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Edited Transcript of TNP earnings conference call or presentation 30-Nov-17 2:00pm GMT

Thomson Reuters StreetEvents

Q3 2017 Tsakos Energy Navigation Ltd Earnings Call

Athens Dec 13, 2017 (Thomson StreetEvents) -- Edited Transcript of Tsakos Energy Navigation Ltd earnings conference call or presentation Thursday, November 30, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Efstratios-Georgios A. Arapoglou

Tsakos Energy Navigation Limited - Chairman of the Board

* George V. Saroglou

Tsakos Energy Navigation Limited - COO, VP & Executive Director

* Nicolas Bornozis

Capital Link Inc. - President

* Nikolas P. Tsakos

Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director

* Paul Durham

Tsakos Energy Navigation Limited - CFO & CAO

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Conference Call Participants

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* Benjamin J. Nolan

Stifel, Nicolaus & Company, Incorporated, Research Division - Director and Senior Analyst

* Fotis Giannakoulis

Morgan Stanley, Research Division - VP, Research

* Gregory Robert Lewis

Crédit Suisse AG, Research Division - Senior Research Analyst

* Han Jang

Maxim Group LLC, Research Division - VP & Senior Equity Analyst

* Noah Robert Parquette

JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Tsakos Energy Navigation Conference Call on the Third Quarter 2017 Financial Results. We have with us Mr. Takis Arapoglou, Chairman of the Board; Mr. Nikolas, Tsakos President and CEO; Mr. Paul Durham, Chief Financial Officer; and Mr. George Saroglou, Chief Operating Officer of the company. (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 Relations Adviser of Tsakos Energy Navigation. Please go ahead, sir.

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Nicolas Bornozis, Capital Link Inc. - President [2]

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Thank you very much, and good morning to all of our participants. This is Nicholas Bornozis of Capital Link, Investor Relations Adviser to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the third quarter and 9 months of 2017. In case you do not have a copy of today's earnings release, please call us at (212) 661-7566 or e-mail us at ten@capitallink.com, and we will e-mail a copy to you either way. 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 slide, so please we urge you to access our presentation on the webcast. 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 this 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 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. Takis Arapoglou, the Chairman of the Board of Tsakos Energy Navigation. Mr. Arapoglou, please go ahead, sir.

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Efstratios-Georgios A. Arapoglou, Tsakos Energy Navigation Limited - Chairman of the Board [3]

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Thank you, Nicolas. Good morning, everyone. Thank you for joining us on this call today. We're presenting today our 9 month, 3 -- third quarter 2017 results, which show that despite a continued weak market, TEN remains profitable and more than capable of covering its expenses, its financial obligations and maintaining its steady dividend payment track record. We have now successfully completed our largest-ever newbuilding program, and in line with strategy, we have more than 2/3 of our fleet locked into long-term accretive time charters, with a substantial proportion of profit-sharing arrangements.

This secures over $1.3 billion of revenues for the next 3 years, providing a cover for all our obligations and enables us to capture any upside potential. We continue to maintain well over $200 million in cash, and we used the opportunity of a weak market to accelerate special surveys for 3 of our vessels. So as it will be explained later, our results include approximately $2.5 million of special survey costs that normally we would have incurred at the late stage and would have been spread over a longer period. Lastly, management must again be congratulated for the successful efforts of further reducing fleet operating cost to best-in-class levels.

Once again, congratulations to management and the team for perfectly executing our strategy, providing stability and positioning TEN to fully reap the benefits of the next market recovery, which we expect to start shortly. So that's it from me for now, and I pass on the floor to Mr. Niko Tsakos. Thank you very much.

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [4]

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Thank you, Chairman, and we're -- thank you for listening in our call. As the Chairman said, it has been -- the third quarter has been a difficult quarter. I would say, after that quarter is -- has been behind us, we would say, the worst is over for now, at least, and we're looking at the fourth quarter, a significant recovery as parts of the industry and as -- of course, as a company.

As Mr. Arapoglou said, we took advantage of the very weak market over the third quarter to bring forward 3 of our surveys. We used the period to complete the largest expansion in TEN's 25- or 24-year history, very soon 25-year history, and we will be starting 2018 with a 30% increase in revenues just by the minimum results of the new ships that are coming into the fleet. In the same time, we pay a lot of attention in details, we try to keep operating expenses as low as possible, and I think we have been successful to do that too. And we are proud of our G&A expenses, must be one of the lowest in our peer group, with just tracking $1000 or a little bit above for everything that has to do with running TEN. We're looking optimistically at the future. We're looking in discussion with our clients a lot of accretive transactions. We have the opportunity to continuously charter out a bigger majority of our fleet, so we expect the remaining of 2017 and 2018 to be a much better year or a much better quarter than the third quarter.

We're proud that we will have another profitable year in our very long history and maintain our dividend, and hopefully, going forward, we will have chances to even increase it as time goes. So with that, I will ask George to describe what has happened in the last 9 months and the quarter, and we will be available for questions after Paul Durham, our CFO, has -- gives us the figures.

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George V. Saroglou, Tsakos Energy Navigation Limited - COO, VP & Executive Director [5]

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Thank you, Nikolas. The company reported today the results of -- for the third quarter and 9 months of 2017. The results for the third quarter were impacted by the seasonally short summer months, fleet dry dockings that the company brought forward in order to take advantage of a stronger market we anticipate going forward and the completion of the company's newbuilding program. For the 9 months results, we recorded profitability, which we also expect for the full year 2017. Since the start of last year, TEN embarked in the biggest fleet expansion program of its history with 15 newbuilding vessels.

The last of the new -- these newbuildings was delivered to the company at the end of October. All 15 older vessels had medium- to long-term employment attached to first-class charterers ranging from minimum 2 to maximum 12 years, which will result to a 30% increase in revenues, assuming only the minimum rates for 2018.

The opening slides of this presentation shows the various growth phases in the company's history since inception. If we turn to Slide #4, we see the key corporate highlights. We have currently an operating fleet of 65 vessels, where 25 vessels have ice-class capabilities. After completion of our newbuilding program, TEN is well positioned to take advantage of a stronger freight market which is ahead of us. The average age of the fleet is 7.6 years versus the average of 10.2 for the world tanker fleet. We have a balanced employment strategy that takes advantage of the market peaks with profit-sharing arrangements.

In our press release today, we announced 2 more time charters for 2 vessels that were previously operating in the spot market. One charter is a fixed-rate charter, the other has profit-sharing arrangements. Currently, 51 vessels out of the 65 vessel operating fleet have secured employment, with an average tenure of 2.5 year.

The average -- the emphasis is on charters with profit-sharing arrangements that enable the company to take advantage of spikes and stronger freight markets. Minimum contracted secured revenue of $1.3 billion, with potential additional revenues from profit-sharing arrangements. We have built a modern, diversified fleet covering client transportation requirements in crude products, shuttle and LNG, and we have become the carrier of choice for many of the top oil majors, commodity traders and refiners.

We have a high utilization, with the 9-month figure being at 96.4%, which is almost like having full utilization.

The next slide has the main financial highlights of our press release, which Paul will present in more detail. I just want to highlight the profitability for the 9 months, the company's strong financial position and continued cost control and the reduced daily operating expenses with the help of the company's technical manager.

Slide 6 has basically the breakdown of the current 65 vessel fleet, 47 vessels are engaged in crude trading, 13 in products. We have 3 shuttle tankers and 2 LNG vessels.

Next slide has the clients of the company with all blue chip names, with whom the company is doing repeat business over the years, thanks to the modern fleet, the quality of service and safety record of the enterprise fleet.

On the next one, we list the strong secured coverage.

We have 51 vessels out of the 65 vessel fleet fixed under secured revenue contracts, which is a combination of time charters, time charter with profit-sharing and contract of affreightment. 34 vessels are on market-related charters, including spot, which secures this way, the company's ability to immediately capture the market's upside. The revenues expected from the vessels in the fleet with secured employment covers the company's annual financial obligations.

Slide 9 shows the 15 newbuilding vessels that we took delivery since 2016. All vessels are currently tied on medium- to long-term time charters. These vessels have now been fully integrated in the fleet, and we expect them to contribute at least 30% increase in revenues from 2018, considering just the minimum base rate that some of these vessels have. On the left side of this slide, we see the breakeven cost for the various vessel types that we operate in the company. As you can see, the cost base is low and in addition to the low shipbuilding cost, we must highlight the purchasing power of our technical manager, Tsakos Columbia Shipmanagement, and the stringent cost control by management in order to maintain a low OpEx average for the fleet, while keeping a very high fleet utilization rate quarter-after-quarter. 78% of the fleet operating days are tied to secured revenue contracts that cover the company's annual obligation.

In addition, the combination of time charters with profit-sharing CoAs in both spot charters guarantees the company's share of the market's upside every time we have a spike or a sustained strong trade market. This is what we see in the market. Global oil demand continues to grow above historical growth levels. In the last 25 years, oil demand growth has averaged around 1.1 million barrels per day. The latest forecast for oil demand growth in 2017 is 1.5 million barrels per day. International Energy Agency is continuing to revise upward their oil demand figures, not just for this year but also for the years to come. Also, improved economic conditions in OECD countries and the low oil price environment continue to support strong demand in the United States and Europe and China, where we see both consumer demand in stockpiling for strategic reserves and obviously, India.

On the supply side, the tanker order book is coming down. The bulk of the orders placed in past years have been delivered and despite the short-term headwinds, which we have experienced in the second half of this year, longer-term supply is [manageable]. We should note that the big part of the existing tanker fleet is over 15 years. The implementation of newer environmental regulations with high compliance costs and [sharper] discrimination against older tonnage could lead to an increase in scrapping. We have already witnessed increased scrapping in the larger vessel categories.

The dividend on Slide 13, review -- we have announced today another dividend of $0.05 per share to be paid on December 29 to the shareholders of record on December 21, 2017. In total, since 2002, TEN has paid $10.61 in cash dividends or $457 million, and this compares with a listing price in our IPO of $7.50. The average yield since the New York Stock Exchange's listing in 2002 is 5.25% per annum.

That concludes the operational part of our presentation. Paul will walk you through the financial highlights for the quarter and the 9 months. Paul?

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Paul Durham, Tsakos Energy Navigation Limited - CFO & CAO [6]

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Thank you, George. Everyone expected that the quarter 3 market would be poorer than in quarter 2 for seasonal reasons. But other factors included fleet overcapacity, refinery outages, high inventories and OPEC cuts. While for the 9 months, operating income was $60 million and net income nearly $18 million, for the quarter, TEN incurred a loss of $3.4 million due to the poor spot market and, as mentioned, impact of brought-forward dry dockings. With 9 new vessels delivered since quarter 3, 2016, contributing to the $15 million increase in net revenue and with 70% of our operating days on time charter, TEN remains in a good, protected position.

During quarter 3, 15 vessels were operating on spot voyages, some in trading areas which were especially hit by poor market conditions. Nevertheless, the average daily net revenue was $17,430, similar to the prior quarter 3. For the 9 months, the average daily net revenue was $19,140. The 43 vessels on time charter were able to generate enough revenue to cover virtually all the voyage, operating, overhead and finance costs of the whole fleet, including spot vessels. Total operating expenses increased due to fleet additions, especially as such vessels build up stores and supplies in their initial period, which are not treated as inventory but expensed. However, the daily average OpEx per vessel in quarter 3 fell by 2% and for the, 9-month period, by nearly 3% due to savings on repairs and maintenance and sundry expenses. Daily overhead cost per vessel, which include management fees and G&A, fell to the low level of $1,085. Although finance costs at $15 million -- $15.4 million were noticeably higher than in the previous quarter 3, this was mainly due to the financing of the new vessels and partly to increases in dollar interest rates. However, this was down from quarter 2, and as outstanding debt declines with scheduled repayments, we would expect finance costs to fall commensurately in future periods.

In quarter 3, there was $23 million of new debt on delivery of a new Aframax and scheduled repayments of $47 million. Refinancing of 4 vessels at competitive terms resulted in a net drawdown of $8 million. Net debt to capital was a comfortable 51.5% at September 30.

With the delivery of the last vessel in October, there was another drawdown of $23 million in quarter 4, and expected quarter 4 repayment will total $48 million. And this concludes my comments, and now I'll hand the call back to Nikolas.

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [7]

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Thank you, Paul, and looking forward to for a -- with a much better report in March, and thank you very much. And with this, we would like to open the floor for any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question from Stifel comes from the line of Ben Nolan.

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Benjamin J. Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - Director and Senior Analyst [2]

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Great. Can you guys hear me?

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George V. Saroglou, Tsakos Energy Navigation Limited - COO, VP & Executive Director [3]

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Yes, yes.

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Benjamin J. Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - Director and Senior Analyst [4]

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Okay, good. So I've a couple of capital questions. Obviously, you guys well are now finished with your CapEx program and that gives you a lot of options as to how to think about deploying capital going forward. You've made it pretty clear that any expansion is going to be project oriented, which I think makes sense. But away from that, first of all, I was curious if you guys -- if you might be able to -- Paul to update me on how much your debt repayment obligations are for 2018 and 2019? And associated with that, how do you think about paying additional debt? Generating free cash flow, is that -- how do you value that relative to sort of projects?

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [5]

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Yes, well, Paul will give you the nitty-gritty, but for us, as I said, we always are conservative in debt. I think it's going to be -- although conservative, it's going to be dropping significantly down from here. We have already refinanced a lot of the obligations that we had for 2018 and '19. And I think, a priority for us, of course, is the dividend. Dividend is important for us. And if there is -- if there are funds left over then debt repayment is another alternative. But here is Paul on the more details.

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Paul Durham, Tsakos Energy Navigation Limited - CFO & CAO [6]

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Yes, for 2018, we're looking at total scheduled repayment of around $180 million. And in the year after that, about $150 million. And that's based upon current existing debt, not taking into account the potential refinancing or whatever.

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Benjamin J. Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - Director and Senior Analyst [7]

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Okay. So actually could be a little lower than that, I guess?

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Paul Durham, Tsakos Energy Navigation Limited - CFO & CAO [8]

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Yes, yes.

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Benjamin J. Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - Director and Senior Analyst [9]

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Okay. And then, secondly for me, and this will do it, but something that I don't know that I have ever heard you address but a few of the preferreds that you've done in past years become callable next year, they're not too terribly big but as you do begin to have free cash flow, certainly depending on what the spot market allows, is that something that you would consider doing as well, perhaps calling back some of those preferreds to reduce the cash flow component of those?

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Paul Durham, Tsakos Energy Navigation Limited - CFO & CAO [10]

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We've taken into consideration the refinancing or redemption of those preferred stocks over the next few years. And we feel that we can comfortably redeem them. In any account, at the moment, we are on a relatively small scale buying back where possible. We have been doing that and we can always revert back to buying back and gradually lowering the amount -- the total amount that has to be redeemed. But I think we feel fairly comfortable given our full year forecast that we can manage to redeem them quite successfully.

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Operator [11]

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Now your next question from Morgan Stanley comes from the line of Fotis Giannakoulis.

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Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [12]

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Niko and Paul, you mentioned that focus on maintaining the dividend. Can you remind us, are there any potential covenants or -- that they can put any pressure on this dividend? Or shall we consider that this dividend is fixed and the current level is the absolute floor?

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [13]

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Well, as far as covenants, we do not have any restrictions. I said that we expect that the third quarter looks to have been the worst being behind us with a poor third quarter for the whole industry. And our intention, as you know, we are very large shareholders, the management is a very large shareholders, close to 40% together with the board. So dividend, we are -- is very important for us, and as long as we can logically increase it, we will logically increase it, and I will leave it to that.

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Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [14]

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Got it. Thank you. And Niko, can you give us your outlook for the tanker market next year? I remember last time we discussed you were probably were most optimistic for 2018 compared to your peers. And how has your outlook changed, if it has changed at all compared to the previous quarter?

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [15]

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Well, as you know, we live in a country with a lot of sun that makes us optimistic. Most of our peers are up north, so that's basically the reason. But joking apart, I don't think -- I am optimistic for our company because we took a lot of effort. We brought the company in its largest growth program. We build in 18 months, 15 state-of-the-art vessels from shuttle tankers to LNGs, all of them successfully, all of them, believe it or not, with almost no delays. All of them chartered very -- so I'm very optimistic for what we have in the book, which is, I think, as Paul mentioned, $1.3 billion of income going fixed, going forward at the minimum level. So I think -- and as long as -- this part of the business according to our strategy is good enough to pay for all our obligations for the whole fleet including the spot vessels. If the market moves the way we believe it's going to move, and I have a feeling that '18 and '19 for reasons that I think you are all aware, I mean, you are much more analytical than I am, but we are looking at -- I believe today, in the tanker market, we are where we were exactly a year ago in the dry cargo market, and I know all that Morgan [Stanley] -- all of you analyze dry companies and we were looking at case of $6,000, the third quarter of 2016 was the weakest for the dry cargo and then the market gradually is where it is today at $25,000 on the capes and has a gradual uptick. I believe, we're going to be facing the similar situation for tankers. I mean, we're looking at small rays of hope or just listen that the Chinese are opening up their depot refineries to import almost a 50% increase on the quotas, that's equivalent of a 37% increase in Chinese crude imports from here to here, that's huge. I mean for us, with tankers, China is a very big importer. We have technological reasons that are delaying or taking out a lot of the old tonnage. So in general, regardless of the summer, we are optimistic and we have positioned the company to take advantage. I think last quarter -- the last quarter was a quarter which we actually used it in order to finish some of our special surveys.

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Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [16]

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Niko -- sorry, one last question about -- given your outlook and your -- the cash that you have in the balance sheet, I was wondering which asset class looks more attractive for potential investment? I remember that you have mentioned in the past many times that vessels which have long-time charters is going to be your plan for expansion. Are these kind of deals available? And if you can also comment about the potential expansion in either LNG -- in the LNG market, that has seen a significant improvement in fourth quarter or even in the shuttle tanker market that we saw some of your peers ordering additional newbuildings?

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [17]

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As I said, we are quite diversified, so we're not -- if you look at our fleet, it has to make sense the -- with the customer, we -- the duration of the contract and of course, the returns. And we are seeing right now, in all the spectrum and it's not very usual in shipping that we are seeing long-term business, as when I say long, it's 5 years and over in all categories, so we are looking in strategic relationships from VLCCs, towards correcting some LNGs, where our 2 vessels are doing better and better every quarter with renewing them at higher levels. So I think there is a lot of appetite.

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Operator [18]

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And just before we move on to the last question (Operator Instructions) And now from Maxim, you have a question from the line of James Jang.

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Han Jang, Maxim Group LLC, Research Division - VP & Senior Equity Analyst [19]

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Can you just go over how the Handysize has performed in the quarter?

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [20]

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Yes. Paul? Yes, if you look at our Handysize fleet, I think a big part of it is on time charter. But I think I would say, we have 6 vessels that are on the spot market and most of them trade in the Mediterranean area where we have -- how did the average fall?

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Paul Durham, Tsakos Energy Navigation Limited - CFO & CAO [21]

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The average time charter equivalent during the quarter -- during the 9 months was about $11,000 to $12,000 a day. In the quarter, it was a little less than that. So yes it...

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [22]

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Vessels on the spot?

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Han Jang, Maxim Group LLC, Research Division - VP & Senior Equity Analyst [23]

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Yes, the spot vessels.

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [24]

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Yes, yes the spot -- of course, this -- the vessels if you include the nonspot vessels, it will be at higher level but this proposals on the spot was about this for the same quarter, but they have significantly improved in the fourth quarter.

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Han Jang, Maxim Group LLC, Research Division - VP & Senior Equity Analyst [25]

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Okay. So the outlook is -- because, yes, I know the Handysize -- I mean, the global fleet day, it was just really difficult in terms of the spot earnings, right?

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [26]

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Yes.

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Han Jang, Maxim Group LLC, Research Division - VP & Senior Equity Analyst [27]

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So I was just wondering if, like you said, so in the fourth quarter, we should look at a nice increase or is there a steady increase?

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [28]

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I think it was -- we're seeing the $11,000 to $12,000 going up to around the $13,000 to $14,000. Now today it's $15,000, but on average, I would say -- let's say, around $14,000. So it will be a good increase, yes.

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Han Jang, Maxim Group LLC, Research Division - VP & Senior Equity Analyst [29]

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Okay. And so the next question is about, I guess, OPEC is going to -- it seemed like they're going to extend the production cuts, a lot of players are okay with $60 to $65 oil. When you guys have mentioned previously, that you guys are working with a U.S. oil major on projects. Are there any opportunities near-term to take some of the spot [Ulysses,] Aframaxes on some of these projects that are out of the U.S.? Or I mean what's the plan short- and medium-term for these?

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [30]

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Well, we are seeing higher and higher increase of exports from the U.S., I think we have seen a 200% increase in exports from year-to-year. Now we are at about 1.3 million barrels a day of exports, which is unprecedented in the past and of course, then we have a decrease in imports by 3%. So the Caribbean market, I think, you're very correct to say that right now, the Caribbean market, because of the U.S. exports is the star of the Aframax market, and we're enjoying this, we have a big concentration of our princess vessels in the Caribbean and I think they are close to the 30,000 -- 20,000 level today.

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Han Jang, Maxim Group LLC, Research Division - VP & Senior Equity Analyst [31]

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Okay. So any plans to, I guess, switch these out on longer-time charters? Or are you happy operating them on the spot market for now?

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [32]

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As you know, we have a big concentration of ships on long -- on Aframaxes, on long-term charter, and we are enjoying the spot market with those ships because we do not want to disappear from the spot market because otherwise, you lose the clients. So I think at this stage, we're satisfied by keeping the mix the way it is.

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Han Jang, Maxim Group LLC, Research Division - VP & Senior Equity Analyst [33]

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Okay, great. And another thing, just on the macro side. How do you see the crude trading market shaping up for '18? If the OPEC does, let's say at minimum, they extend the cuts for 6 months, right? Do you see more exports -- long-haul exports developing to China and India? Or do you think that pricing's still going to win out and tonne miles won't expand as much.

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [34]

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We have seen, that's a good point, because we were starting -- we have seen a very big increase on long-haul cargoes based with the Aframax and the Suezmax in the last year, and we're starting this because we have seen that a trade which was not very usual, the Black Sea Russian Cruise going to China and India on Suezmaxes and Aframaxes. In 2016, I think, we were able to report 12 export cargoes. So far this year, we're about 80. So that has increased significantly, the tonne miles. So I think, we're expecting to see more and more of that trade.

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Han Jang, Maxim Group LLC, Research Division - VP & Senior Equity Analyst [35]

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Okay, great. And my last question is just on fleet renewal. GHT and Eurona, they've been selling all sort of their older tonnage, and I know that you guys have mentioned that you guys were looking at possibly selling some of the older tonnes that you have. What's the plan right now? Are you still happy operating the older vessels, especially like the Millennium or...

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [36]

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Well, yes, that's a very good point. I think we are at the stage I think hopefully, within this side of the year, we'll be announcing the sale of some of the older vessels that we have on the fleet. The Millennium has been a vessel that we built it from scratch, operated it very successfully for us for almost 18 years now. It is on a storage business in Singapore making $17,000 a day, and it's very minimum -- so and here actual special survey due is next autumn. So we will be milking the ship, we will be milking here up to your special survey which will be next autumn. Of course, if there is an offer which is significantly above scrap, we will consider selling it. But it's been a very good -- but that will be the last (inaudible)

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Han Jang, Maxim Group LLC, Research Division - VP & Senior Equity Analyst [37]

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I see. So ahead of our special survey, we can assume that'll be taken care of?

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [38]

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Yes, we will not pass a special survey.

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Han Jang, Maxim Group LLC, Research Division - VP & Senior Equity Analyst [39]

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Okay. And so if that does happen, I mean, asset prices are still okay, I mean they still look pretty good from a VL side. Would you look to acquire more tonnage? Not with a project in mind, but just in -- speculatively? Or are you guys going to still stick to the strategy of project-linked asset acquisitions?

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [40]

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We are right now digesting a very big bite. As we said -- we increased the fleet by 30%. We will stick to project transactions right now.

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Operator [41]

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Now from JP Morgan, we have a question from the line of Noah Parquette.

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Noah Robert Parquette, JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst [42]

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I just wondered, could you guys -- thoughts have you had any discussions yet with your counterparties? I mean, the long-time charters on how you're going to meet the 2020 emission regulations, and how you guys are thinking about that?

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [43]

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I was worried nobody will ask the 2020 question, which is the -- yes, no, thanks for bringing this up, and I think this is something that I think very few of owners, but much, much fewer of the shareholders have understood that we are going into a head-on collision that will have very, very positive effect for rates as soon as the middle of 2019 and 2020. And I think for those who are not familiar [with] shipping, we're very tired, because we have to deal with it everyday, is that we have to reduce our emissions from 3.5% by -- on New Year's Day in 2020 down to 0.5%. So this is a Herculean task, being Greek, as you say, but there are solutions. So the oil companies are pushing owners to put scrappers on the ships. Owners have not reacted positively at all. They were hoping that by today, 40% of the world fleet would have scrappers. Less than 3% has scrappers today, and we're talking about a couple of years that this has to happen, and we are in the tango which I happen to chair our position is that the ships are not going to become refineries, because it's not good for the environment and it's not good for the human factor. Refineries have to be on land. So we believe, that there will be enough of fuel at the time, and if there is not, we can cover our obligation by slow steaming. And I think this is the key because as you know, because by slow steaming, there will be much more demand utilization. Utilizations will grow and there will be much more demand, and we hope this will help the rates. But -- so we have calculated by reducing our speed at -- by 25%, we can meet our obligation of burning 0.5% of emissions. So I'm not a very technical person, but that's where we're going, and we expect this situation to create a lot of positive for the market.

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Operator [44]

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And now from Crédit Suisse, your next question comes from the line of Gregory Lewis.

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Gregory Robert Lewis, Crédit Suisse AG, Research Division - Senior Research Analyst [45]

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I wanted to dive a little bit into the winter season, right? Clearly, as we look at rates not really showing up in your -- in Aframax rates, which I know you guys have a lot of trade in spot. But I imagine, you have a good understanding of how long your voyage times are taking. And really what I'm wondering is between less daylight hours, between maybe some starting of inclement weather, has there started to be any delays building on any of your trades that you're involved in? Or is that, at this point, it's business as usual?

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [46]

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Well, I think the last delays we had, had to do, of course, with the destruction we had because of the hurricanes in the Gulf, 3 months ago, 2 months ago. I think, right now we're almost up to refining capacity what it was at that period. Then as the winter comes in, we're seeing the, I think, the Black Sea getting heavy on vessels, which will affect positively the rates in the Mediterranean, which have been very poor. So already in the Black Sea, we see 4 to 6 day delay, which means that the [sit on] demerit usually demerits with the spot market is at 12 for an Aframax, the demerit is about double that. So that helps us with the earning for the fourth quarter.

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Operator [47]

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And as there are no further questions. I now pass the call back to you for closing remarks.

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Nikolas P. Tsakos, Tsakos Energy Navigation Limited - Founder, CEO, President & Executive Director [48]

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Well, thank you very much, and -- for your questions. As we said, we're looking forward to an exciting 2018. TEN will be 25 years old at the time, the most seasoned publicly traded tanker company, and I hope we will have much better news to report in our next quarter. Our team is going to be visiting New York for the Capital Link events in a couple of weeks, and we'll be very happy to see you and explain more about the company, and to wish you all the best for the holidays. Thank you very much.

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Operator [49]

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Thank you very much, indeed, with many thanks to our speaker today. That does conclude our conference. Thank you all for participating. You may now disconnect.