Tsakos Energy Navigation Ltd (TEN) 2005 Q2 法說會逐字稿

Good morning. My name is MaryAnne, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Tsakos Energy Navigation Second Quarter 2005 Conference Call. All lines have been placed on mute, to prevent any background noise.

After the speakers’ remarks, there will be a q-and-a period. If you would like to ask a question during this time, simply press *, then the number 1 on your telephone keypad. If you would like to withdraw your question, press *, then the number 2 on your telephone keypad. Thank you.

Mr. Dave, you may begin your conference.

Good morning. And thank you for joining us for Tsakos Energy Navigation’s Second Quarter 2005 Earnings Conference Call. By now, you should have received a copy of the earnings press release. If you’ve not, please contact myself, at GCI Group, at 212.537.8026 – and I will fax or e-mail a copy of the release to you.

As a reminder, this conference call is also being webcast. To access the webcast, please refer to the press release for the web address, which will direct you to the registration page. At this time, I would like to read the Safe Harbor statement.

This conference call contains 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 discussed in TEN’s filings with the SEC. Thank you.

I would now like to turn the call over to Mr. Nicholas Tsakos, President and CEO of Tsakos Energy Navigation.

Well, thank you. Good morning or good afternoon from a very hot and very empty Athens, here. We have the honor to present our second quarter results. With us here, we have our chairman, Mr. Stavropoulos – our CFO, Mr. Paul Durham – our COO, Mr. Saroglou – and myself and the remainder of the team. With this opportunity, after welcoming you – and thank you for your interest – I would ask our chairman, Mr. Stavropoulos, to say some words about our performance.

Thank you, Niko. Good morning, fellow shareholders, analysts and other friends. First, on behalf of the board, I would congratulate Nikolas and his team on a superb performance, for both the second quarter and the first half of 2005. The execution of the business plan has been excellent. As for the balanced employment policy, expense containment and financial management. The favorable comparisons with 2003 and a very strong 2004 are most refreshing.

Additionally, the progress in the fleet renewal program is [inaudible] constructive. The capital gains arising from timely purchase and sales have indeed been most welcome. They have enhanced shareholder value and added further strength to an already-strong balance sheet.

Looking ahead, the most-recent projections by the IEA – that is, the International Energy Agency – are very encouraging. The estimates for 2005 have been lowered, reflecting slower-than-anticipated [Chinese] growth in the first half, but are still a solid growth of 1.9 percent. Most-importantly, the projections for 2006 foresee a pickup in growth, to 2.1 percent.

The primary engines of growth are China, India and broader Asia – combined with solid demand from the USA, Japan and Korea. The key factor for the tanker industry is that most of the demand growth is coming from importers of oil who are distant from the sources of oil-production.

The extremely tight supply-and-demand conditions of 2004 have eased, reflecting a build-up in tonnage, which will continue in 2006. However, supply-and-demand for quality tonnage should remain in good balance, providing the backdrop for a fourth consecutive year of acceptable profits [inaudible]

TEN’s addition of 5 new tankers by the end of 2006 should commit the Company to fully participate in these favorable prospects. The board of directors has reconfirmed this optimism, by expanding the share-repurchase program at the end of May.

Again, Nikolas, thank you for the opportunity to share my thoughts. And keep up the excellent work.

Thank you, Chairman. It’s always a pleasure when you’re reporting record profits, as we are doing now for the first half of 2005 and for the second quarter. Even surpassing 2004, which on any account, was a very extraordinary year.

The first half and the second quarter of 2005 was another period of expansion for TEN, and for positive growth for our industry. In the last conference call, we expected a strong second quarter, and we were not disappointed. Our strong operating performance, coupled with our continuous participation in the S&P market, has resulted in a record second quarter and first half. I will just mention the basic financials, and then Paul [Damar], our CFO, will get into the nitty-gritty of the results.

Our net income for the quarter rose to 41.9 million in comparison to 30.16 a year ago. The Company has reported $2.09 for the second quarter. Similarly, the first half we are at 81.75 million – up from 63.55 last year. This equates to $4.06 versus $3.55.

The time total equivalent for our diversified [inaudible] which consists of [6] in every category from tankers to VLCCs to ice-class product tankers, and [inaudible] rose from 27,900 from 26,750 last year. The first half of 2005 was an exciting and progressive period for the development of TEN operationally and corporately. We kept busy.

Now, I’d like to mention some of the highlights of this period. In early January, we took delivery of our product tanker, the [Dilly One] which was chartered ex-yard – which means straightaway without any downtime, for one year – to [inaudible] at the minimum rate of 18,500 – and an unlimited upside. Up until today, we have averaged 28,500 – which means that we are way above minimum on that [seat]. That has been a very accretive transaction.

In February, we announced a $0.95 semi-annual dividend – bringing the total for the 2004 year to $1.65. In March, we sold our oldest vessel, a 24-year old single-single Aframax [Panel G] with a 5.2 million capital gain. The vessel was sold not far from its original purchase price 10 years ago.

The second quarter started with the delivery in April of our first ice-class. [inaudible] Euro Champion of 2004 from [Hyundai], [inaudible] Industries in South Korea – and immediately repositioned itself to the west.

In May, the board of directors decided to increase our buyback program to 20 million, of which more than half has already been invested. In June, following our strategy of using the sales and purchase market as an integral part of our business, we sold a newbuilding contract – an Aframax – which we had just purchased in November of last year, for a 10.8 million gain. Following the same, we immediately employed our capital by ordering an upgraded-version Aframax for delivery in August of 2007, at a significant lower cost.

Looking at this transaction in another way, what we did was securing up front the profitability of a $27,000 [tanker] equivalent for the following 2 years – 8 quarters – until the delivery of our much-cheaper GNI sister-vessel designs who are already ordered ships.

In the same month, we sold two of our original 20-year old single-double product tankers that formed the Company’s backbone, back in 1993 – with a capital gain of 8.8 million. The ships were sold almost at the same price as they were purchased new, 12 years ago.

These vessels were immediately replaced by the delivery of another product tanker – our newbuilding vessel, the Dionisos from Hyundai [Midpoint] in Korea. And charter freight from the yards to the [inaudible] pulled earnings up to today’s 20,000 a day.

The result of these 8 S&P sales-and-purchase transactions in the first 6 months of the year was… 4 vessels were sold, of 270,000 dwt tons – with an average age of 16.5 years. They were immediately replaced by 4 brand-new vessels of 355,000 dwt tons. The above transactions reduced the average days of our fleet by more than a year, and have brought us closer to our target, which is to have a 100 percent double-double fleet, very soon. Right now, we’re down to 2 single vessels – our 2 Aframaxes – the [Palmyra and the Rayina]. Of course, not to put this on the side, it also has produced a $25 million profit for the first 6 months of the year.

Our expansion and modernization program continues. In September, we will take delivery of our second Suezmax – the ice-class Euroniki – which will end up immediately again with no downtime. A very accretive 1-year charter, to a major North American client.

After that, we have scheduled, so far – though we might surprise you – 11 newbuilding deliveries, of 1.1 million dwt tons, 4 1A ice-class Suezmaxes and 4 1A ice-class product tankers, together with 2 sister-vessel Aframax being built for us in Sumitomo in Japan, and of course, our LNG.

The management is looking for further growth, by identifying accretive opportunities in the new-building and second-hand sectors. We consider the S&P market as an integral part for the growth of any traditional shipping company. And we will participate, if needed, aggressively when a [inaudible] as we have done in the past.

In 2003, we participated in 14 S&P transactions – 9 in 2004 and 9 so far in 2005. Including the Euroniki. In the last 3 years, there has not been a quarter in which the Company has not had at least 1 S&P transaction in its book.

On the [inaudible] side, 22 out of our 26 vessels are on full-utilization charters – representing 90 percent of the available 2005 days, and 60 percent for 2006. 17 of our vessels are on time-charter. 5 of them are on contracts of afreightment, with profit splits. That represents, and of course this represents, $100 million for 2005 of [increment] and 120 already spoken out for the 2006. The remaining 4 vessels are trading on the stock market.

Our current deployment mix, coupled with the diversity and modernity of our fleet allows us to enjoy significant upside during strong market conditions, and at the same time, protects our growth and profitability when the market periods are low. This has been proven by our continuous 12-year profitable record during the thick and think of the market.

Our aim is to secure, as much as possible, accretive and repeat business by first-class customers – as is the case with the Euroniki, which will be delivered next month. At the same time, we’re in discussions to secure long-term employment to majors for our 1A Suezmaxes and 1A product carriers. So, hopefully, we will be reporting to you soon with the accretive transactions.

Now, in the third quarter, so far, we are experiencing the traditional summer slowdown of the market – which is closer to the 2003 level than 2004. This is also the result of the steep increase in oil prices. This is reducing inventory buildup – and creates a wait-and-see environment. However, we remain cautiously optimistic for the remainder of the year, and for 2006. And we are being encouraged by the large appetite of charters for our young and high-quality fleet. We believe that the market sees that our fleet and operating strategy represents a short- and long-term investment.

I would like, with that, to thank our shareholders for their support, and wish to assure you that all of us here are trying and working hard to grow our fleet – the value of your investment, of our investment – and of course, to get higher validations. I would also like to thank the men and women onboard our vessels and onshore. Especially, our technical managers of Tsakos shipping and freighting, for their efforts and dedication. They have created the bedrock of our Company’s success.

It goes without saying that whatever the strategy of the management and the board of directors – whatever we try to demand – will never be successful without safe and environmentally conscious onboard operations. I would especially like to congratulate the captain and the crew of our model tanker [Inga], for being awarded by the US Coast Guard last month, the highest award for successfully rescuing during very dire conditions, the crew of another sinking vessel.

With that, I will ask Paul Durham, the expert in the figures, to guide us through what has really happened. Thank you.

Thank you, Nikolas. And thank you for joining us, today. Before I begin, please note that a summary of collected financial data is included in the press release for your reference. And now I’ll talk about some more significant items carrying through in the quarter and half-year.

As mentioned, the Company earned net income of $41.9 million in Quarter 2, 2005 – compared to $30.2 million in Quarter 2, 2004. If we exclude from Quarter 2, capital gains of 19.6 million on the sale of the [Pella, Diam] and the Aframax contracts, and capital gains of $8.8 million last year, we achieved a 4 percent increase in remaining net income, from $21.4 million to $22.3 million this second quarter. EPS were $2.09, on just over 20 million average shares – compared to $1.62 on 18.6 million average shares for Quarter 2 last year.

For the 6 month period, net income was $81.7 million – a 29 percent increase over the $63.6 million achieved last year. Or, net of capital gains, our net income was $56.9 million compared to $54.8 million – again, an increase in operational net income of 4 percent over last year.

Total revenue after voyage expenses was just over $66 million – compared to $67 million in Quarter 2, 2004. The reduction was due to a smaller average fleet of 26.5 vessels, compared to 27.6 in the previous year’s quarter. And 95 percent utilization of the fleet, compared to 98 percent last year – due to dry-docking commitments this year.

However, charter rates achieved were, on average, better in both the 3-month and 6-month periods, and in 2004. The average daily time-charter equivalent per vessel for Quarter 2, 2005 was $25,100 compared to $23,500 in the previous year’s quarter. For the 6 months, $27,900 was achieved, compared to $26,700 last year.

While the percentage of operating days on period-employment increased from 78 percent in Quarter 2, 2004 to 85 percent in Quarter 2, 2005, the proportion of days which were subject to variable rates – that is – spot, time charge with profit share, contract of afreightment or in accrual – remained constant, at 59 percent. In other words, only 41 percent were at fixed-term and fixed-rate.

For the 2 vessels delivered in the quarter, our first ice-class Suezmax – Euro Champion 2004 was entered into the spot market, in anticipation of a strong winter market. And the product-carrier, the Dionisos, entered a cool earning market rate.

Average rounded rate achieved in Quarter 2 per category were – VLCCs earned an average of approximately $44,000 in both quarters. Suezmaxes, approximately $26,000 in each quarter. Afromaxes $25,000 in this year’s quarter 2, compared to $23,500 in last year’s quarter 2. Handymax is nearly $26,000 compared to $22,000 last year. And product carriers $16,000, compared to $14,000 last year.

Total operating expenses in Quarter 2 amassed to $12.7 million – a 3 percent increase over last year’s Quarter 2 – but on a daily average cost-per-vessel basis, increased by 8 percent – from $5,723 to $6,205 in Quarter 2, 2005. Mainly as a result of the falling dollar of the past year, and extra repair. However, that is over $400 a day less than in the first quarter of this year – due in part to recovery of $1.00, and 1 percent better than the 2004 average.

Daily G&A expenses for the 6 months to date have increased by 8 percent, from the first half of 2004 – primarily due to the addition of two new independent directors to TEN’s board. Taken together with our management fees, which were revised in July last year, our total overhead costs-per-vessel amounted to $865 per day in the first half 2005, compared to $751 per day last year. However, that’s still well under half the average for our peer group.

Total finance costs for the quarter amounted to $2.9 million – a 36 percent increase from Quarter 2, 2004 – which is mainly due to increases in average loan interest rates, from 2.6 percent to 4 percent. However, the impact of these increases was mitigated by a fall in average loans – from $475 million to $414 million between the two quarters -- and, increases in capitalized interest and interest-received on interest-rate hedges.

To further reduce the impact of regulatory increases in interest rates, we have recently renegotiated several of our financing arrangements, and achieved reductions in margins of up to 40 basis points.

Income received from time-deposits and investments has also provided an extra $1.1 million in the quarter over last year’s quarter.

During the second quarter, the Panamax’s Victory 3 continued its special survey dry-docking throughout the whole period. The required extra work resulted in an extra 70 days, in total – which eliminated approximately $1 million, or 5 percent earnings per share from expected earnings for this vessel during the quarter.

During Quarter 2, two new loans amounting to nearly $63 million were received, relating to the delivery of the Euro Champion 2004, and the Dionisos. Total loan repayments and prepayments on vessel sales amounted to $19 million – bringing the total loans outstanding at the end of the quarter to $422 million. This brought our debt-to-capital ratio to 43 percent at the end of the quarter, compared to 47 percent at the end of Quarter 2, 2004.

Following the sale of Aframax Hull 1224 on its delivery and the immediate contract for a new Sumitomo Aframax building with the proceeds, we now have 12 vessels under construction, at a total contract price of $666 million – of which approximately $540 million still remains to be paid. $70 million between now and the year-end, $170 million in 2006, and $300 million in 2007. New debt will cover most of these payments.

To date this year, we have sold 4 vessels, with total capital gains of almost $25 million. These sales have also relayed $39 million in cash. During Quarter 2, we paid $19.2 million in April for the final dividend related to 2004. In addition this year, we have spent $15.6 million in repurchasing over 400,000 shares for cancellation, as part of our ongoing buyback program – with another $12.5 million to be spent.

This concludes my comments. Now I’d like to hand this all back to Nikolas.

Thank you, Paul. Very enlightening, I hope, for everybody. At this stage, we would like to – if anybody has any questions or clarifications – we would be more than glad to answer. Who would like to open the floor?

[operator instructions]

John Chappel, JP Morgan.

First question for Nik or maybe George can add some color, too. Technically, not just for Tsakos, but the entire group, it really outperformed some of the crude segments in the first half of the year. I think expectations were the same for the second half. Can you talk a little bit about what’s happening on the Panamax fleet, in your outlook for the second half of the year?

Yes. I think you are very correct. I think right now we are looking at the Panamax’s worth – up to the end of the quarter, at part with the Aframaxes. And you were correctly saying that in the last 40 days or whatever the [inaudible] is… 5 days… They have surpassed the Aframaxes. As you know, the crude market has dropped in the Caribbean and all over. We’re seeing that the Panamax… It has to do with a lot, we believe, with the limitation of refineries being available, and the substantially greater need for refined goods to be moved. We are seeing this. We are seeing the average of our Panamaxes surpassing the Aframaxes in the last 40 days.

You have a pretty modern Panamax fleet. Are you seeing any extra discrimination, as far as chartering the Panamaxes relative to maybe the Aframax or Suezmax factor?

I think that we doubled Panamax [stargazing] at a significant premium. However, the last month has been, as you know, a month of anomalies because of various weather events that were happening, mainly in the Caribbean area. We expect it now to normalize, and we hopefully will see the winter months come, and the Aframax market normalizing.

Question for Paul. Could you just give us an update on the dry-docking schedule for the second half of the year? Is the victory absolutely complete, now? No more costs associated with that? Then, full utilization second half of ’05.

This is complete, and has been delivered now into the pool. The [inaudible] pool.

We have just put the head [nets] into dry-docking. In fact, I think it went in today. So we can expect that to be in the dry-docking for about 40 days. That’s pretty well it, for major dry-dockings, this year. There is a small possibility toward the end of the year, that the Libra might go in, or the [Crooks]. One of the two, followed by the other vessel in the beginning of next year.

Basically, beyond the [inaudible] is not much more for the rest of the year.

Great. And then, final thing is on the dividend. You’ll probably be announcing the next semi-annual dividend with the next quarterly announcement. Just two clarification questions on that. Is that based on the first half of 2005 – the 6-month results? Then secondly, you know that Wall Street excludes you [inaudible] from your earnings. But do you guys include that when you look at the profitability of the Company, and when you’re suing the term, “The dividend?”

I think you brought a very good point, which I think I’m trying to say. In any shipping company, I think we are providing it – that capital gains are not always gains. Many times there are losses, too. So it’s not a matter of losses. The capital gains are a part of our business. So, yes – I think it’s a very important part of the business, and we include it in our profits, when we look at it. As I said in the example I was trying to say, because I think many people might not see it that way. I was trying to clarify.

We bought a [simple axe] November for $58 million. We sold it for $71.5. We made a capital gain and then we went ahead and we ordered another ship for an in-2-year delivery, at the same price -- $58 million – as we did in the past.

In order for us make this $10.8 million, we would have had to fix our existing ship for the remaining 2 years, at $27,000 a day, for an Aframax – where the market is not there, today. So we have secured that profit, and we still have another ship. Unfortunately, or… The [shift is] always that way. But that’s the way we feel.

As for the profits, I think operating profits – we look at them for normal activities and disposals. Our capital gains will be deployed immediately, in every case. But of course, we might have a special dividend, if the board decides to.

Pierre Conner, Hibernia Southcoast Capital.

Paul, just a quick couple of housekeeping items. Then some questions for Nik. What is your current, as you said, cost of debt? You’ve made this 40-basis point reduction with some swaps, as I appreciate. Just to make sure I’ve got that correct.

Yes. That’s right. Basically, we’re looking at all interest rates of about 4 percent. Much of that held at 4 percent, due to very interesting interest-rate swaps we had in place.

Very good. So 4 percent, currently – and going forward, for now.

Yes.

Then, this may be for you as well as for Nik. On the cost side, I look at the daily operating costs. Maybe just on a year-on-year basis. Just to make sure it begins. I’m looking sort of at 8 percent. Then my question is, on a go-forward basis, what pressures are you seeing, improving costs, et cetera, to what are your expectations, relative to that trend in cost? Can you make any more progress?

A lot depends on seeing where the Euro is going. We had to see a sustainable recovery in the dollar. I’m not so sure, now. But that will be on the pressure side. On the easing-the-pressure, of course, is the introduction of a brand new vessel, which operated at relatively low operating costs, compared to the old ones – which are becoming more and more expensive to run and to repair and to maintain.

So, hopefully, once we got rid of these last 2 single-hulls that Nikolas was talking about… That was the introduction of the new vessels… we’ll see some stability -- if not, hopefully a decline in operating costs per vessel.

That’s helpful. Is there an underlying inflation on your general operating costs that you’re unable to counteract by getting the newer vessels?

Generally, when we model, we enter a kind of escalation factor, anyway – to take account of inflation of between 3 and 4 percent.

That’s helpful. Then Nikolas, moving on in follow-on to Paul’s commentary and your, earlier. Do you see enough in the market to give you some confidence on the disposition of the two remaining single-hulls? Or has some current weakness caused you to hold on for a while and bet on a bit of a recovery?

For us, actually right now, all the ships that we have sold this year – even our older ships – have very successfully been sold at, I think, very attractive prices. I think the new owners are enjoying good charter rates, also. So I think for us, we are looking at significant interest, by specific groups. Those single ships basically have a market in places like India and China, for their local markets. But there is an appetite for those ships. I think we’re way ahead of the game, in selling those ships.

At the same time for us, the correction in the market could be positive, because we expect to see a larger scrapping. As you know, this year there has been very little scrapping. I don’t know if we’re having a point closer to 4 million dwt tons in tankers, yet from the last statistics I was looking at. So I think for a company like ours, we have secured our downside. We have very good, long-term contracts. We have secured 90 percent for 2005, and 60 percent for next year – very modestly. If we wanted to be selfish – which we don’t – we would like a 6-9 month [inaudible] market period to get some of the older ships that are still there -- they’re good ships, but old ships – out of the market, and help us with the supply-and-demand curve.

Right. On the rebound. So maybe you may have already discussed this. But [the Tamara]… with both of those, actually. Are they… Am I understanding the regulations? Are they currently IMO-compliant? Or will there be something required to make them so?

The ships are IMO-compliant, right now. Yes. We do not need to spend any more money on that.

So, no one else would have to, either.

Exactly.

One more, and then I’ll turn it over. So you all are looking at various other things that would create some value for the shareholders. You just discussed looking… You’re continuously looking at the S&P markets. Are there some others? Without giving away any competitive positions, are there some other segments that you’re looking at? Other segments of the shipping business?

Well, I think we are looking at everything that could make sense for our shareholders. I think we want to keep the Company in the oil service business and the energy business. Not only oil, but energy.

But we have made an investment, and we’re already close to making a significant investment into the SBFO business. The offshore business. We ended up making an investment, and so far very successful. It has moved by 40 percent – it’s still a small investment… into a [drill ship] company. This type of print business is, of our industry, closer to the source we will continue to look at.

We have, as you know, entered the LNG market. We are looking at a very specialized and invest in a very big way, in the ice-class business. And we are looking at other oil-related oil services.

You mentioned the LNG market. Somewhat related to that would be the LPG market, as well. Do you have an opinion of that market?

We were perhaps a bit too early entering. We entered this market 3 years ago – 4 years ago – together with the [Lorensen] Group – a very dynamic group out of Denmark, where we operated 4 ships, together. I believe that this is a market that has a good future. Industrial shipping is market with a few players, and we were happy to participate. We gained a lot of know-how and we’re looking forward to participating. We do not exclude participating in this market.

Nikolas, thank you for your thoughts. I’ll turn it back.

Your next question comes from Magnus Fyhr, Jefferies & Company.

You’ve been actively buying back stock in monetized assets at nice profits. You also have a strong balance sheet, with $6 of cash, right now. You can basically find your newbuilding program with internally generated cash, going forward. Still, the stock is trading at a significant discount to net-assets value.

You mentioned opportunities to expand the fleet in other segments. But what do you think is the best use of cash, going forward, between buying back stock, reducing debt, and expanding the fleet?

All three are very attractive, Magnus. We certainly are interested in buying back our shares, as you’ve pointed out. They sell at a significant discount from real and realizable values. We are continuously looking for opportunities to expand in our conventional business – that is the oil tanker business. We’re working hard to identify appropriate opportunities in that regard.

Then, of course as you know, we have a generous cash-dividend policy, and we will be reviewing that to see what is the appropriate payout, going forward.

Without giving away... You have significant cash on the balance sheet. I guess the buyback program’s in place. Could that be increased more so, at the expense of an increase in dividends?

It’s certainly one of the options that we would give very serious consideration to. Since we haven’t deliberated on that issue, I can’t say with absolute certainty that it will be further-enhanced. But yes, that is clearly one if the options that the board will look at very carefully. Buy back more shares at these bargain prices.

Just one last question on the LNG vessel. I understand there’s been a lot of tenders out there. Can you give us an update on potential contracts of that vessel?

Hi, Magnus. It’s Nikolas. Yes. As I said, we find it is a very exciting part of the business. We have significant offers for what we call “financial deals.” I think deals that will take receipt almost up to the end of its life – with a 20-plus a 10-year option as [inaudible] fully amortizes with receipt, and gives a return.

However, in today’s market, this return is much lower than what we are looking at, as a return of equity, in our mainstream business – which is the tankers. That’s at least 15 percent on our equities. We are seeing in the teens or the double-digit returns, the people are offering on the LNG.

So we are not interested. We’ve had a lot of offers. We are not interested in long-term businesses. I’d rather have a 5-year contract, but it might not be as profitable. But it will get us 5 years down the road into an environment where the natural gas market will be a more-mature market. And it would be a market where more cargos will be [there].

As you know very well, there are some delays in getting the gas out. More technical delays. And there are some delays in creating receiving facilities. So I think we would rather… I think this is a market where we would like to be. We’re very happy we got there. But I wouldn’t like… I think it has a huge, very large prospect for growth, and we wouldn’t want to have asset-burning 10 or 11 percent on our record for 30 years. I think we can do better, on that.

Yes. Your vessel’s not delivered 'til the seventh. Have you seen a change here in the last 6 months of interest in that vessel? Or is it too far out, yet?

We have always had interest. But I think, as I said, what we are more negotiating now is rather than long-term business, a shorter-term – anywhere between 3-5 years [inaudible].

Harvey Stober, Dahlman Rose & Company.

Couple questions. One – with your stock price relative to NAV, why would you not be buying your stock before any shift in the S&P market. The second question relates to your comment that the return of seasonality charter prices are reflecting 2003 levels. However, the S&P market still seems to be reflecting 2004 – maybe prices are down 10 percent. How do you explain this anomaly, and which way do you think things will straighten out? Is it that rates will be moving up or S&P moving down?

If you read the reports in our business, and the expectations with China and India and their growth, they are talking. And I’m sure you guys do more [interim] reports than we do, here. We try to run the [steel]. There is an expectation that the way things are going, if the demand from India and China continues, there will be a significant lack of double-double ships to service these countries. We’re hearing numbers of 80 VLCCs are going to be missing as of the next 18 months. I think this expectation, coupled with a relatively healthy market, right now is actually moving [steel] prices higher, rather than lower.

The market has not even plateaued, yet. We are talking about VLCCs being sold at $130 million per newbuilding. That’s more than double what it was 13 months ago. I believe that the prices will normalize if the current market conditions will stay there more than another 6 months or another 2 quarters. However, we believe that as winter approaches, we will be looking at a much firmer market, which again will introduce higher values.

Back to the question on the gap between NAV and when your stock trades, and why you’d be buying ships in the S&P market, in deference to that.

We are growing the Company. As you see, we are more into selling ships. We participate in both sides of the transaction, but then more sales than purchases. Right now, we believe we are more buyers of [research] rather than ships.

Right. But you sold a vessel, and then turned around and talked about the delta on rates, and what you were able to lock in. By going out and repurchasing the vessel for delivery, wouldn’t you be better off buying your own stock at a 30 percent discount to NAV, than buying a ship at NAV?

Can I play a numbers game with you? We had a vessel which we had contracted at approximately $58 million. We sold the vessel at a profit, in excess of $11 million. We reordered a vessel that was moderately superior to the one that [at least the contract] that we sold. And we got that, again, at a price under $60 million. Is that a good deal?

Well, it’s all well and good. There are two parts to that transaction. One is the sale. The other is the buy. Because you sell doesn’t mean you have to buy. To sell is wonderful, and you record a gain. But the question is, why do you buy a vessel at NAV, essentially, when you can be buying your stock at a huge discount?

First of all, we are a shipping company, and we do both. We have clients out there. We are a growing shipping company, and I think what we try to do is make sure that we have enough capacity of products for our clients. This is our business. We are a shipping company. We have to replace our fleet at the right time. What we try to do and what we’ve proven to do is always find the right time to buy and sell ships. There’s a huge value between the contracts that we have signed some time ago. But we have clients that are requiring ships. So we try to sell high and buy low. And at the same time, of course, as you correctly say – we try to [inaudible] our share price.

[Rothy Greycomb], John Webbins & Company.

I guess, just a comment, following Magnus’ and Harvey’s questions. It seems to us this Company has $6-7 in cash. The cash from the Company is tremendous. You have a buyback of only $20 billion, relative to cash balance, relative to cash flow generation, and you’ve done have of it. It just seems to us that you’re crying wolf on every conference call how cheap the stock is. It’s just really, really pathetic, I would say – the amount of stock that you’ve bought, up to this point, and what you guys plan on doing in the future. It’s just really frustrating, as a shareholder, just to wait for you guys to do something about buying back your stock. Look at your competitors. Everyone has purchased stock, aggressively – except you guys. It’s just really, really frustrating. I’m wondering what are you guys waiting for?

If I may address that… We’re not embarrassed about our performance. If you look at our stock, compared to our peer group on December 31, 2004 and you add in the dividends that have been paid – and you take the closing price of those stocks by [inaudible], which of those stocks do you think has performed best?

Since the announcement of your…

OSG performed slightly better than TNP.

But since the announcement of your special dividends… I mean the share buyback of $20 million… your stock is actually way underperforming in peer groups. That kind of signifies what the market thinks of your buyback.

Let me respond to that, as well. We don’t operate in the interest of our shareholders for a one-day horizon or a one-month horizon. We are looking out long-term, to enhance shareholder value – and we’re going to work very hard to do that. Part of that strategy will be a share buyback program. We’re not going to measure it by how the stock performs over a one-month period.

Okay. I just think that you can do so much more, and you have done very little, up to this point and [inaudible] [crossing]

I respect your opinion, and we will try to be responsive and do the intelligent thing.

I hope so.

[operator instructions] [Daniel Burke], Johnson Ryan.

Couple of easier questions, here. Two, on the Euro, Niki. I was curious of two things. Why not operate it in the spot market, at least across the winter period? Then, secondly, with regard to the time-charter signed on the Euro, Niki – what type of premium are you seeing on a one-year time-charter for an ice-class Suezmax vessel, compared to a non-ice-class vessel?

That’s a very good question. I think the reason… We’re trying to have a balanced policy. We have the Euro Challenger in the spot-market. We have the Archangel, which is the next Suezmax-sized class, which is going to be delivered in January. So I think what we are going to do is use the Euroniki as a balance between those two ships. The ship is going to be delivered in September, and we have a varying rate, which is now at about right now 25 percent above the normal rate for non-ice-class ships.

Did you say 25 percent?

Yes.

Then one other question. With regard to your willingness to invest outside of the [forced] shipping market, do you have any type of – at least at this point – threshold amount of capital, perhaps, on a percent basis, that you’d be willing to deploy in the FGSO or oil-services market?

Is there a sort of threshold level of investment that you’re willing to make at this point?

As I said, we are looking at a great number of transactions. Our mainstream business is tankers. But given the liquidity that we have, we would like to explore this. We would never, I think, go overboard and invest more than our main business. But we will be looking at transactions. However, so far, our investment is just the $5 million investment – where we are.

Jin Chun, Maxim Group.

I guess part of the confusion here regarding your asset-sales strategy is… Is it not true that you’re essentially implying you have a strong visibility of your customer levels of interest, and therefore you’re just simply matching it with them, as opposed to… Even although you don’t have the [level] fixed yet, you have a pretty strong idea of what kind of return it could yield in the future?

Yes. I think this is… As I said, we are a service business. Perhaps shipping, many people are not very familiar with our industry. Although now, we have more and more shipping companies starting out there, which I think is very helpful. Most of them are doing a fantastic job.

We are a service business. I think what we try to do is we try to be the truck drivers of the sea. We try to sell our trucks at a high price, and then get another truck to use for our customers at a lower price. So, yes. You are very correct. We have a very strong visibility and know what we’re going to do with our act.

Which is why you’re so comfortable being patient with your outlay of cash?

Exactly.

Now, a quick going back to the investment in the [rig] company. How would that be reflected, perhaps, in a joint-venture line-item, going forward?

It’s just a simple investment. What we’ve actually done is added into convertible loans. At any given moment, we can convert that into shares in this company, which is in fact quoted on the Oslo Stock Exchange.

I see. And it’s correct that you’ve already realized a 40 percent gain? Is that true? Correct? 40 percent?

Well, the share price has moved by 40 percent in the last few days. In the last few days, it’s gone up tremendously.

Oh. Just in a few days. Well, you guys are capable of making short-term gains, I guess!

The last thing is on the LNG. Your willingness to hold out for the right contract with [inaudible] adjust – you’re very confident in the horizon – the 5-year horizon – of the LNG demand. Can we interpret this as an indication that you’d be very willing to expand your LNG newbuilding fleet? If so, what’s held you back, to date?

I think yes, what we would like to do is to have a significant presence in this sector. We see it as a natural continuation of our main business. However, we wouldn’t want to do anything until we have put this asset to work for us – or at least starting working for us. So I think you will see us participating more in this sector, and I think from now until the end of this year, we will have most-probably negotiated a very good charter for our [inaudible] ship, and different types of LNG.

So after you’ve cleared that, you can place a new order, which would or should be ready about the timeframe you’re most-excited about.

Exactly.

[operator instructions] At this time, there are no further questions. Mr. Tsakos, are there any closing remarks?

Ladies and gentlemen, thank you very much for tuning into our second-quarter results. The management and the board are going to work through the summer, with a workflow is very high, to make sure we get our share price to where it should be. I think, as our chairman said, we are performing very well, so far. But we hope to do even better. And we want to wish everybody a very nice and relaxing and uneventful August. We’ll talk to you very soon.

The management will be in the States in the middle of September, talking about second quarter and how third quarter is setting up. Thank you very much.

Thank you. This concludes today’s Tsakos Energy Navigation Second-Quarter 2005 conference call. You may now disconnect.