Tsakos Energy Navigation Ltd (TEN) 2005 Q3 法說會逐字稿

Good morning. At this time, I would like to welcome everyone to the Tsakos Energy Navigation third quarter earnings conference call. [OPERATOR INSTRUCTIONS] Thank you. Mr. [Ersick], you may begin your conference.

Good morning and thank you for joining us for Tsakos Energy Navigation's third quarter 2005 earnings conference call. By now, you should have received a copy of the earnings press release. If you have not, please contact Alan Katz of CJP Communications at 212-279-3115, extension 211, and he 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 Privacy 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 operation. Such risks are more fully discussed in TEN's filings with the Securities & Exchange Commission. Thank you.

At this time, I would like to turn the call over to Mr. Nikolas Tsakos, President and CEO of Tsakos Energy Navigation.

Thank you, Tom. Good morning or good afternoon, wherever you are, from Athens. It is very good to be online again and talk to our shareholders. We have here with us, of course, our Chairman, Mr. Stavropoulos, our CFO, Mr. Durham, our COO, Mr. Saroglou, our Deputy Chairman, Mr. Jolliffe, and we're all ready for your questions. I would ask first our Chairman to make his comments, and then I will be back,answering any of your questions. Please, Mr. Chairman.

Thank you very much, Niko. Good morning, ladies and gentlemen. First I want to take note of the pride we have in our able and brave seafarers. The crew of 15 of TEN's vessels were committed by Amber for their life saving efforts in the past year. Amber is an international institution devoted to saving lives at sea. The joint presenters, the great minister of merchant marines, and the commanding admiral of the U.S. Coast Guard noted that the 15 awards to the vessels of TEN was it is largest number of ships of a single company to be so on recognized. We're very proud of our people.

As always, it is a pleasure to visit with you and particularly on occasion when our news is so positive. The board of directors reaffirmed its confidence in the future prospects of TEN through two specific actions, the declaration and payment of a record high semi-annual dividend of $1, and the authorization of an additional 40 million for the share repurchase program. The repurchase program, during 2005, has retired 738,790 through September. Since that date, another 227,000 plus have been retired for a total of approximately 966,000 or almost 5% of the outstanding shares. The remaining authorization under this 40 million addition is approximately 32 million, which at last night's close of about $35 a share, would absorb another 5% of outstanding shares. The board of directors firmly believes this is a -- I cannot hear you, sir. The board of directors firmly believes this is an excellent investment and will serve to enhance shareholder value. Again, thank you, Niko, for the opportunity to share my views.

Well, Chairman, thank you very much. Again, it is a pleasure addressing our shareholders after another productive and profitable quarter for TEN. This is actually the 48th consecutive profitable quarter in our twelve year history.

I would first take your time by giving a review of our nine month and three quarter results, and then talk about the operation highlights of this period and the market environment we operate in. Paul Durham, our CFO, will guide you through the numbers during his remarks. TEN announced today a record net income for the first nine months of $100.9 million, which equates to $5.06. Income before depreciation was 127.5 million and our net revenue brings 198 million. In the recent quarter, the third quarter, our net income was 19.2 million or $0.98 per share. Our income before depreciation was 28.4 million, and this on revenues of $61.4 million.

As we mentioned in August, when we had the second quarter call, the third quarter has the characteristics, or had the characteristics of seasonality and a spot market was lower than a year ago by about 50% in the VL's, 35% in Suezmax's and Aframax's, and only the products were equal to 2004, mainly because of the Katrina disaster and the lack of refining capacity. However, due to TEN's balanced employment strategy, the Company was able to offset the softening of the spot market with our long-term charters and contracts with [inaudible]. Due to our flip young profile and high operational standards, our vessels are in continual demand from major oil companies for spot or term employment. These enablers tend to continue to our long-term strategy that protects the Company for fluctuations in the spot market.

2005 so far has been a productive and busy year for TEN, both operationally, on the side and, of course, on the sales and purchase market. Four newbuilding vessels of 410,000 dead weight tons joined our fleet. First, the [motor] vessel, [Divimon] in the first quarter, which is a 37,000 ton product carrier was delivered and immediately chartered to a South America major oil company for one year, with a minimum rate of $18,500 per day and an open upside. In today's hot product environment market, the vessel is earning $45,000 a day and the oil-end break-even cost for this particular vessel is $12,500 a day.

The third of our D series products, the Dionisos, was delivered in the second quarter and also immediately entered in the products pool, enjoying the high-end rates for clean vessels. This was in the last week. When following our strategy of using the sales and purchase market as an integral part of operations, the board decided to sell the vessel to the -- a Far East major oil company for a $18 million profit that will be booked in the fourth quarter. This profit equates to approximately five years of profitable trading in today's firm environment for product vessels.

Following the same strategy, in June we took advantage of the firm newbuilding prices and sold our newbuilding Aframax [Eurotaquis], booking10.5 million profit. This was a profit equal to 2.5 years of successful operations. However, we immediately replaced this vessel by signing a much more economical contract for an upgraded version of this new newbuilding Aframax, that will be delivered in eighteen months. Both, the Dionisos and the [Eurotaquis], these sales are the highest levels that have been achieved in recent history. In the last three quarters, we have also disposed four of our older vessels, the non double-double vessels that served the Company well starting back in 1993. Those vessels were disposed well above their book values. This has brought us closer to our goal of a pure double-double fleet. Currently, we still operate one single-single vessel.

In the third quarter, our second ice class Suezmax, the Euroniki. was delivered and immediately charted to a North America refinery for one year at $40,000 a day, which was followed by delivering This was following the delivery lately of her sister vessel, the Eurochampion, the [inaudible] largest ice class vessel in operation, and currently trading in the spot market earning $51,000 a day. The oil-end break-even cost for this category of vessel is about $20,000 per day.

Over the last seven quarters, we have disposed 641,000 dead weight tons with an average age of ten years old, and we have ordered and took delivery of 1.6 million dead weight tons with an average age of 1.7 years. This means a growth of a million dead weight tons, coupled with with $68 million in capital gains. In the next seven quarters, we have secured 44% growth with eleven newbuildings to be delivered to us, starting with the Archangel, the IA ice class Suezmax in January. At the same time, we're closely looking at opportunities in increasing our [inaudible] sea and product tanker segments to further diversify our fleet and fulfill our client's needs.

On the employment side, 21 out of our current 25 vessels are full utilization employment; ten on fixed-time charter, 11 on wide-open business with market-related features and downside protection. Our four vessels on the spot, the [inaudible] is currently earning 95,000 a day on a storage project in the U.S. Gulf. The Aframax [Mariataquis], although a smaller ship, is earning $120,000 currently a day on the [inaudible] down to the Gulf. The Eurochampion, as I mentioned earlier, $51,000 a day and the [Boaxeus] about $20,000 a day on ferry positioning warheads from completely a special in the Far East. Currently, 90% of our 2005 days have been fixed and 60% of next year. This represents almost $160 million of revenue over the next five quarters. We are constantly seeking new opportunities for all of our vessels, and have met with succuss in securing [inaudible] charters for our fleet and driving value to the bottom line by taking advantage of the spot market.

This is particularly true over product carriers that are enjoying a very firm market. Five existing vessels in this category would be open for new employment in the next six months, and together with our four on order, we let significant earnings through the bottom line. Thus, we continue to exercise a one-stop shipping strategy by further diversifying our fleet according to our clients needs, from [inaudible] to the largest concentration of large-class vessels to the LNG market. This strategy has served us well, so far. TEN is one of the very few companies worldwide, shipping I mean, and have been profitably since inception twelve years ago.

Of course, control is, of course, the other ingredient in securing profitability. Our on-hands day-to-day management continues to allow us to keep costs low and remain competitive. Our cost structure is one of the lowest in the industry. While we're not immune to rising costs of fuel, insurance and the work dollar, we maintain operating costs as low as possibly. Actually, in quarter three, we had a 3% decline in OpEx, while at the same time, we're enforcing the highest operating standards for safety to the crew and the environment. The U.S. Coast Guard, as the Chairman just mentioned, awarded us for our [inaudible] record last month.

On the corporate side in the third quarter, the board increased our dividend to $1 for the first six months of operations, and that was paid in October. October $0.95 paid in April yielding almost 6% unrealized return. And at the same time. authorized a new 40 million buyback program, following the 28 million authorized in March. At the completion of the current buyback program, we will have spent $110 million in buyback and dividends within the year 2005. On the market front,the market so far in 2005 has, on average, lower than last year. However, following the Katrina unforeseeable disaster in the Gulf, it has recovers, approaching currently 2004 levels across the board. The product segment is a much positive affected one. Current Panamax rates are attaching $60,000 a day and Handymax vessels in the 40,000 level. In the last two weeks, the whole market has lit up with deals in Suezmax's in the 100,000 levels and Aframax's almost starting 70,000 a day. This is a positive sign for things to come in 2006, we hope.

But, what is more important is the appetite of the major oil companies to take in [inaudible] for long periods of time. Never before in recent years have the major oil companies shown such an interest in chartering [inaudible]. This has resulted in the oxymoron of having higher time activates offered this year, whereas the spot market has been lower than 2004. Perhaps this is a sign of things to come. We remain cautiously optimistic for 2006 and onwards, and we're preparing TEN to accept a many markets environment and the water seafarers. Taking this opportunity, I would like to thank, first of all, all of our seafarers for doing their job to the highest standards and our shareholders for their support. And I wish to assure each one of them that we will continue working to grow our fleet and obtain high evaluations for our Company, and hopefully for the whole sector. I would also like to congratulate all other [inaudible] companies for doing such an excellent job, that hopefully one day that sector will be awarded by higher [inaudible].Thank you very much, and now, Paul, if you want to take us through the nitty-gritty of -- . Thank you.

Thank you, Nikolas, and thank you all for joining us today. Before I begin, please noted that a summary of selected financial data is included in the press release for your reference. And now I'll talk about more significant items of in the occurring during the period to September 30. For the nine-month period, TEN earned net income of $109 million in 2005 compared to $89 million for 2004, a 13% increase with earnings per share reaching $5.06. Net income for the quarter was $19.2 million compared to $25.5 million in quarter three 2004, with earnings per share of $0.98, based on 19.6 million weighted average shares compared to $1.26 on 20.2 million shares for quarter three 2004. Total revenue in the quarter, after commission and voyage expenses, was $50 compared to $59 million in quarter three 2004.

The reduction was due partly to a smaller average fleet of 25.9 vessels compared to 27 in the previous year's quarter, and partly to slightly lower utilization, due to higher dry-docking commitments. More significantly, charter rates achieved in the quarter were on average 10% lower than in the exceptional three month period enjoyed in 2004. The average daily TCE per vessel for quarter three 2005 was $23,300 compared to $26,000 in the previous year's quarter. For the nine-month period, the average daily TCE was about the same as the prior year's nine-month period at $26,400.

The percentage of operating days on employment other than spot remained at 85% during the quarter, compared to 77% in quarter three 2004. And the proportion of days which were subject to variable rates, that is spot, time charge with profit chair, contract to a freightment, or in the pool, remained constant at 59%. Time charter without profit share occupied the remaining 41% of the days. One vessel, the ice class Suezmax Euroniki was delivered in the quarter on September 14, and immediately entered into a one-year time charter at $40,000 a day, enough to modestly contribute, in its two weeks of operation, almost $0.02 to the quarter's earnings per share.

During the quarter, average rounded rates achieved by VLCC's and Aframax's were down from quarter three 2004, VL's earning on average $31,000 and Aframax's $20,500, mainly due to the market difficulties in the Caribbean area. Suezmax's earned slightly better than quarter three 2004 at $28,500, Handymax's were up $22,400, and product carriers significantly better at $19,400. Total operating expenses in quarter three amounted to $12.5 million, a 3% decrease of over quarter three 2004, and on a daily average cost per vessel basis, increased by only 1% from $6,090 to $6,165 in quarter three 2005. Much of the success in holding operating expenses is clearly due to the removal of most of the -- all of the vessels over the past year, including the Tamyra, which stopped commercial operations in mid-September and was delivered to its buyers in early October. In place of these older vessels, we have taken delivery this year of more cost-efficient newbuildings in the product carrier and Suezmax classes.

Daily G&A expenses for the quarter increased by over 10% from quarter three 2004, primarily due to increased professional fees, much of which were one-up expenses for specific work. Taken together with our management fees, our October overhead cost per vessel amounted to $888 per day for the first nine-month period of 2005, compared to 796 per day last year. Despite the increase, we still feel that, given the pressure of increasing overhead costs due to corporate governance and Investor Relations requirements, we are still able to keep a tight lid on these costs.

Part of this ability to keep costs down is due in fact that we pay a nonvariable fee to our technical managers, while of the much effort relating to the implementation of Sarbanes-Oxley requirements and to the management of our new constructions and disposal of our old vessels is born directly by the technical managers, without extra charge. Total net finance costs for the quarter amounted to $2.1 million, a 16% decrease from quarter three 2004. Loan interest costs in the quarter were actually $4.9 million compared to $2.6 million in the equivalent quarter of 2004, due to average loans increasing by $26 million and loan interest rates increasing from 2.5 to 4.5%. However, the impact of the increase in loan interest was mitigated by over $3 million in credits from interest received on interest rate hedges, positive changes to the values of such hedges, amortization of deferred swap gains and, finally ,capitalized interest, which alone amounts to $1.4 million. Income earned from time deposits and investments in the quarter has also provided an extra $1.7 million over the prior year quarter.

During the third quarter, the Panamax Victory 3 completed its extensive dry docking and repairs, and returned to commercial service by late July. The Panamax [Headness] also undertook its special survey dry docking for approximately a two-month period. No further dry docking is currently scheduled for 2005. During quarter three, outstanding loans amounting to $122 million were prepaid and refinanced with a new facility, of which $125 million was immediately drawn down. In addition, a new loan of $41 million was received relating to the delivery of the Euroniki. For most of the time financing arrangements that TEN has, we have now negotiated a reduction of margins to between 70 and 80 basis points, which will contribute annual savings of over $1 million. At the end of the quarter, outstanding loans lo amounted to $456 million, and our net debt to capital ratio was 37%, compared to 33% at the end of quarter three 2004.

We now have 11 vessels still under construction at a total contract price of $618 million, of which approximately $484 million still remains to be paid, nine million between now and the year end, 173 million in 2006, and $302 million in 2007. New debt to cover these deliveries will amount to approximately $500 million, of which all, apart from one vessel, has been arranged. Until September 30, we had sold four vessels in 2005, with combined capital gains of approximately $25 million and some $39 million of released cash. The recently announced sales Tamyra and the Dionisis will also result in quarter four in a further $20 million profit, plus $30 million in released cash. Finally, we paid $19.5 million in October for the first dividend related to 2005. In addition, this year we spent $36 million in repurchasing 966,000 shares for cancellation, as part of our ongoing buyback programs, with another $32 million authorized to be spent.

And I repeat Nikolas's comments that, if we successfully complete these programs by the end of the year, we shall have paid to shareholders nearly $110 million in 2005 in dividends and share buyback. This concludes my comments now and I'll hand the call back to Niko.

Thank you, Paul. Thank you, very much. Taking this opportunity, we would like to open the floor up for any questions that anyone might have. Thank you.

[OPERATOR INSTRUCTIONS] Your first question is from Pierre Conner from Hibermia Southcoast Capital.

Good afternoon, everybody. Paul, a quick question first on the -- could you give some guidance on where you see the interest and cost of financing on a go forward basis? Seem to have done well versus our estimates during the quarter, and could you give us an outlook there?

Well, as far as basic loan interest rates are concerned, I guess my opinion is as good as anybody else's, and that is rates will continue to increase. Fortunately, we have a very healthy hedging program in effect.

Okay.

Which, at the moment ,actually effectively covers well over 90% of our outstanding loans. I believe we will be able to cap, over the next couple of years so, the actual loan interest rates to about 4 to 4.5%. On the other hand, some of the credits that we've been enjoying over the past year and, especially, in the past quarter, they will slowly disappear. The swap game that we've been amortizing over the past four or five years, that's now wrapped up, so we won't see that again. We were enjoying about 200,000 a quarter in that respect, you know, let's say about one cent in earnings per share. And, so, basically that's gone. We'll gradually be seeing capitalized interest decrease, as we take deliveries of the vessels.

Right, okay.

So, in that respect, we will be seeing some of the benefits going. So, yes, we will be seeing finance costs increase and, of course, we'll be taking new debt anyway.

Right.

As I just said.

Okay. Okay, good, Paul. And then, could you give us a bit of guidance on G&A go forward? Again sort of a better performance there, what's the outlook?

G&A, I think we can hold. I mean, we pride ourselves on being well below $1,000 per day per vessel, which I've said in the past is something like 30 or 40% of what our peer group in the states are paying in terms of overhead.

Right.

I think we've got a good hold in G&A. We don't expect it to rise significantly.

Okay.

You'll get an occasional peak, but on an average annual basis, it will hold up pretty well.

Sounds good. And Nikolas, two questions. So the strategy on share repurchase on a go forward from your point, opportunistic or systematic?

Well, I am dealing with the strategy of buying and selling [inaudible], so I leave this for our Chairman more up on this.

Say, Michael.

I think the -- I think the answer to your question is yes and yes.

Okay.

We do have a systematic repurchase program organized and also, opportunistically, we may pick off an extra amount.

I got you. So both. And then -- I'm not going to let you get out, Nikolas. One of the things we've talked about in the past has been the load factor, that is a million of dead weight tons required per million barrels and if some of the shift occurs seasonally, and that this changes in consumption patterns. So obviously there's been change associated with storms, et cetera, that we are obviously quite familiar with, but where do you see that load factor beyond the short-term impact? Is it continuing to change, what would be your thoughts on that?

Well, we're seeing quite a number of newbuildings coming in for next year and the following year. We know that all the yard capacity has been -- already been fixed for the next -- up to at least 2008. We have the 2010 phase out, also happening. We're seeing that oil is starting to come out from further and further away places, that's why we're investing on the ice glass. We're enjoying very healthy markets at this stage, even without any scrapping happening. And I think this makes us essentially optimistic because we expected the load for a new six coming in when it hits the market, we will finally enjoy some more scrapping.

We're seeing very healthy rates with almost no scrapping. We're estimating double-digits scrapping millions of dead weight tons for this year. I think if we make eight to nine million, we will be glad. That's why our medium term view is of a positive equilibrium, with the seasonality that we have seen in the third quarter. And we are actual fortifying the Company and preparing to be able to almost be known in these situations.

Okay. And two questions I'm doing on the follow up. One was on the scrapping, so you were looking, if we could -- in that eight million dead weight tons, you say this year as in '05, and what do you see that number is in '06?

Well, I think what we were estimating is at least 12,000 --12 million tons in '06.

Okay. Thank you. Thinking on the ton miles requirements, are you seeing that increasing with changing consumption patterns?

We are seeing -- as I said, oil is coming out in more distant places. We have a traditional parts of the world like Saudi Arabia

Okay

We are seeing, actually now, more oil going east from places like West Africa, and we're seeing West Africa actually using more of its VL's and Suezmax's to take product to the east, where most of the demand is happening, and so we're seeing an increased demand in that.

That's good. That is what I was looking for. Thanks. I will turn it back. Thank you.

Thank you.

Thank you. Your next question comes from Jonathan Chappell of J P Morgan.

Good afternoon, guys. Before I ask Nik some strategic questions, just a follow up for Paul on G&A. Last year the fourth quarter number spiked pretty significantly.I think there was bonus accrual there. What do we look at for the fourth quarter this year? I understand the third quarter number could be used as run rate going toward, but should we expect some kind of a seasonal bump in the fourth quarter?

Yes. Our policy, bearing in mind this is subject to board approval, so fingers crossed we'll get that approval, I believe we shall successfully hit our -- the 25% return on equity target for achieving a $2.5 million incentive award. So it'll be the same as last year, again, subject to board approval.

Okay. Great. Nik, there's been a lot of activity lately in sale and purchase, both by you and some of your colleagues. Can you speak about the asset prices that you see in the market right now? Would T&P be an aggressive buyer at current asset prices, and can you differentiate between product tankers, crude carriers and also LNG, as potential investments?

Thank you, John. Well, as I said, we are looking and we're taking the sales and purchase market as a major part of our business, Traditional shipping companies in that part of the world and all over the place usually make a big part, One third of the wealth has been built by buying and selling ships at the right time. We have a very large portfolio of ships and we're not in selling as long as we can replace them. We always in the market in for buying and selling ships. In today's market environment we would be buying ships that would go to accretive employments with a major oil company. I don't think we would be there to currently order newbuilding ships for delivery in 2009, because it is a very long way down. We have the luxury of having 11ordered through our options of sometimes half of today's value of those ships. But we will be looking at ships that will bring -- grow the Company and bring accretive transaction -- would be accretive to the bottom line straightaway. So, yes, we are looking at the transactions, always, at this level that will have a very good accretive charter with them.

So would you say that you're more -- you're looking at ships more on a contract basis, kind of like the way the LNG business is run right now, where you'd only buy a significant amount of tonage if you had a charter who was looking for you to provide a service to them?

Yes, you are correct. I don't think we will be taking -- we will be ordering or buying ships out of chance right now. We would though be doing it together with one of our major end users in order to increase the relationship and to grow, or course, the Company.

Okay. And one last thing on the -- on your LNG carrier. We're getting closer to delivery time and as far as I am aware, you still don't have a charter on the back of that ship. Can you update us on the process on that? And also there's been a lot of press recently about the issues of the membrane technology. I believe your ship is built at one of the yards that had the leakage. What's your confidence that they're taking care of that technology issue before delivery of your ship?

Well, yes, you're very correct. I think we'e taking the incidents very seriously, and so we're investigating together with the yard, exactly what happens, together with the company that provides the installation on the membrane. So we're very close and, of course, our technical department has the expertise, is very closely investigating and monitoring this issue. On the employment side, we are actually approached, very often, for long-term business, nothing today. This market environment does not provide us that high return on everything. So we will be looking perhaps in shorter term business, because we believe in this market. We believe that this market has a great growth potential. I believe with a new refinery that the U.S. government is posting, there will be also a similar act for the natural gas assuming facilities. So we will be looking to charter the ship on a three to five years employment, because after that we'll expect to have a much better market.

Okay. Thanks a lot.

Thank you.

Thank you. Your next question comes from Jin Chun of Maxim Group.

Good afternoon.

Good afternoon.

A lot of my questions have been asked. My first question is what are you seeing on the chartering of ice class vessels in terms of the premiums available? Are you still inclined to withhold from the spot market and seek time charters for these vessels or are we going to continue to see. as you suggested before, a 50/50 split of the oncoming tonage?

Well, thank you for your question and as I said we're -- right now coming to the new series of our classics, the 1A, which is starting in January. Of course those ships are ships that can trade both without additional costs -- additional real costs both in the West African market and also in the Baltic and Alaskan trades. The delivery of our next ship is going to be very timely, it's happening in January. So, I think we will be looking to have this vessel ready on the spot for that period of time. Although we have a lot of offer,s we would like to have, as you said, the 5050 split between the spot market or profit sharing with a long-term employment.

And I was also very interested to hear that you thought that the VLCC market would be somewhere an area of potential expansion. Is this something specific to Tsakos or because you have a strong signals of end-user demand? Or is this something that we haven't been -- something that the analysts have been missing? The opportunity in the VLCC market, that is.

I think if you look on our fleet list, this is one of the categories we have the lowest participation so far, and we are approached by end-users that would like us to increase in this size of the ship and that's why we're looking at the ship. We do not have a specific type or category vessel that we are more familiar with. We are familiar with all the categories, but the interest from the end-users is right now, together, of course, as we said, with the product tankers.

And the last thing is you suggested in the press release you had a fairly confident outlook through the mid-2006. Is this suggesting that -- well, leave it open to you. What are you suggesting for the latter half of 2006?

Our chairman will take that, Mr. Stavropoulos.

I think we've a dramatic impact on our industry, arising from the hurricanes of Katrina and followed up by Rita. It has changed the seasonal pattern for 2006 to a considerable expense. What was reflected in the press release, it's my understanding, is that the seasonal affect of the normal winter slow down -- winter to spring slow down, will be delayed because of the need to rebuild inventories and to replenish the [inaudible] of reserves. And it's for that reason that the press release reflected higher confidence of through mid-2006 than we would normally enjoy.

So you're suggesting that perhaps you might have less volatility in 2006, perhaps not the spikes we've enjoyed in previous winter -- winter '04, but so the lower downside perhaps than less of a trough period? Is that safe --

That is correct. And also you'll have to make comparisons in the third and fourth quarter of 2006 with this unusual pattern that we're experiencing in 2005.

Very good. Thank you very much.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS] Next question comes from John Kartsonas of Citigroup.

Good afternoon. Most of my questions have been answered. Just on the rates you gave, Paul, is it like spot rates or this is the average for each segment?

This is the average. As you're aware, we have a very mixed bag when it comes to type of charters, so we've got all kinds of charters, even within a given category of vessels. This is very much an average of all of those.

On the Suezmax segment for the spot ones, what kind of rates are you looking for the quarter?

Well, on the spot we only had the -- about $50,000 a day on average for the quarter. Since then, of course, the market has almost doubled in that category.

Hi, John, it's Nik.

Hi, Nik. Now you're looking closer to like 60 or 70 for the Eurochampion, right. And discussing about expanding on the VLCC segment, will you be looking for secondhand vessels or putting orders for newbuildings? How would you think about going and expanding the VLCC?

Well, I think we -- we would be most probably looking -- and as I said, because this goes hand-with-hand with employment as we are looking, it will have to be an immanent vessel -- a vessel of -- a prompt vessel, so most probably will be, of course, a very good quality double-double ship, and in the secondhand market.

I though you were looking for a couple, right, and not any big move in the -- is that correct?

Yes, that's right.

Okay. Thank you very much.

Thank you. Thank you very much.

Thank you. Your next question is from [Harden DaDea] of [inaudible].

Hey, guys, good quarter. My question -- maybe, Paul, this is for you, if you could actually repeat your fourth -- the fourth quarter commentary about cash flow, coming from -- for vessel sales and how much debt reduction will occur as a function of those? It just, I think, went quickly and I missed some of the numbers.

Right. Basically I talked about the sale of the Tamyra and the Dionisis, which will contribute 20 million profit and about 30 million in released cash. We won't be directly using that to draw dawn debt. In fact, our draw down in the fourth quarter will be relatively modest, just the basic standard scheduled repayment. It will be carrying that cash forward into 2006.

What are the total proceeds from the two sales?

From the two sales, our total proceeds will be approximately gross -- talking about gross, it's about 58 million.

Okay. Perfect. Thanks.

Thank you. Are there any closing remarks?

Chairman.

Well, we just want to thank you for your interest in the Company, and we're looking forward to our next visit with you, either through road trips or in the quarterly conference call. Niko has a very aggressive schedule put together, and maybe he will comment on it.

Well, yes, we are trying to combine and to make sure that we are able to get the message out, at the same time run a business, and we will have our next European trip next week covering a lot of cities in Europe. And then, after thanksgiving, we will have our United States trip for the TEN, so we will be looking forward to see you. And again, we would like to thank you very much. Congratulate all the shipping companies for doing, first of all, a great operational job moving all this oil around the world and keeping us warm in the winter and cool in the summer, and hopefully one day [inaudible] will portray that. Thank you very much.

Thank you. This concludes today's conference. You may now disconnect.