Tsakos Energy Navigation Ltd (TEN) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen. My name is Pam and I will be your conference facilitator today. At this time I would like to welcome everyone to the Tsakos Energy Navigation Second Quarter 2006 Conference Call. [OPERATOR INSTRUCTIONS] It is now my pleasure to turn the floor over to your host Mr. Tom Rozycki. Sir, you may begin your conference.

Thank you, Pam and good morning. And thank you for joining us today. 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 email 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 TENs business prospects and results of operation. Such risks are more fully discussed in TENs filings with the Securities and 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. Nik?

Yes, good morning and good afternoon from a very warm Athens today and I'm sure we have quite a lot of warmth from over the world, which is good for our condition usage and for all us. Well, we're here with our Chairman, Mr. Stavropoulos; our CFO, Paul Durham; our COO, Mr. Stavropoulos; our Chief Operations Operating Officer, Mr. Saroglou; and the whole team and we're very happy to talk to you about the first half and the second quarter results. I will ask first our Chairman to have some wise words with you and I will come to you later. Thank you.

Thank you very muck, Niko. I also want to thank our investors, investment analysts and other friends for joining us in the visit today. As I've said many times in the past, it's great fun to bear glad tidings. TENs shares are trading at an all time high as we speak. I'm sure we all agree that TEN has reported exceptional results for the second quarter and the six months of 2006. I'm also sure we agree that during the first seven months of the year we've witnessed several dynamic and constructive developments that bode well for the future. Niko and his team will elaborate on these factors. However I want to focus on the past as it relates to delivery of shareholder value. Since the March 2002 IPO and New York Stock Exchange listing TEN has produced an annualized rate of return of almost 35% versus 4.17% for the standard imports 500. In portfolio management jargon that's a tiny bit of beta and a whole lot of alpha.

More recently the strong performance has continued. In the last 12 months TEN has produced total returns of 24.34% or more than 20% higher than S&P 500. It's noteworthy to know that the six companies' index compiled by Bloomberg has over the years out performed the S&P index by a very wide margin. Nevertheless the tanker index is valued at only 8.3 times earnings with a yield of over 6%, while the S&P commands twice the P/E at 16.8 and yields of near 1.9%. In slang terms, go figure. My instincts suggest the shares of our industry are significantly undervalued. As a final note on behalf of the entire board of directors and I believe all of TENs share owners, I want to congratulate Nikos and every member of the Tsakos team for a remarkable seven months. Bravo, Niko. I have one final question for you Niko. What are you going to do for us over the next seven months?

Well, thank you Mr. Chairman, thank you for your very good words. And well, we're not taking a holiday in August so we will all try and find something exciting to do for the remaining five months and even longer than that. It's true to say that the first part of '06 has been one of the busiest, most productive, also commercial operationally and hence most profitable period for us so far in our 14 year history. So it is again with great pleasure that I report the 51st consecutive profitable quarter of our company. So far we have had 18 new acquisitions and new building contracts which is an average of three new acquisitions per month, of which 12 vessels have already been taken delivery and have been chartered very profitably and accretively.

A 13th vessel is due Monday, God bless her, the Proteas. And this vessel is going to be also chartered for two years at a very accretive rate, with two more vessels coming in the middle of October, also fixed for a build to two to five years. So we have already dotted the first six months we will have grown the size of our fleet by 1.7 million deadweight tons and with an average age of 2.5 years. And you never know there might be some more surprises in store. So while we were doing all these, Paul Durham and his very competent team were able to translate an operational performance into another profitable quarter and six monthly results.

So I will go ahead and give you as brief as possible update of the financial performance. And I will let Paul give you the nitty gritty of -- the juicy part. On this second quarter our revenues were $80.2 million. This was comparing 53.7 in the same period last year. Our net income was $33 million versus 41.9 in 2005. However if we want to compare it with apples-with-apples, this is actually a 48.5 increase from last year. Last year we had some capital gains which again we still considered in a part of our main business. And I think you will see significant capital gains coming up in the second half of this year in our company. Our basic earnings per share were $1.73 versus $2.09 in the second quarter of '05. But again wanting to compare similar things, this would have been an increase of close to 56% this quarter.

Our utilization rose to 96.8% compared to 94.6% last year. On a net profit basis the second quarter was, I would say, in-line on the high side of our expectation, and should be noted that a lot has to be attributed to TENs balanced employment strategy. And without the -- together with the growth and enhancement of our fleet is able to bring to our bottom line this kind of results. In the bigger picture in the first six months our revenues rose to $156 million approximately in the first half of '06 versus 120 in the 2005 period. Our net income was 74.8 million versus 81.7 in the second quarter of '05. But again if we want to make an even comparison we would still have an increase of 31.4% this year.

Our time charter which means our only and time charter for all types -- of six of our diversified fleet, averages $30,600 this first six months of the year against 27.8 for last year. And our operating expenses were -- we were able to sustain them in the first six months regardless of pressures from insurance and a lot of pressure from the further weakening of the dollar. Our operating expenses were 6.5, $6,549 versus 6,430. In the meantime of course we have continued our significant dividend payment and the repurchasing of our own stock, although we are today on the date facing our all-time high, which we still below it's low. And we have bought 5.7% of our capita -- of our sales outstanding between 2005 and 2006.

Well as we mentioned earlier, the first seven months have been the most productive in the company's history. Some of the most notable commercial and operational events -- you can see if you're able to enter our slide presentation. On slide number one. We have purchased two fleets consisting of 13 vessels in Italy. We have taken delivery of three existing new building contracts, the [Suez Max's] the Archangel, the Alaska, and the [Handicide Centares] all of those vessels are ice-class. And we have placed an additional two new building orders for our special design of Aframax in Japan. Bringing our total orders of this specific type of ship to four and with two more options in hand for later in the year.

So the total cost of this acquisitions exceeds $1 billion US. And adds 1.7 million deadweight tons of carrying capacity with an average years as mentioned of 2.5 years. Fourteen of the above vessels are ice-class product carriers making TEN one of the largest ice-class owners in the world and balancing our fleet perfectly between crude and products. And I think you can take a glimpse of our fleet on -- in slide number five, where you can see on the left hand side is the crude fleet and the products fleet is on the right. On the sales side just recently we announced a strategic alliance with FLOPEC the state shipping arm of Ecuador. Where we have sold 49% of [Tubber] Panamaxes, the 2002 build Maya and Inca and 100% of the sister vessel, the Aztec.

The expected capital gain -- it would be approximately $50 million. I think 49 and change and that will be recorded in the second half of the year as the deliveries will be taking place. So you see we continue as always to use the sales and purchase markets as a way to grow our balances and our bottom line. In the meantime we're enjoying a very strong sales and purchase market, the result of the very firm and seasonally firm chartering market. So we're looking forward in parting with some of our very good but older units later within this year. And of course in the meantime we're always exploring ideas how to replace of this beautiful ships that we're selling to third parties. And we will be coming back to you with I think some propositions and some other ideas.

Well as, again as we mentioned we consider the sales and purchase market as a significant part of our business and -- as you can see in slide number 13. And that has all the sales and purchase activity we have had in the last two years and a bit. Now on the commercial developments, the quality of our fleet coupled with a stronger than expected market, has allowed us to demand our chartering policy with great efficiency. The continuing appetite for our vessels from first class charterers has been unstoppable and encourages us for the future. Of the 12 vessels delivered to us so far 10 have already been fixed in employments ranging from two to five years at very attractive and accretive rates and allowing us profit share above the base rate. Two vessels the ice-class, the Suezmax's Archangel and Alaska are trading on the spot expecting to take advantage of the winter fair market.

Our remaining three new building deliveries scheduled one for next week as I mentioned and two of October, the Prometheus proposed this in the Handysize [inaudible - technical difficulties] has acquired a 49% stake and extended the charter by another five years with a minimal rate in an open upside. The sister the, Andes, has also been fixed for five years in similar fashion. And as mentioned before FLOPEC purchased 100% of the fourth sister vessel, the Aztec and has chartered the two Handysized vessels, Didimon and Delphi for three years. The above has been the result of a 25 year relationship with the Ecuadorian state-owned company. A more recent relationship has developed and it was -- it came to fruition last quarter with the initial employment of five ice-class vessels to [Nestoil] the state owned company of Finland. The above charters are two years for our ice-class Aframax product tankers and three years for our Handysize vessels. All of the above vessels were recently acquired from Western Petroleum.

The charter are is based on the -- on an accretive minimum and a profit share above that. We believe that both of the above transactions will further strengthen our position with end users, and we hope to be announcing similar arrangements with other major consumers soon. Currently -- you are able to -- I can see on page seven where we have a presentation and I hope some of you are able to enter in our site to look at our slide presentation. So currently we have eight vessels fixed on long employment with a fixed rate. Seventeen vessels are enjoying the minimax arrangements and profit share with full utilization. Seven of our vessels are in [context] of affreightment and pool arrangements and seven are recurrently the spot market.

Already 80% for the remaining 2006 days have been fixed with 125 million of revenues to come. And 75% -- a staggering 75% of 2007, day sales have been fixed with $250 million of revenue to come and all of it when we calculate this rate it's always on the minimum of the rate we have. So we might have an upside too. So our long-term strategy has served us well so far and we're looking forward to develop it further. However, we would not have been able to achieve this performance and our 97% utilization without the help of our chartering team and the great professional job performed by our technical managers, Tsakos Shipping and Trading, and the men and women on shore in our broader vessels. Without their tireless efforts I would not be able to report these results to you. I want to thank everyone for their professionalism and dedication.

Going forward we think that the second half of '06 seems to be a well balanced supply and demand market. So far we have not seen seasonal affects in the first part of this year and we're not expecting -- actually we're expecting a hardening in the market. We are approaching every day closer to 2010 where we expect more scrapping to happen, which will take care of the overlag of new building orders. We are planning to continue our one stop shipping policy that has served us well so far. We believe that our profitability will allow us to continue our strong dividend policy. Our share price has somewhat recovered recently but it's still way under from where management believes is appropriate for it. So at dips we will keep on buying our shares because we believe it's a very good investment.

We want to thank all our shareholders for their support. Hopefully we will all ourselves being the major shareholders, seeing fruition of our efforts. And we want to congratulate all of the other shipping companies for without their great job we wouldn't be doing well ourselves in the marketplace. So with this I would like to thank you very much. I will turn to Paul Durham to give you all the nitty-gritty in the figures and I will be here together with our team here and our chairman for any questions you need. Thank you.

Well thank you Nicolas and thank you all 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 the more significant items occurring during the quarter and half year.

The [term] earned net income of $53 million in quarter two 2006 compared with $41.9 million in Quarter 2 2005. However, as Nicholas has pointed out, there were no vessel sales in Quarter 2. So if we exclude last year's capital gains of $19.6 million, we achieved a 48% increase in net income over last year's second quarter. Diluted earnings per share were $1.73 on 19.1 million weighted average shares compared to $2.09 on 20 million average shares for Quarter 2 last year. Again, excluding capital gains, there was a 56% increase in earnings per share over last year's second quarter.

For the six month period net income was $74.8 million compared to $81.7 million achieved last year or net of capital gains of $56.9 million last year, an increase in net income of 32% over last year.

Total revenue after voyage expenses in the quarter was over $84 million compared to $56 million in Quarter 2 2005. The increase was largely due to the growth of the fleet from an average of 26.5 vessels to 33.9 vessels. We also achieved 97% utilization of the fleet compared to 95% last year. Days lost this quarter were related to dry-dockings on the Opal Queen and Libra.

Average charter rates achieved were better in both the three month and six months periods than in 2005. The average daily fleet fee per vessel for Quarter 2 2006 was approximately, $28,600 compared to $25,100 in the previous year's quarter.

For the six months, $30,600 was achieved compared to nearly $27,900 last year. The profile of our fleet in terms of age and category of our vessels between the two quarters changed radically. In Quarter 2 2005 the fleet included four elderly non-double hull vessels, which were all later sold. By contrast, by Quarter 2 2006 the fleet had added a further VLCC and three new Suezmaxes and within the quarter seven of the ice-class product carriers acquired from Western Petroleum plus two other product carriers. All these additional vessels together contributed to 30% of the quarter's net income.

Also during Quarter 2 2006 some 81% of the fleet's operating days were employed in market related charters compared to 59% in Quarter 2 2005 mainly due to the placing of most of the new deliveries and several other vessels into profit sharing time charters. Given the excellent trading conditions experienced in the second half of the quarter these vessels and those on contract of affreightment produced revenues generally higher than we had originally anticipated for the quarter. Average rounded rates achieved in Quarter 2 per category were VLCCs earned an average of approximately $43,000 compared to $44,000 in the previous year's quarter; Suezmaxes earned $33,600 compared to $25,800 in Quarter 2 2005; Aframax's $29,600 compared to $24,900; Panamax's $24,800 compared to $25,700 last year; the new MR product carriers earned $23,200; and the smaller product carriers $16,500 compared to $15,900 last year.

Total operating expenses in Quarter 2 amounted to $18.2 million compared to $12.7 million in last year's Quarter 2, a 43% increase over last year due mainly to the increase in the size of the fleet.

The daily average cost per vessel increased by 7% from $6,205 to $6,659 in Quarter 2 2006, mainly as a result of increased expenditures on the older vessels in anticipation of selling them this year, also higher lubricant and insurance costs and the weakening dollar. However, that is $270 a day less than in the first quarter of this year and only 2% higher than the 2005 daily average, an encouraging trend mainly due to the impact of the new vessels.

G&A expenses for the quarter have increased by 10% from the second quarter of 2005 due to professional fees associated with Sarbanes-Oxley work. Vessel management fees have increased by 28% in line with the increase in the size of the fleet. Taken together, our G&A expenses and management fee, our daily overhead cost per vessel amounted to $893 in the second quarter of 2006 compared to $944 per day last year, a 5% reduction, which reflects the benefits of scale derived from the larger fleet, which will continue.

Depreciation has increased by 67% compared to last year's second quarter due to the addition of the new vessels. And amortization of dry-docking costs has increased by 30% partly due to the to reduction of the amortization period to 30 months.

Total finance costs for the quarter amounted to $5.7 million, double the costs incurred in Quarter 2 2005, mainly due to increases in average loan interest rates from 4% to 5.5% and the increase in average loans for the quarter from $414 million to $946 million between the two quarters. This actually resulted in loan interest expense of over $13 million, but this was offset by capitalized interest of $3.5 million and the positive impact of our swaps by $5.5 million. Other loan related expenses amounted to $1.4 million.

During Quarter 2 our outstanding debt position increased by $493 million to nearly $1.1 billion. The new loans relating to the acquisition of the Western Petroleum Fleet and other new deliveries. The net debt to capital ratio was 60% at the quarter end.

Currently we have 14 vessels under construction at a total contract price of $835 million of which, approximately $572 million still remains to be paid, $111 million between now and the year-end, $355 million in 2007 and $106 million in 2008. As we have provided virtually all of the funding to date out of cash flow for these new investments the financing of the remaining balances in total will ultimately be covered by bank debt, most of which has already been arranged on competitive terms. This concludes my comments and now I'll hand the coal back to Nikolas.

Thank you Paul. Thank you very much. And I think with this we would like to open, unless the Chairman has something to say, the floor to any comments and questions that you might have. Thank you very much.

Thank you [OPERATOR INSTRUCTIONS]. Your first question comes from John Chappell of JP Morgan. Please go ahead.

Thank you. Good afternoon guys. Nik, I wanted to dig a little deeper on the FLOPEC joint venture. It's a pretty unique opportunity for you guys. First, I'm just wondering why did you seek this type of joint venture? Was it FLOPEC that sought it with you and what you think the strategic and operational benefits of this -- and I guess plus the NESTE the relationship can provide.

Nikolas Tsakos. Thank you. Well I think we are always looking to charter our vessels and to come much closer to the shores with the transportation of the product to as close as possible to the end users and that's why we have been trying very hard to charter our ships to major customers that actually produce their own product. And I think we see the development -- we've been doing business with FLOPEC since 1978. They are increasing their output of oil. They have new findings in the jungles there. They have a new pipeline coming out. I think they're going to be a significant alternative mainly for the West Coast and not only perhaps even for China to Venezuela and while Venezuela is a big client of ours too, I think Ecuador is the Venezuela of 15 years ago and we want to be there when everything starts.

Nikolas if I may add, maybe a little known fact FLOPEC has the exclusive right to control all petroleum shipments into and out of Ecuador. So we're dealing with the sole source of supplier of that particular region.

Okay. It sounds like a good partner but just wondering why the decision to sell 49% of the two ships involved in the joint venture rather than just locking them into time charters?

We see this as becoming a closer partnership. I mean, as you see we have used every single method in this deal. We have an outright sale. I mean we want -- there is quite a few things behind the [inaudible - accent] I would say on our operation outside where we're assisting them very much in developing a know-how how to run ships, helping them with their academies. We have professors from our group and from Greek Universities [inaudible - accent] universities teaching more about how to deal with environmental issues and sea-going issues. So we have, I think, they're able now to actually use or operate ships so they have a vessel at 100%, which will compare with the ships we have and then of course we have two ships almost 50/50. We want to have the control so that's why it's 51/49, so everything has been a negotiations. And we see this as a further step. In the meantime we have extended the charters for another five years from their expiration, which is seven years on the Maya and six years on the Inca. We've got a new ship chartered, the Andes, for another five years and we have the smaller Handysize vessels, the Didimon and the Delphi, for another three years. So it's a very inclusive relationship and it brings us as the track drivers of the sea closer to the product.

Okay that sounds good. And Paul as far as the accounting for the two ships in the joint venture, it's pretty easy to account for the sale and then the time charter but is there a minority interest line that needs to be added below operating income? Will the 49% of the two ships' revenue come out of the revenue line and then equally on the cost line as well?

We will show our interest rate on the balance sheet as is as if if we still owned 100%. But there will be a minority interest lines yes.

There will be a minority interest lines?

Yes.

Okay. One last question, you mentioned the one stop shopping as a shipping operator and you certainly are. I'm just curious if some other companies have gotten into somewhat of offshore project if FSOs or FPSOs are something you're looking at. And then also just an update on the L&G carrier. We're five months away from delivery. I'm just wondering if there's been any more thought to locking in the charter or selling that vessel on the market?

Yes, I think we're talking about the -- we're very interested in the FPSO and the FSO business. We have invested in a small way so far as TEN. I mean we are not off-shore manager experts. I mean, we cannot be everything for everybody. We're a shipping company. But this is, again, a business which is very close and TEN has invested in - we have an investment of $5 million into an FPSO, the follow-up market and we are always looking at projects. On the L&G I think right now we are seeing, as I said in perhaps the last conference call, more and more firm business. We are negotiating firm business from shorter-term business. I feel very comfortable. I think I am very comfortable. I am very reluctant -- we see this as an R&D project for TEN. We believe the L&G market is going to be a significant part of the shipping market in the next 10 years and we're not looking to sell the ship. We're looking to just perhaps have a joint venture again by selling part of the ship but not the whole ship.

Okay. Thank you Nik and Paul and John.

Thank you.

Thank you. Your next question is from Doug Mavrinac of Jeffries and Company. Please go ahead.

Thank you. Good afternoon you all. Congratulations on a fantastic quarter. I just have a couple of quick questions. First, that do you believe are the prospects for further expansion of your strategic alliances with FLOPEC and NESTS or even Petrobras for that matter? And how do forming strategic alliances; specifically with state oil companies befit TEN in your view?

Well I think every case is different, but the underlying concept is the same is to have a repeat business with your client, not to allow many of your competitors in the market and I think FLOPEC, we believe that there is a huge growth potential. We're in discussions and going out and building new ships specific for the requirement. I mean you are following this market better than we do sometimes and you see the increased output of the Latin American and South American countries. They're finding more and more oil in the jungle and it has to go somewhere. There is a very good alternative for the United States and also China across the Pacific. So we are looking to develop this with new assets and expansions of our business.

I think NESTS Oil, we're very proud of the relationship. It is a new relationship. We are the largest, or one of the largest, ice class operators. They are a natural ally for us to get the know how for trading in ice. And what else, in the Mediterranean about 10 million years ago we had some ice here. I think we have not seen ice very much in our part of the world. So I think this will be a very good example of transfer -- of giving know how to each other. They're getting state of the art new ships and we will be actually trading five of our ships continually on Artic circumstances starting in three or four months.

Petrobras is a client of ours from the mid 70s for the group. We have had at times up to 10 ships chartered to them back in the 80s and they are a company, which we have never stopped the [inaudible - accent], let's call it. And they are a company, if you look at what they're planning to be building, perhaps even in the own country. In Brazil a lot of new tonnage for their growing experts. So all these large clients we cannot afford not to be. I mean we're very proud to work for them.

Okay, thanks. And then lastly given your presence and your relationships in the South American region, and you kind of alluded to this in your previous answer but what changes, if any, are you all seeing yet in the trading patterns within that region given the increasing cargoes out of Venezuela that are heading to China?

Well I think, again, it is a very interesting development that we are seeing though we are seeing more products and goods going to the Far East from traditional sources that used to bring oil to the United States. We're seeing more oil coming to the United States right now from other Latin American countries but also from West Africa. So I think this - it's music to our ears as movers of oil because it increases by almost by [threefold] the distance moved and taking ships out of the market. I mean, we need 12 days for a round voyage in Venezuela and we need almost 50 days, at least, for a round voyage from Venezuela to China and back.

Okay, great. Thanks a lot, Nik.

Niko, if I may add to that comment - I think we're seeing early days of changes in transportation patterns. As we all know, the relative shortage of refinery capacity around the world is creating a need to better match the sources of crude with the refining capability. And the other very beneficial, from our point of view, very beneficial development is that we're seeing increasing amount of re-exports. They're importing the crude, they're refining it, and out it goes as product for another trip. So, as Niko suggested, this is all music to our ears.

Fantastic. Thank you very much.

Thank you and your next question is from Natasha Boyden of Cantor Fitzgerald. Please go ahead.

Thank you, operator. Good morning, gentlemen. I just wanted to ask you about - I think you still have a single hull and two double-sided vessels remaining in the fleet. Can we look for those to be sold in the near future, possibly this year?

Hi, Natasha. Yes, I think we are seeing quite firm prices for secondhand tonnage and we're in negotiations, currently, for selling two of those ships, the [Crux] and the [Libra] and in discussions on the [Regina]. So our aim is to sell those. I mean, because they're very well depreciated, as you may know. They're making a very good contribution to our bottom line. However, they do not fit in the profile of the company with the wave of new buildings that we have coming for our clients' needs.

Yes. And if just confirmed, what - if and when those are sold, they'll be 100% double hulled? Is that correct?

Yes.

Okay, great. And then, possibly, if you could give us maybe some update on Russia and that region. There's obviously been a lot of talk about infrastructure up there and you do have a very large ice class fleet. Just give us an update on that would be helpful.

Well, I just can't believe it's an optimal - well, not there from the Arctic John, but I'm just returning coming from a very exciting vacation in [inaudible - accent]. I'm just joking. It was a business trip and I think we are seeing, even from that part of the Caspian - that's almost the center of Caspian - we're seeing a significant increase of Caspian production. And with the migration, as you know, about 40 days ago of the pipeline, we're seeing a lot of this product coming out to our part of the world and to the Mediterranean to say hi.

So, there is more and more as what we used to call the Soviet Union, it's becoming a much larger player in the export part of the business than before. And we're seeing a lot of infrastructures happening to allow for large Suezmaxes to move up also in the Arctic zone. So, we are optimistic and that's why we have sent our charters, who are experts in this market, taking cover us forward for these types of ships.

Is that now translating you to premium rates for the ice class vessels? Because I know at one point that they weren't really commanding that much of a premium.

Well, Natasha, we're keeping our fingers crossed right now because, I mean, we are seeing one of the hottest summers, and I'm sure you are on the other side there, and we are seeing it here. So, if we see also one of the coldest winters, I think you might be very, very right, we are going to be seeing this premium. We have fixed our ships with a very accretive minimum rate, the Aframaxes, and we are planning to share all the premiums, 50/50, with the charters.

Okay, great. Thank you very much.

Thank you. All the best.

Your next question is coming from John Kartsonas of Citigroup. Please go ahead.

Yes, hi. Just a question to follow up on your debt to cap which you indicated is like close to 60%, right now, probably double than what it was before the acquisitions. First of all, what's your target on debt to cap, going forward, and given the fact that you have to raise another $500 million in debt to fund the new buildings, any thought there where that's going?

Yes, sure. We reckon over the next 12 months or so, our net debt to cap will go as high as 67%, 68% before pulling back. We don't see it dipping below 60% again for possibly a couple of years. That, of course, depends on how the market is going. We still are very optimistic as to the market over the next couple of years so we still believe we'll be generating a lot of cash.

Also, as we've discussed earlier, we do intend to sell vessels. I mean, you've seen the FLOPEC deal effectively is two vessels and the three older ones. And as we've always maintained, we believe that selling vessels is an integral part of the business so we won't be shy of selling one or two others, providing that we get the right kind of offers.

Our future projections indicate that we are in full control and can well manage our debt service, as we've always stressed that having a high leverage is a proper utilization of debt in our cash. It's not something that we are afraid of. Our chartering policy allows us to service the debt well but it will go a little higher over the next 12 months before dropping back.

Is there an issue with your debt covenant there? I mean, are there any restrictions?

Not at all. In terms of the bank's definition of leverage, which allows us to go up to 70% in their terms, we are still below 50% in terms of bank-defined bank leverage. So we've got a long, long way to go in that respect.

And there is no issue with the dividend going forward?

Absolutely not, no. It's already taken care of in our cash flow projection.

Okay. Thank you very much.

Your next question is coming from Daniel Burke of Johnson Rice. Please go ahead.

Good afternoon. What's the - given the continued strength in new build prices, what's the likelihood we could see sellout of some of the new build positions and maybe re-enter the queue, later on, in the '08, '09 timeframe?

Hi. How are you? Well, as I said, and I think as Paul said, we've believe the sales and purchase market is in integral part of this business. Is anybody able to look [inaudible - accent] to our slides? If you look at Page 10, we have our new building program going forward, just for easy reference. And on Page 13, we have the sales and purchase transactions we have done. We've done that in the past. Our aim, right now, we are seeing - let's call it our first-generation new buildings are in great demand from the secondhand market. I mean, we're looking at ships built in the late 90s. Aframaxes right now seeing prices in the mid 60s, so I think we are able to order new buildings at a much lesser course, than that. So, we might be tempted, perhaps, not selling our new buildings right out of the yard because many of them have already been chartered out but they are relatively used new ships for a capital gain and we're replacing them with new buildings. So, yes, you will be seeing us do quite a lot of that.

Okay, thanks. And then, maybe a question for Paul. I appreciate the details on the 2006 and 2007 fixed revenue already at hand. But many of your time charters actually extend out quite a bit farther than the end of 2007. I was wondering if you had an aggregate number, running out all the contracts that you all have in place, for total revenues that are fixed.

Not beyond 2007. Not off hand, anyway.

Okay, well perhaps -

That's something we can and we can stick that on our website very quickly.

Okay. I appreciate the offer and the comments. Thank you.

Thank you.

Your next question is coming from Rory Stewart of Simmons and Company. Please go ahead.

Hi. Most of my questions have been answered but I just wondered on the extension of capital gain of, I think, $49 million to be booked in Q3. I just wonder what the overall proceeds of those sales are. I didn't pick that up in the press release. If it is in there, I apologize.

Yes, the overall proceeds are about $110 million.

Okay, great. And you mentioned the interest rate swaps, which were a benefit of $5.5 million to you. How long can we expect that to go on for? Is that something that's going to be a couple of years or was that just a one-time in the second quarter?

Give me your interest rate forecast and we can answer your question. That depends on where interest rates go.

Sure. I guess you said that the general cost was going to 5.5%. If we assume that interest rates stay where they are, I guess, what can we expect, going forward?

We have protection on a significant amount of our debt through interest rate swaps and that protection has an average rate of about 4.5%, 4.6%.

Okay, great. That's very helpful. And I think that's all I had. Thanks a lot.

Thank you.

[OPERATOR INSTRUCTIONS]. Your next question comes from [Bill Frazer] of [Greenhill Partners]. Please go ahead.

Congratulations, gentlemen, on a fine quarter.

Thank you.

Question on the LNG tanker. You mentioned the possibility of entering into a joint venture with that. And assuming you were to sell 50% interest, would you anticipate proceeds that equals or exceeds the current acquisition cost of that vessel?

I think they will significantly exceed. I think the secondhand value of this ship today is anywhere between $210 and $230 million. I think we will end up having a book value of that ship in five months, of about $180 or $190, Paul?

Yes.

So, there is anywhere between $20 to $40 million of positive spread.

Now do you anticipate that deal happening this year or next year?

We are anticipating - well, the actual delivery of our vessel is still February '07. So whatever happens, it will be next year.

Okay. And is the market in such that there's - I don't know what the anticipated utilization would be on that ship for the first year of operation, but would it exceed 75%?

We are not planning to use the ship for the spot market, so hopefully - I mean, there are contracts out there that we're going to have for the next three years 100% utilization. We believe in the long-term strength of this market, so we don't want to actually charter the ship out for 20 or 10 years, that is the usual mode in these type of ships. So, we'll be looking to charter this ship for a shorter period because what is happening there are delays in actually facilities that produce or facilities that receive natural gas because they're a huge infrastructure development. So, I think that as these facilities will come in line after 2010, 2011, we expect this market to strengthen further. So we expect to have 100% utilization for the next three years.

Great. A question on the VLCCs. Do we have any ships on the spot market or are they all time chartered out?

Of course. We have very interesting, and again, if you look on our, I think our [production] profile, you will see that we have our VLCCs, which two of them are chartered out with a minimum rate of full protection and a profit share above that. So, we are taking advantage of the upside of this market by 50%, whereas we have a significant protection on the downside.

So, we have at least one ship on the spot market?

Yes, that's true.

That's so we can participate in the strong rates as we're seeing here. The [upside] on the 50/50 - generally, how often do you take that into the P&L? Is it once a year or once a quarter? Are they - what's the timing of the money flowing in on the upside?

We do it on a monthly basis. As soon as we know what the rate for the month is. The actual profit sharing is based on an actual formula, which is based on actual given trade routes, which you are aware of. The chartering department monitors what those rates are --

It's like an index -

Yes. So we're able to account for it on a monthly basis.

So, it's trued up on a monthly basis for the ships.

Revenue recognition occurs when you have a sum certain and that sum certain under these contracts occurs monthly.

On the 31st of each month.

Okay. That's all I have. And thank you very much for the information.

Thank you.

Your next question is coming from [Glenn Muller] of JP Morgan. Please go ahead.

Good afternoon. I just have a follow-up question for Paul. I unfortunately missed all of your CapEx numbers earlier in the presentation. But could you please take a moment to just repeat them at this time?

Sure. We have 14 vessels under construction at a total contract price of $835 million, of which $572 million still remains to be paid. That's $111 million between now and the year-end, $355 million in 2007, and $106 million in 2008. And that's excluding dry dockings, by the way. And maybe just to give you a brief picture of our dry docking schedule over the next couple of years - this year, remaining dry dockings include the [Bidina] and the Crux. And as we've mentioned, we do hope to sell those ships before the yearend. However, if we believe we can get a better price, post dry docking, then we will go ahead and do the dry docking and recoup the effective cost afterwards. But that's all as far as the remainder of this year is concerned.

Next year, we have three major dry dockings of vessels which we own and that's the [Celia T] in Quarter 2 - a Suezmax; the [Trief I], another Suezmax in Quarter 4, and the [Braygan] an intermediate dry docking, also in Quarter 4. There are a couple of chartered in vessels that also have dry dockings, so we will suffer from earnings but we won't pay for the actual cost on those dry docking [inaudible].

Okay. Thank you very much.

There appear to be no further questions at this time. I will turn the floor over to Nikolas Tsakos for closing remarks.

Thank you very much for being here listening to us. I hope you have a very successful remaining of the summer and we will see you very soon. We're looking forward to talking to you very soon. We will be in the States in the later part of September, October for a road show, so hopefully, we'll see you there. Enjoy the rest of your summer. Thank you very much.

Thank you. This concludes today's Tsakos Energy Navigation conference call. You may now disconnect.