Nicolaus & Company - Analyst [18]

--------------------------------------------------------------------------------

So with respect to sort of potential projects and orders, I was curious of really maybe two things. At the moment, what is the appetite for these type of longer-term contracts in industrial type situations? Is there much to be done in terms of new charters that do have long-term five plus year durations? And then within that, could you maybe talk to what areas of the market; be it the shuttle tanker business or the regular tankers or LNG or whatever; where you guys really focusing most of your incremental attention?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [19]

--------------------------------------------------------------------------------

I think today there is significant amount of business, as you call it and we call it, industrial shipping and it ranges from the product carriers to very, very large vessels and so it is always client oriented. But the business is there for 7, 10, 12 years employment. I have to say we're not trying to blow our own horn with this. The business does not appear in the open market for every tanker company out there. I think there is a peer group of half a dozen companies that are out there, tankers companies with very good names, the majority of them public that are shown this business. Many of those companies are not interested in this type of business because they want to focus on the spot market, but we are a long-term position and owner with a 50-year history within the group so we're always interested in developing relationships. So, it's not something that you will call your broker up and you'll find it out. It's by appointment to I would say handful or half a dozen or a dozen maximum companies that fit the profile for long business.

--------------------------------------------------------------------------------

Ben Nolan, Stifel, Nicolaus & Company - Analyst [20]

--------------------------------------------------------------------------------

Okay. But those conversations are happening even today, correct?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [21]

--------------------------------------------------------------------------------

They're happening, yes They're happening more and more I would say in the last year, yes.

--------------------------------------------------------------------------------

Ben Nolan, Stifel, Nicolaus & Company - Analyst [22]

--------------------------------------------------------------------------------

Okay. And getting back to the other part, any areas of specific focus for you other than putting contracts or maybe finding long-term contracts on some of your existing vessels? Incrementally are people looking for more whatever; shuttle tankers, LNG, or anything specifically that you would need to add?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [23]

--------------------------------------------------------------------------------

There's a huge demand for LNG as you know because it's an immature business. Shuttle tankers is not so popular in the last two years just because it's considered part of the offshore market and oil companies are not interested in the shuttle business that much because as you know, a lot of the fields in the world have been laid up and there's a lot of shuttle tankers running around. So, I would say shuttle tankers is not a very popular situation. But then anything above from ice-class, super ice-class vessels, et cetera, et cetera.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

Mike Webber, Wells Fargo.

--------------------------------------------------------------------------------

Donald Bogden, Wells Fargo Securities - Analyst [25]

--------------------------------------------------------------------------------

This Donald Bogden stepping in for Mike. I just wanted to ask a question on shipyard capacity. Obviously there's been a theme on the general rationalizationing in capacity for the past couple quarters, but I'm trying to dig into whether the current offering price for shipyards, whether it's VLCC or MR, is competitive as compared to the resale market especially giving some of the recent very low resale price we've seen in the last month or so?

--------------------------------------------------------------------------------

George Saroglou, Tsakos Energy Navigation Limited - COO [26]

--------------------------------------------------------------------------------

This is George. We have seen a lot from the extremes of the previous upcycle. We have seen a lot of these startups, greenfields, or even established yards going through significant restructuring and at the end of the day, reduction in the availability of slots. As we also said, the lack of finance is also helping reduce the speculative appetite of owners that could be looking at opportunities with steel prices and asset prices being down. They have come down, asset prices; but as we said, the lack of mainly of ship finance has really killed any appetite to put any speculative orders out there especially in let's say the level that we have seen in the previous upcycle.

--------------------------------------------------------------------------------

Donald Bogden, Wells Fargo Securities - Analyst [27]

--------------------------------------------------------------------------------

Okay. Do you think is there a spread there between a resale and a new order that could potentially prevent incremental orders in the near-term especially given sort of that $77.5 million data point we saw in a VLCC recently? Where do you think the breakeven level for some of these large crane yards is on a VLCC and how low can that fall so to speak?

--------------------------------------------------------------------------------

George Saroglou, Tsakos Energy Navigation Limited - COO [28]

--------------------------------------------------------------------------------

We don't think that the prices can be priced significantly from the current levels that we see. Also let's not forget that we have seen the recent peak of the market has been in 2015. 2016 has been a good year, but rates have come down from the peaks of 2015. 2017 because of the additional orders, the bulk of the order book that will be delivered throughout the year is expected to be even a little bit softer than last year unless again global oil demand surprises pleasantly. Therefore, I don't think that people have the appetite to go out and just on speculation to either embark in newbuilding orders or also on second hand vessels.

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [29]

--------------------------------------------------------------------------------

As George was saying, we are looking at the majority of the Korean yards, which are the bulk of the newbuilding capacity, are now owned by the banks. The banks are not doing business to lose money not for a very long time so they are not there to subsidize loss making transactions. So, we'll see some resales going for the low prices that you mentioned, but we expect the prices to turnaround because the majority of the Korean yards or all the Korean yards are not going to be subsidized.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

Spiro Dounis, UBS Securities.

--------------------------------------------------------------------------------

Spiro Dounis, UBS Securities - Analyst [31]

--------------------------------------------------------------------------------

Just wanted to follow-up on that last question or response. I guess we have seen a flurry of new ordering lately specifically in the larger vessel classes, just wondering what do you think is actually driving that sudden surge? It seems odd just given the spread between secondhand tonnage pricing and newbuild pricing that you will be placing orders right now. Is there anything specific that you're seeing that would explain why suddenly we're seeing these orders again?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [32]

--------------------------------------------------------------------------------

I think there might be owners. First of all, it's not the huge amount of ordering and there is a big difference between a letter of intent and actual ordering. So I'm sure that there are a lot of letter of intents being presented around the market, which really gives a yard and an owner a three-month engagement and dating period before they decide to tie the knot. So, I think the majority of what you're seeing is engagements rather than actual tying the knot situations and that's what we understand. We had a flurry of resales in the beginning of the year, ships that were built by others were bought, but I'm not sure we have seen really any actual final contract newbuilding orders. It seems the lowest newbuilding year 2006 and 2007 in recent memory so far. The brokers are not very happy, but what can we do.

--------------------------------------------------------------------------------

Spiro Dounis, UBS Securities - Analyst [33]

--------------------------------------------------------------------------------

And then just want to ask you for your updated views on the dividend here, you like to keep it at $0.05 again and understandably the market didn't get that much better from last quarter. But just wondering if you could remind us again maybe what you're looking to see whether or not be that expanded charter coverage or if you actually could see rates go higher, do you start bringing the dividend back on and just along those lines maybe what that looks like? Do you bring it right back to $0.08 if you phase it in?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [34]

--------------------------------------------------------------------------------

I think we are waiting, first of all, for our newbuilding to have the company in full force. And I think that will happen by the end of this year that we will have the whole company that with all 65 vessels performing. And I think that's the time hopefully that will coincide as we hope with a very strong market and it is all our intention to be able to make the dividend great again as [Mr. Arapoglou] says.

--------------------------------------------------------------------------------

Spiro Dounis, UBS Securities - Analyst [35]

--------------------------------------------------------------------------------

Last one, just you obviously mentioned divesting from your older tonnage just a follow-up on Jon's question. Two of the avenues mentioned in the release were direct sales and other related structured transactions. Just wondering if you could focus on that second part. What exactly do you mean by that? Are you talking about block deals or are you talking about maybe doing a sale leaseback?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [36]

--------------------------------------------------------------------------------

We do not exclude sales and leasebacks if they makes sense. As I said, those are cash cows, they are well depreciated. We are looking at all the avenues that are available. So yes, sales and leasebacks are an avenue that we are looking at, contemplating.

--------------------------------------------------------------------------------

Spiro Dounis, UBS Securities - Analyst [37]

--------------------------------------------------------------------------------

So, you highlighted the drop in OpEx and I'm just wondering how should we think about that going forward. Is there a lot of juice left to squeeze there if you get that OpEx number lower and to some degree, are you fighting the oil price higher, lubrication costs go higher, is there any sort of counter-balance there as we look forward on OpEx? Thanks.

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [38]

--------------------------------------------------------------------------------

I think Paul would answer this. We are always on the case of our technical managers, which are in our case not very far from where we sit, it's a couple of floors down so we can be on their case continuously. But I think with the economies of scale, we are able to control costs because the worst thing you would like to do is be in a [falling] market and not controlling your costs. So in our case, we would rather control our costs and be in a high market. Paul?

--------------------------------------------------------------------------------

Paul Durham, Tsakos Energy Navigation Limited - CFO [39]

--------------------------------------------------------------------------------

And of course there is a stronger result and we reckon it will continue to help. This time last year and earlier we were suffering from the high euro against the dollar. That's turned around and it's quite possible that the dollar will strengthen further in the future against the euro. So, that's one up the sleeve if you like for keeping costs down. Otherwise as Niko was saying, we think that our technical managers are doing an amazing job in keeping costs down and as Niko said, it's also kicking their behind from time to time, but it seems to have worked.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

Fotis Giannakoulis, Morgan Stanley.

--------------------------------------------------------------------------------

Fotis Giannakoulis, Morgan Stanley - Analyst [41]

--------------------------------------------------------------------------------

First of all, about your plan or your strategy to build a large industrialized shipping company. You mentioned earlier about the fact that the shuttle tanker market is unloved, a lot of people they associate it with offshore sector so I assume that this might be a sector that you could try to expand even further after the latest newbuilding. And particularly I want to ask about the potential that you might see in the divestment or the joint venture partner that Teekay Offshore is looking at, is this something that might be of interest for you?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [42]

--------------------------------------------------------------------------------

I'll tell you all this in secret when I see you next week in New York. As I said, our aim is to grow our term business with good partners that we can have the same goals of running a profitable and safe ship. We are not segment particular because we allow the clients to choose whichever segment they think. I was saying that as you see from the Teekay experience, shuttle tankers are associated with the offshore market and they are not very popular. This is a market of course that we have looked in the past. We will not stop looking at it, but this is the case. But we are looking at all businesses that provide this industrial flavor. We will finish with the first phase of it within this year. And as I mentioned before, we have secured 200 years of employment for our vessels combined, which is quite a formidable task to reach. And we are looking to increase on that regardless if it's going to be shuttle tankers or ice-class vessels or LNG, which of course we are very fond of also.

--------------------------------------------------------------------------------

Fotis Giannakoulis, Morgan Stanley - Analyst [43]

--------------------------------------------------------------------------------

The reason I ask this because I know that you like kinds of cyclical investments and things that other people do not like at any given time. But what I want to understand is I know that you are one of the best operators in this market and you want to operate your assets, I wonder if you would ever considered taking an investment in assets that other people might operate and they have this industrial flavor?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [44]

--------------------------------------------------------------------------------

The answer is that if the chemistry with whoever is there, we would not exclude it. We are there to consider and combine forces, which is very important for us. And as an industry, we are fragmented the way we are and keep in mind that try to make it as less as fragmented as possible.

--------------------------------------------------------------------------------

Fotis Giannakoulis, Morgan Stanley - Analyst [45]

--------------------------------------------------------------------------------

One more about the new regulations and it seems that they might come into effect in 2020. Can you give us as Chairman of INTERTANKO your view of if this is going to be implemented or there is a chance that it will take any extension? And second, what kind of implication it's going to have both for the industry and also for your growth plans? I want to ask what kind of options your Company has and if you would consider LNG fuel vessels, we just read about a new order from SOUTHCOM, Florida. What are the alternatives for the shipowners?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [46]

--------------------------------------------------------------------------------

All our current phase newbuilding program, which is coming to fruition within this year, is LNG capable. So, we have made the investment. We have taken all the steps to be able with a small additional investment to run the vessels with gas if we decide so. So that is something that we preemptively asked our design team, our newbuilding department, to make sure that that is there for us. As an industry, we would be ready to take over new legislation when the actual fuels are there for us to burn and create this. We would not want to see our ships ending up being mini refineries. We believe that it's not the role of a shipowner to be a refiner at the same time unless we get paid for both processes, the refining and the transportation part of it. However, if it doesn't change, there's a silver lining which it's not preferred. But a lot of older ships, anything which is approaching a special survey, most probably will have to be recycled which is a polite word going forward, which will create an instability in the market which will be positive. But we would rather not have to reach that scenario.

--------------------------------------------------------------------------------

Fotis Giannakoulis, Morgan Stanley - Analyst [47]

--------------------------------------------------------------------------------

Can you explain that if it is implemented, you think that the vessels above 15-years old are becoming obsolete and they are for scrapping? Did I understand well?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [48]

--------------------------------------------------------------------------------

No. I said mainly vessels that do not have because the technological space and the technology to become, they will have to accept paying very expensive bunkers or accept the scrubber technology. And I think many of those ships or a number of those ships might decide it's not worth it. It's in the economics of every company and how well depreciated those assets are.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

Gregory Lewis, Credit Suisse.

--------------------------------------------------------------------------------

Joe Nelson, Credit Suisse - Analyst [50]

--------------------------------------------------------------------------------

This is Joe Nelson on for Greg. Just one quick one to start and maybe it's just a follow-up on some of the others asked. As you think about tanker asset prices being kind of being near their lows at this point, is there any relative value in your opinion? Does any one particular class or I would say crude versus product look more attractive than any other in your opinion?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [51]

--------------------------------------------------------------------------------

We have not invented I would say the right recipe for those. We are client driven. We can turn our product carriers into carrying the products and crude if it is required. So, we are completely client driven in what we do. We have companies out there that have found the successful formula and either buy only VLCCs, they either buy Suezmaxes, or product carriers. We are diversified because we follow what our clients require us to do.

--------------------------------------------------------------------------------

Joe Nelson, Credit Suisse - Analyst [52]

--------------------------------------------------------------------------------

Okay. And then just one maybe on the market. OPEC's production cuts seem to be real and they seem to be impacting the tanker market the last couple of months, but we've also had a surge in newbuild deliveries and meanwhile demand for oil still seems pretty healthy. So in your opinion and as you think about the pressure in the spot market, is it more from a supply angle that is to say an overdelivery or is it maybe just the fact that there's less oil being moved on the water say as opposed to the back half of last year?

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [53]

--------------------------------------------------------------------------------

We have not felt the lack of demand for our services since the beginning of the year. So I think if there are, you might have a couple of more ships let's say calling new deliveries from the old backlog that are coming in from the shipyards in the East that might bring the VLCC market down from [60 to 50 or 55]. Saudi Arabia, I think they have made it very obvious that they need to export in order to meet their goals and don't forget, they have a very, very low breakeven in what they are doing. There is a lot of I think more and more production from the United States. So, it has to do more with supplier vessels. So, we have not felt the lack of cargos really in the day-to-day business that we do. And don't forget in the first quarter, the majority of the Western world refineries go through maintenance period and that's where they cannot import as much crude as they would. So, we are expecting this to change in the next couple of quarters also.

--------------------------------------------------------------------------------

Operator [54]

--------------------------------------------------------------------------------

There are no further questions at this time, sir. Please do continue.

--------------------------------------------------------------------------------

Nikolas Tsakos, Tsakos Energy Navigation Limited - Presider & CEO [55]

--------------------------------------------------------------------------------

Again thank you very much for your time. Enjoy St. Patrick's Day. And the management of the Company is going to be at the Capital Link and various other events next week and looking forward to meet many of you face-to-face and continue the exciting dialogue. Thank you very much.

--------------------------------------------------------------------------------

Operator [56]

--------------------------------------------------------------------------------

Thank you, ladies and gentlemen. That does conclude your conference for today. Thank you all for participating. You may all disconnect.