Tsakos Energy Navigation Ltd (TEN) 2006 Q3 法說會逐字稿

Good morning my name is Coretta and I'll be your conference facilitator today. At this time I would like to welcome everyone to the Tsakos Energy Navigation third quarter conference call. [OPERATOR INSTRUCTIONS] It is now my pleasure to turn the call over to your host Mr. Tom Rozycki. Sir, you may begin your conference

Good morning and thank you for joining us for this morning's call. By now you should have received the copy of the earnings press release we put out last night. If you have not, please contact Laura Kowalcyk of CJP Communications at 212-279-3115, extension 211 and she will fax or email a copy of the release to you. Again, this quarter we are also providing a supplemental slide presentation which can be accessed from the front page of TEN's website at www.tenn.gr and then click on the View An Online presentation icon.

As a reminder this conference is also be 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 and the accompanying slide presentation contain certain forward-looking statements within the meaning of the Safe Harbor provision of the Privacy and Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that may affect TEN's business prospects and results of operation. Such risks are more fully discussed in TEN's 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 to all of you. Thank you for listening in to our conference call today. We had another very interesting and exciting third quarter and hopefully we're looking for a very exciting and record breaking year. I would first like to introduce, we have our Chairman, Mr. Stavropoulos who is here and who is going to have some wise words to give to all of us. Our CFO Mr. Paul Durham; our COO Mr. Saroglou and after the chairman I will be very happy to give you a report on some very brief financial analysis of what has happened, plus what has happened operationally so far in the third quarter and the first ten months of 2006. So, Mr. Chairman, please.

Thank you, Niko. Hello everyone. We're certainly very pleased you could join us for our discussion today. Those of you who have participated in the past must think of me as a broken record. It's not my fault. So long as TEN continues to break records I will continue to play the same tune. The strategies, the business plans and particularly management's implementation are all working smoothly. As a result, TEN continues to build value and deliver superior shareholder returns. Year-to-date the Bloomberg Tanker Index has produced a total return of 14.3%. That compares with the S&P which is 12.8%. Meanwhile TEN's has returned 27.4%. The dynamic expansion plan designed to significantly expand the fleet over the next three years promises to sustain this growth momentum.

We're very proud of the accomplishments of Niko, his management team and the supporting Tsakos group. Congratulations, Niko and thank you for the opportunity share my thoughts.

Thank you, Chairman. We like you sounding like a broken record and we'll try to keep you that way with our performance. As we promised in our third -- in our second quarter call, we are going to -- we have worked all summer long to set base for a fruitful 2006 and well beyond that. The first 10 months of this year have been the most productive and rewarding in our company's long history, so -- both commercially and operationally and hopefully the results of all our efforts are translated straight to the bottom line.

Since January, 23 new acquisitions and new building contracts have been signed, of which 15 vessels have been already delivered and immediately profitably chartered. This means that we have built 1.5 vessels per month on an average basis. The expansion is in excess of 2 million dead weight tons with an average age of just 1.5 years. At the same time we are selling some of our older tonnage and not only with capital gains for this quarter $13.3 million and with more capital gains to come in the fourth quarter and the first quarter of '07.

Well, the above in transactions for everybody involved have enabled us to report to you our 52nd straight profitable quarter. I will give you a very brief update of the figures and then Paul Durham our CFO will get into the nitty-gritty of the numbers.

Starting with the quarter we were 88% higher than last quarter, with net revenues of 93 million compared to 50 in 2005 period. Our net income rose very exciting, 132% to 44.5 million from 19 million in 2005. Our earnings reached $2.34, versus $0.98 last year. In Quarter 3 our utilization rose to 97% compared to 95.5% a year ago. Profits in the Quarter 3 were in line with our expectations and it should be noted that TEN's balance deployment strategy have contributed significantly to these record results, taking into consideration the sale of our two older vessels during this quarter.

The nine month figures also read very well. Our net revenues rose 46% to 250 million up from 170 million in 2005. Our net income went to 119 million exceeding our previous record of 100 million in the first nine months of '05. And again, our time charter equivalent rose to $30,300 per day for the mixed fleet, benefiting from the emphasis to smaller product tankers and 97% utilization.

The above results are satisfactory, they are creating a solid base for TEN to move forward. The first 10 months have been a period of unprecedented expansion for TEN. We have purchased a new and we have signed new business contracts for 23 new vessels, for a total capacity of more than 2 million dead weight tons and an average age of 1.6 years.

Fifteen deliveries and immediate charters of vessels so far have taken place. As I said, more than 1.5 vessels per month. The majority of the above vessels were ordered at a fraction of today's sales and purchase value. And at the same time we are keep on selling older ship and not only. We sold our single-side, double-bottom vessels the Crux and the Libra in the third quarter and recently the Bregen, our1989 double-double Panamax product tanker. This will give us a $20 million approximately capital gain for those vessels. And also, result to 100% double-double fleet for TEN. The Bregen transaction will be recorded in the first quarter of '07.

The outcome of the above aggressive sales and purchase strategy creates a perfectly balanced fleet between crude carriers and products. This is the most modern and diversified fleet out there, a real one-stop shopping or shipping as we say for our clients, with a very strong ice-class flavor. Our [inaudible - accent] fleet so far consists of 26 crude carriers, 25 product carriers and one L&D so far. Twenty-four of our 52 vessels are ice-class, a feature very much desired by our clients.

On the chartering and commercial developments, the quality of our fleet coupled with a stronger than expected market has allowed us to demand a starting policy with growth efficiency. The continuing appetite for our first -- for our reference for first-class charterers has been unstoppable and encourages us for the future. From the 15 vessels we took delivery this year, we have managed to keep on the spot only two. Our clients' appetite for our modern well-managed fleet is unprecedented. Five vessels have been fixed to a strategic alliance with Neste Oil of Finland for ice trading at an accretive minimum rate and a 50/50 profit sharing above that for a period of two to three years. Three oil vessels have been charted to [Shendai Oil] in Korea with similar arrangements for a period ranging from three to five years. The five remaining vessels we took delivery this year have been fixed to major end-users with profit-sharing arrangements with minimums and sometimes open upside.

Our existing fleet has also attracted significant new charters at higher rates. Three of our Suezmaxes have been fixed to Petrobras, a hire that will add $8 million annually to our bottom line for the next three to five years starting from October 6th. In addition, two of our Panamaxes have been chartered for four years to the same charterer.

Also, very importantly, the strategic alliance with FLOPEC consisting of six vessels have started to materialize, with the sale of 49% of our Panamax vessels, the Maya and the Inca and extended five-year charters with accretive minimum and open upside. Their sister vessel, the Andes, has also been charted for five years while the product carriers Didimon and Delphi for three years. Finally FLOPEC purchased 100% of our Panamax vessel, the Aztec, resulting to a capital gain of approximately 25 million which will also be recorded in the quarter we are going through, the quarter number four.

The above transactions have created the very balanced Tsakos portfolio. I think if you are on line you can see on slide number 7 and 8, for those of you who have good eyesight, you can see what's happening in terms of our fleet.

And this charter in policy gives us a very large earning visibility and you can look at the earning visibility slide 9, where you see that even as down the line as 2008 and 2007 a very large percentage of our fleet an our existing date has been already been fixed, which makes us feel in a very strong and comfortable new position on the one side and on the other hand we have 15 new buildings coming in the next three years, 11 of those next year, so the upside and the expansion is already built in the company's policy.

As we speak today, we could have charted all of the 11/6 but we are taking delivery next in 2007 at very accretive rates. And we are starting proposals for this part of the business.

On the operational front, no news good news. When you are running a large number of ship all over the world, no news is always a very positive feature. The American Coast Guard has awarded us with 40 awards for participating in life saving operations in the Atlantic and the Pacific. And also on the operational side, our vessel the Vergina, our 1991 Aframax is being converted to a double-double vessel. The double-doubling of the ship will actually double the value of this asset. Ninety-seven percent utilization speaks for itself and the high maintenance of our technical managers have allowed us to sell our older ships almost at the similar prices that we acquired those ships 10 years ago.

For other performance we'd also like to thank everybody involved, the people, the men and women on the ships and onshore, at Tsakos Shipping and Trading, and technical management for running of the ships to our satisfaction, and as Paul would say, at a very reasonable cost.

Now looking forward, we believe that the market from now until 2010 is going to be well balanced. In recent weeks there has been no business regarding the price of oil and together with a large number of new buildings this resulted to the spot market correction in some market segments. However, the spot rates are still accretive and healthy and in recent days we are seeing the bottoming out of that side of the market. I think what is even more encouraging and which is something quite recent in the tanker market is the unstoppable appetite of major end-users to secure quality tonnage forward.

We believe that TEN is perfectly placed with our existing minimum and maximum profit sharing arrangements and 15 new buildings coming to reap the benefits in the future. We believe that the market conditions and our prudent management will allow our dividend policy to continue and grow as it has done for every year since inception in 1993. And hopefully our strong dividend policy will result to a stronger share performance. We would like with this to thank all our shareholders for following the company - all our analysts. The management will be in the States starting on Monday on a third quarter road show and we'll be really happy to see as many of you as possible.

I will ask Paul to give us a little bit - to put a little bit of meat on the bone of the figures and we will be back with you if you have any questions.

Thank you, Niko. 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 we have referenced. And now I'll talk about more significant items, carrying through in the quarter and nine months.

TEN earned net income of $44.5 million in Quarter 3 2006 compared to $19.2 million in Quarter 3 2005, a 132% increase over last year as Niko has pointed out. There were no vessel sales in quarter three 2005, so if we exclude this, this years capital gains of 13.3 million we still achieved a 62% increase in net income over last years third quarter.

Diluted earnings per share were $2.33 on 19.1 million on weighted average shares, compared to $0.98 on 19.7 million average shares for Quarter 3 last year. For the nine month period, net income was just over $119 million, compared to $101 million achieved last year, or net of capital gains $106 million, an increase in net income of 39% over last year.

Total revenue after commission and voyage expenses in the quarter was nearly $94 million compared to $50 million in quarter three 2005. The increase was due to the following -- to higher rates, the average daily TC per vessel for Quarter 3 2006 was approximately $29,800 compared to $23,300 in the previous year's third quarter. For the nine months $30,300 was achieved compared to $26,400 last year. To fleet growth, the average number of was 37.1 compared to an average of 25.9 vessels in Quarter 3 2005. And to better productivity, utilization of the fleet was 96.8% compared to 95.6% last year.

Days lost this quarter related to the dry dockings of the Libra and Vergina II. In contrast to the prior year quarter, the Quarter 3 2006 fleet had one more VLCC, two new Suezmaxes and 10 new product carriers. Also during Quarter 3 2006, some 81% of the fleet's operating days were employed in market related charters compared to 59% in Quarter 3 2005, mainly due to the placing of most of the new deliveries and several other business into profit sharing time charters.

Average rounded rates achieved in Quarter 3 per category were [VL] earned an average of approximately $48,300 compared $31,200 in the previous years quarter; Suezmaxes earned $34,800 compared to $28,500 in quarter three 2005; Aframaxes $31,400 compared $20,500, Panamaxes $25,100 compared to $22,400 last year; the new MR product carriers earned $23,800; and the smaller product carriers $20,900 compared to $19,400 last year.

Total operating expenses in Quarter 3 amounted to $19.8 million compared to $12.5 million last year in last year's Quarter 3, a 59% increase over last year, due mainly to the extra vessels in the fleet. The daily average cost per vessel increased by 4.9% from $6,165 to $6,470 in Quarter 3 2006, mainly due to a weakening dollar, increased expenditure related to repairs and higher lubricant costs. However, since Quarter 4 2005, the quarterly average cost per day per vessel has declined quarter-on-quarter continuing an encouraging trend generated by the impact of the new vessels.

Total vessel management fees have increased inline with the increase in the size of the fleet, but our G&A expenses for the quarter decreased by 23% from the third quarter 2005, due mainly to reduced professional fees. Daily overhead costs per vessel, therefore, have actually decreased from $928 per day in Quarter 3 2005 to $767 in the third quarter of 2006, a 17% reduction partly reflected in the benefits of sales derived from the larger fleet.

Finance costs total 18.4 million compared to only 2.1 million in Quarter 3 2005. This is mainly due to increases in average loan interest rates from 4.6% to 5.9% and the increase in average loans for the quarter from $427 million to $1.1 billion between the two respective quarters.

Actual loan interest expense was over $16.5 million. The swap valuation gains of $5 million in quarter two which contributed to low finance costs last quarter were reversed in Quarter 3 by negative movements in the valuation of swaps as longer term interests rates fell in the latter part of the quarter. There was, however, some offset by capitalized interest up $3.7 million.

During Quarter 3 our net outstanding debt position increased by just $28 million to $1.11 billion. The net debt to capital ratio was 59% at the quarter end, a slight reduction from the previous quarter.

Following the delivery in October of two product carriers and the signing of contracts for a further two constructions for delivery next year, we now have 15 vessels under construction at a total contract price of $887 million, of which approximately $676 million still remains to be paid.

There will be a further $30 million in payments before the year end, $457 million in 2007, $94 million in 2008 and $95 million in 2009. We sold the 19-year old vessels Crux and Libra during Quarter 3, achieving a net gain of over $13 million and as the vessels were debt free released a timely $32 million in cash which has been utilized in funding our new building program.

And I'll just say a few words now relating to Quarter 4. The Vergina II will again remain in dock throughout Quarter 4 and well into Quarter 1 of 2007 undergoing special survey work and conversion to a double-hull at a total cost of over $11 million. Clearly, there will be no revenue in quarter four. Expenses however, will still be incurred including significant repair costs which cannot be deferred or capitalized. Toward the end of November, the deal by which a 49% share of the holding company of the vessels Maya and Inca is sold to FLOPEC of Ecuador will be completed. This will realize a net gain of approximately $25 million. Net income derived from the Maya and Inca will henceforth be shared. The share belonging to FLOPEC recognized as a minority interest on the income statement. The sale of the Aztec to FLOPEC was completed in mid-October providing a further gain of nearly $25 million. The related loan of $21 million was repaid leaving approximately $35 million in free cash.

We have exercised the option to reacquire the Aframax Olympia at the end of the year for $31 million and the current valuation is over $60 million, but the actual handing back will take place in January. Elimination of the $2.6 million deferred gain which has been on our balance sheet for the past seven years will therefore be accounted for in 2007 as a reduction of the repurchase price. And this concludes my comments, now I'll hand the call back to Nikolas.

Thank you, Paul. Thank you very much. This concludes our short presentation and we'd be very happy to answer any questions that you may have. So we would like Tom to open the floor. Thank you.

[OPERATOR INSTRUCTIONS] Our first question is coming from Doug of Jefferies and Company.

Great. Thank you. Good afternoon guys. Congratulations on a great quarter. Just had a few questions for you. The first one, given how successful you guys have been in timing your expansion program, but also with how attractively valued your shares are currently trading at, how do you balance how you allocate your cash in terms of what is your -- can you give us some color into your thought process behind whether or not you look for further acquisition opportunities or continue to pursue repurchasing your shares?

Thank you, Doug. Thank you very much. Well as you know we have been buying a significant amount in excess of 1 million shares and in the -- so this is one of the strategies we will continue to follow. At the same time of course, we are looking at opportunities in the market, mainly on the new building side. We are -- we believe that some of the second hand tonnage right now might consider quite significantly on very high reprices. We have bought about 1.1 million shares back in the last couple of years and our average price is around $37 so we have made a significant gain there, and we will be continuing to do so. What we don't want to do is significantly reduce of course the liquidity of our shares out there.

Right. Great. And that actually transitions into my very next question is is there a minimum float that you have in mind as far as maintaining or does that factor into your decision making process as well?

We believe to run a successful public company you need to have significant float, so we're trying not to reduce our float and we also have ideas and ways of perhaps increasing that significantly in the near future.

Okay, fantastic. And then thank you, Nik. And then two quick questions on and then I'll turn it over. The first has to do with your thoughts on how you intend to fund or call it an update to your thoughts on how you intend to fund - or if you can provide an update as to how you intend to fund some of your new building installments going forward. Whether, if you have a percent of cash flow in mind that you would expect to use or primarily debt?

I'll give this to Paul on that one.

Hi, Doug. Actually, all of the payments that we have in future, as I said $676 million, will ultimately be covered by debt and much of that debt is already arranged in very competitive terms. Obviously, if we find that we are at any given moment richer than we anticipated in cash, then we'll reduce the amount of debt we'll take. But in actual fact, we've already paid out of our own pockets the equity portion, if you like, of the vessel acquisitions, something like over 30%. So now we're just waiting for the delivery to take the actual loans relating to those vessels.

Great and then just the final question has to do with I guess the obligatory question on the L&G vessel that is going to be delivered soon. Can you provide an update on your thoughts on the employment prospects versus operating the ship?

Well, I think in the last six months we are looking for a lot of interest in the L&G market. There is a lot of interest from end users for our vessel. We are planning to charter the vessel I would say medium to short term, anywhere between three to five years. We are negotiations right now. So I cannot get in more details. But before the end of the year, the vessel will have been charted accretively for a medium period. We have the feeling that this market will be becoming more and more significant market further down the future. There is a lot of demand for L&G. However, there are delays because of the huge infrastructural development needed to get this type of product out of the ground on the ship and on the other side. But we believe in this market, so we will be looking to charter the ship accretively medium to short-term.

Perfect. Thank you very much Nik and thanks, Paul.

Thank you.

Our next question is coming from Jon Chappell of JP Morgan.

Thank you. Good afternoon. Paul brought up an interesting stat in his prepared remarks 81% of your operating days in the third quarter were on market rate contracts. To help us break out what's actually exposed to the market versus what is fixed on your page 9 of your slide show. Is there any way to give us a break down of how much of the days that are already fixed are at market based rates?

I'm sorry. You'd probably have to refer better if you were to refer to our actual website page where we actually give for every single vessel what they are doing or on page 7 and 8 here also.

All right. And -- but given the amount of days that you have fixed already, Nik can we read this to believe that you're a little bit more cautious on 2007 next year than you may have been in each of the last four years?

Well, Jon, thats a very good question. Every time there is always one period in every year where the market has a little bit of correction. And we talk about correction I think we have to put this in perspective. And that makes us always think in - when 2003 came to an end we always thought that that was quite a good year. And then 2004 became a better year and 2005, we thought that the market will again and -- so on and so forth. I think this is the time of the year for many reasons are really not so much shipping related, but I would say oil price related that we have seen a correction in the last three weeks.

However, when we talk about the correction to give you the figures, I mean, still the VLCCs have averaged in the third quarter above the market 70,000 if you took all the markets and make a basket for them. The Suezmax in the 40's the Caribbean which is still very strong is around 20 to 30 to around $40,000. So even to what we consider today a correction, for people like us we have purchased most of our vessels in some cases about half of what a new building is costing today. We're still looking at, as I said, a very profitable and good market. Our strategy and policy has not changed. What really makes us very encouraged for the future is the appetite by all the major oil companies to take ships at long periods of time. And the offers they're making are higher than what they were three months ago.

That's a good point. You had said in your prepared remarks that you could have locked in all 15 of your new builds on contracts if you had chosen to do so. Do you assume that you're going to end up locking all of those new builds into contracts and basically how close do you want to get to the delivery date before you decide to put it on a period contract? If you are a little bit cautious on next year, do you think it might be beneficial to try to lock them in sooner rather than later?

Well, if you look on page 10 of the presentation, I hope you can access it, you will see that we have already in very close negotiations of chartering ships number six and seven LR IIs for three to five years. We have firm offers for four and five, which are coming in the first six months of that year again we could fix and probably will fix those ships. I think I would rather keep the Arctic and the Antarctica coming early the year in the spot market. The new energy which is the L&G will be fixed by the end of the year as we said. So, I think 50% of what the ships -- of the 11 vessels for '07 will be chartered out with a minimum rate and profit sharing or an outright charter at least.

Okay. And then finally one last one for Paul. Can you give us the CapEx breakdown for this new building program for the remainder of this year '07 and '08 and also including the 31 million outlay on the Olympia?

Sure, for vessels this year we have $30 million to pay, excluding the Olympia, that's another $31 as we said. 2007 is a big year, we're taking 11 vessels, so we've got 457 million to pay and then in 2008 - 94, 2009 - 95 million.

Okay, great. That's all I have. Thanks, Nik and Paul.

Thank you.

Our next question is coming from Omar Nokta of Dahlman Rose.

Good afternoon gentlemen.

Hi, Omar.

Hello. You talked on the call with respect to the Vergina II and it's going to cost roughly $11 million to outfit that into a double-hull. I just had - just some regular questions, what do you expect the earnings potential for that vessel to be in relation to regular double-hull Aframaxes and then the useful life of that ship?

That's a very good question. I mean, we had to look very closely to what we were going to do with this ship. However, if you look in recent sales of similar ships there has been sister vessels were sold back in August for $43 million. We have another vessel in our books for just under $20 million. The vessel has approached a special survey position so the decision you make is either you sell the ship for about your book value and you -- or you either pass a special survey costing you about $3 or $4 million. And you only have a life span until 2010 or you absolutely make your ship a double-double and you double your value. Our intention is, we are in negotiations with buyers for that ship. Of course these buyers are financial investors so they do not have the infrastructure or the know how of turning a ship into a double-double that we have. So most probably we will be completing the doubling of the ship and selling it at around for something starting with a 4, which we might actually agree with in November. So we expect to have a marked capital gain for the ship of at least $12 million -- $10 to $12 million.

The useful life is 25 years.

Yes, and the useful life goes to 25 years, which is going to be 2016 on that ship.

Okay. And so basically you're basically just outfitting this for sale. You don't intend to keep operating it?

I mean, yes, I think if we come to an agreement that we are already in discussion we would probably sell the ship, she's a very nice ship, a very good profitable ship. But it spoils a bit our average age. That's the only reason we're becoming very bit snotty with average age out here as well.

Okay, thanks a lot guys.

Thank you.

Thank you. Our next question is coming from Natasha Boyden of Cantor Fitzgerald.

Good morning gentlemen. Paul, I was wondering if you could just help us out a little bit with the interest expense. It was a little higher than we were expecting for this quarter and obviously you've got significant amount of debt in the next year. Can you give us a sort of an idea of what you're forecasting for '06, '07, '08?

Well, bearing in mind that our total debt will increase from the current 1.1 billion to around 1.5, 1.6 billion and let's take an average interest rate of let's say 6% which will hopefully be declining somewhat in the future years, that is basically the simple math that perhaps you have to do. I think --

That's helpful.

-- I think the thing that made it a little bit of a mind boggler, eye-boggler at the time was the fact that in the last quarter we had these wonderful swap valuation gains, which reduced the overall finance costs. Baseline around this time as longer interest rate went down and therefore, the swap valuations went the other way, of course. So that helped boost up the finance costs.

Hopefully, there will be -- one never knows of course, but hopefully in Quarter 4 will be a rather neutral picture as far as those are concerned and there won't be as a dramatic effect within Quarter 4. In addition, we still have capitalized interest and we see that still in the region of about 3 million for the current quarter going down gradually, as we take delivery of the new vessels, and especially as we take delivery of the L&G carrier, which in itself, because we put 17 million into that vessel and therefore we're gaining capitalized interest on that. Once we take deliver of that we'll see capitalized interest coming down. So in your modeling you should see capitalized interest gradually coming down from 3 million to 2 million to 1 million over course of the next 18 months, two years as we take delivery of the vessels.

Okay, great. That's very helpful, thank you. And then moving on to Nikos, if maybe you could give us an update. You do have a significant amount of ice-class vessels. Is there any premium in rates for ice-class vessels or are they pretty much trading at a par with non-ice class?

Well, Natasha, I think in order to know this we should have had our ships in New Zealand, I was looking on CNN this morning and there were huge pieces of ice, one - one mile long going towards New Zealand from the southern coast. So we think it's global warming. No, I think we are receiving interest and we're charting in these ships because of this feature. Today, we would not have had the strategic alliance with Neste with five vessels if the vessels did not have 1A ice-class features, we would not have received the minimum rates that we have which is $30,000 per day for the Aframaxes with 50/50 profit split above that and $21,000 for the smaller, for the 53,000 tonner ice-class ships. I think this is a rate that normal non-ice class vessels would not be able to command.

Now, if the winter is cold enough, we have been instructed - our operations team has been instructed to actually place all those ships in the Baltic for the next couple of months. So we will be getting what the market is and splitting it with our clients. So I think, yes, we are seeing a significant appetite because of the ships being ice-class. Now, I'm not a weatherman, but hopefully we will get the market quite cold to get some premium too.

Great. Thank you. And just lastly if I could, perhaps address the [top mile] expansion scenario that I think we've been hearing a lot about. Besides Sejan as well into Asia and perhaps West Africa to Asia, are you seeing any new trading routes from perhaps that of the [FSU] that are perhaps adding to the top mile expansion scenario?

Well, we are seeing trades developing from the west side of South America to Asia. We're seeing cargoes that we didn't used to see from places like Peru, Ecuador, even Chile going to China. We're seeing an increased Venezuela to the Far East as you mentioned trade. And whereas we had 10 years ago we could look at the VLCC having five or six routes, we are seeing now almost a doubling of these routes. We have as you know, the significant increase in output in the Sejan side and the eastern Mediterranean, where we had -- that used to be an Aframax trade it became a Seuzmax trade and it since it's becoming a VLCC trade as we talk. So, the more the demand the more out put is required and the larger the ships. So yes we are seeing a significant expansion of new trades.

Great. Thank you very much.

Thank you, Natasha.

Thank you. Our next question is coming from Rory Stewart of Simmons and Company.

Thanks. Just a quick one for me. The new builds that you ordered during the quarter, the two Aframax and two Panamax. The Panamax is due for delivery I think, late '07, that just seems fairly fast. I wonder if you could give some color around if you had reserved a birth there or something opened up in the yards or any kind of circumstances around that order being able to be filled relatively quickly.

Well, thank you very much. I mean, yes, you hit the nail on the head. As you know we have entered into a strategic alliance with state oil company of Ecuador that has required us to sell 49% on two of our Panamax tankers and a 100% on one exchanging it with long-charters of course. So, because we developed a very close relationship in the last 10 years with mainly Shendi, Korean yards and Japanese yards, whenever there is a cancellation of a birth, they tend to think of us after we spent a couple of billion dollars building ships at their parts of the world. And that's exactly it, those were lots of being ordered by dry cargo at Panamax vessels, which we -- when these orders were cancelled we were able to move quickly and achieve these two Panamax slot, which we have already chartered out to Petorbras of Brazil at the rate which is approaching $27,000 for three years. So I think this is a deal that will move fast, we acquired the ships, we replaced the ships we sold and we made a significant capital gain of close to $50 million from selling out two previous Panamaxes. We were able to order -- we sold our Panamaxes at around $58 million and our Panamaxes were three years old. We ordered new building Panamaxes less than $55 million and chartered them out. So, it was another big arbitrage as you would call it in your language and that's why they're going to be quite fast. Because they have been built for different reasons.

Okay, so just to confirm the price was slightly under $55, is that right.

That's correct, yes.

Okay. And the only other think I had I think Paul might have mentioned it in his comments, a capital gain in Q1 and then there was for further clarification that was coming from the double-double Aframax being sold. Is there any other capital gain in Q1 or is it --.

Sorry, Rory, we'll take the Olympia but we were not intending to sell it but we are buying it back. It was sold as part of a sale and lease-back deal seven years ago.

No, sorry I was talking about the Vergina?

Oh, I beg your pardon. The Vergina.

And is that the only capital gain you'll have in Q1?

No, there's also the, as Nikos mentioned, the sale of the Bregen which is a Panamax.

Our oldest ship built in 1989. So we will have sold in the last two quarters our '87 build, '88 build and '89 built vessels so our oldest ships will be built in the '90s right now.

If I may intercede, the Bregen is a done deal, which will be consummated in the first quarter of next year. The Vergina is a prospective deal and hopefully it will be consummated in the first quarter of next year.

Okay, great. That's it for me, thanks.

Thank you. And our final question is coming from Bill Frazier of Green Hill Capital.

Good afternoon, gentlemen. Question on the L&G tanker. Last quarter you indicated perhaps a joint venture. Is that off the table at this point?

No, it's very much on the table. I mean, we are looking at the end-users that would like to of course charter the ship, as I said for three to five years. But they would also like to participate in equity ownership. However, our timing in this has been quite good. We ordered the ship, we will end up having an all-in cost of about 190 million maximum, I think, Paul?

Yes.

On that ship today, this vessel if we sell the ship around 225 million, so there is a $35 million capital gain if someone would sell the ship. So if someone is willing to buy 50% of our ship at today's market, we are discussing this possible which we will have a capital gain and of course charter this too. So instead of owning 100% of the vessel we would be owning 50%.

Okay, thank you. Now regarding the -- we have about 50 ships. What number are you comfortable with. Do you see additional fleet expansion in the future or are you comfortable at around the level we're at now.

Well, I think as I said, size is not always, it helps a lot the efficiency, of course we have inherited efficiency because we are part of a group that runs close to 100 vessels mainly of course dry cargo and container ships. I think what our plan is to sell our older vessels so we might be selling up to five vessels in the next six to eight quarters and replacing them with new ships. But anywhere between 50 and 60 vessels is a good size. It gives us enough muscle in even different segments and at the same time, flexibility.

Do you see using -- if an opportunity came about, do you see using shares to fund the acquisition or would you prefer using debt?

As we speak today, I will ask our chairman to answer for that.

I think we've made it rather clear through our share repurchase program and the various statistics that we've shared with you over the years about the unrealized capital gains that are built into our present fleet portfolio that it would be a "last resort" if we increased our equity to fund the expansion. We think we have a very strong cash flow and that's going to sustain us.

Okay, I was just curious because earlier in the call you mentioned that perhaps the float would increase in the future. And I didn't know how one would do that other than issuing shares.

Well you might be able to double the size of your existing shares somehow.

Right. One final question, do you folks use FFAs to hedge the future or do you stay out of that?

We stay out of that and we are planning to stay out of that. I mean, we have been -- we have such a large physical presence in this market. And by our chartering strategy which actually covers -- has minimums, then we have profit-sharing arrangements, long-charters, so I think I would - I and someone individually, either individual companies for their own use or use the trade the FFA markets. I personally believe it's a very good, I do not think it's a very good idea for a public company to use the FFAs because surprises might happen. So we're not planning to use the FFAs, only for hedging purposes but we are not planning in the short-term. Mr. Chairman?

No, I have nothing to add to that. The balance, the employment strategy of TEN incorporates many of the features that would be realized from having a freight forwarding strategy if you were, basically in the stock market. So we think we've got that base covered.

Okay, that's great. One last question for Paul, if I could. On slide 7 of the package you have a pretty nice presentation of the various vessels and the rates at TEN and I see the VLCCs earned $52,000 and in your prepared remarks you said something about in Q3 the VLCCs earned $48,300. So I was just wondering is that $52,000 a year-to-date number or --?

I'm sorry that was -- the VLCC number is somewhat skewed by the millennium, which is on a bare boat charter.

Which is about $25,000 --.

Yes and then --

And so it's the average numbers.

And then we put a notional apex to make the kind of TC basis of about $40,000.

Well, does that number represent what you've earned in the third quarter?

An average of those three, yes.

In the third quarter, not a year-to-date number?

Third quarter.

Okay, thank you very much and keep up the great work guys.

Thank you.

Thank you very much.

Thank you. This concludes our Q&A session. I will now turn the floor back over to Mr. Tsakos for closing remarks.

Well, thank you very much. We're keeping interest to our company. As I said we are looking at an exciting remaining period. Usually this fourth quarter and first quarter are gives a lot of signs of how the market will performed for the remaining of the year. We expect that we have placed the company and worked to place the company able to take advantage of all the new developments. We will be in the States for next week and we would like to see as many of you as possible in person. Thank you very much. Chairman?

Thank you and goodbye.