Tsakos Energy Navigation Ltd (TEN) 2007 Q2 法說會逐字稿

Good morning ladies and gentleman. My name is [Markitta] and I will be your conference operator today. At this time, I would like to welcome everyone to the Tsakos Energy Navigation Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [OPERATOR INSTRUCTIONS].

It is now my pleasure to turn the floor over to your host, Tom Rozycki. Sir, you may begin your conference.

Thank you and good morning or good afternoon and thanks for joining us for Tsakos Energy Navigation's second quarter 2007 earnings conference call. By now, you should have received a copy of the earnings press release, but if you have not, please contact Laura Kowalcyk of CJP Communications at 212-279-3115, extension 209, and she will be happy to fax or email a copy of the release to you.

Again this quarter TEN is providing a supplemental slide presentation with fleet employment and financial data, which can be accessed from the front page of TEN's website at www.tenn.gr. 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 and the accompanying slide presentation contain certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, which may affect TEN's business prospects and results of 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. Nick?

Thank you, Tom. Good morning, good afternoon to those of you on this side of the Atlantic. We are very happy to be reporting our second quarter. And I would like to introduce our team here, of course, our Chairman, Mr. Stavropoulos. Our CFO Mr. Durham, our COO Mr. Saroglou, and myself together with the officers of the team Mr. [Coz Matthews] and Mr. Bertolis are here to give you a short presentation and then answer your questions.

The second quarter has been again a quite an exciting quarter for us. The first six months of the year have been a very productive period for the growth and the development of our company. Our net revenues are also to above $100 million exactly $107 million and that's a 34% increase since last year.

Our net income rose to 37.5% up from $33 million. We are going to be reporting earnings of $1.96 against $1.73 a year ago. And we have increased fleet utilization which is already high for our company to 97.6% of available operating days.

We have been taking delivery of eight new vessels, we have three more to go in the remaining of this year. And we have been able to fix those ships with long term period charters, the majority of them. And also we have been able -- we are very proud and excited to get delivery of our first LNG and it has been chartered out for a one year period at a very attractive rate.

But I would allow -- right now I will ask our COO, Chief Operating Officer, to talk about operations then our CFO will talk about the figures, but before all that our Chairman is going to give us his words of wisdom. Thank you, sir.

Hello Nikolas, I don't know how large they are, thank you for the opportunity. Well, good morning everyone and thank you very much for joining us. I think we can all agree we are certainly living in very interesting times. If you ask for guidance from three investments or economic counsels you'll get at least five opinions.

Since the world's economic engine has in short order has become the caboose. The sub-prime mortgage virus has infected financial institutions around the world as we all know, Australia, Switzerland, Germany each day a new entity steps up and reports difficulty. Most observers will announce that this will be more pain and many more victims before this epidemic passes.

But remarkable news in the company yield is that, despite this trauma the world economy is powering ahead. The Secretary or Treasurer of the U.S., Mr. Paulson recently stated that he has never seen a more vibrant world economy, certainly from all of those things that we see in the shipping industry or that's being confirmed. And even the U.S. economy is continuing to grow. Employment, personal income, exports, they are all strong. General confidence remains good. Europe, was on cruise control. It got solid growth, shrinking unemployment and modest inflation. Japan is steady and the emerging markets are maintaining very, very robust expansion.

Oil prices are near record levels but we all thought that that might be the death kneel. We all feared demand destruction, it has not developed. Consumption demand growth hovered near or above 2% per annum. You will hear from management all their detailed strategy and response to these challenges and opportunities. The Board and I are confident that TEN's outstanding management will continue to excel and produce rewarding results for our shareholders.

As a footnote the internal rate of return for shares of TEN since its IPO in March of 2002 has been 40.9% versus 6.3% for S&P 500. Nikolas, I can sum up my reaction in four words, congratulations and thank you.

Well, Chairman thank you very much for your very good wise words. As I said, that this is our 56th consecutive profitable quarter in our 55 quarters over the listings. And how this first six months and how this quarter has progressed I will ask our COO, Chief Operating Officer, to talk about the operations. Mr. Saroglou?

Thank you, Nick, and thank you, Mr. Chairman. It is my pleasure to speak with all of you today to provide details on what was a very busy and commercially satisfying quarter and year-to-date.

In the beginning of 2007, we are expecting to take delivery of 11 newbuilding tankers including the company's first LNG carrier. As we speak we have taken delivery and integrated eight vessels so far to the corporate fleet, with three more to come until the end of the year. Laid aside an auction we had and bought back during the first quarter the 1999-built Aframax tanker, Olympia, at the price 50% below at current market value. We sold the 1989-built Panamax tanker Bregen for a capital gain, celebrated our fifth year anniversary in the New York Stock Exchange, paid the April semi-annual dividend of $1.50, and continued chartering the incoming newbuilding [tankers] and existing tankers from the fleet for a combination of period time charters, [end voyage] charters in line with our balanced chartering strategy.

More specifically during the second quarter, four vessels entered the fleet to join the four deliveries in the first quarter of this year. The deliveries this quarter were one 1A ice-class Suezmax, the Antarctic, one DNA design Aframax, the Sakura Princess, one 1A ice-class Handysize product tanker, the Aegeas, and one 1B ice-class Handysize product tanker, the Byzantion. We expect to receive a further nine vessels through 2010, including three more this year, one 1B Handysize product tanker and two Panamax LR1 product carriers.

These newbuilding introductions have raised the number of operating vessels currently in the fleet to 43 vessels, compared with 37 at the end of the second quarter last year. In deadweight terms, TEN experienced almost a 17% increase, reaching 4.7 million deadweight tons, while reducing the average age of the fleet almost 12% from six years to 5.3 years.

The sales and purchase is an integral part of our operation and philosophy as a shipping company. We continually and actively look for opportunities that would enhance our fleet profile, operationally, commercially and financially.

Subsequent to the end of the second quarter on July 10th, we announced the sale of the 1998-built Aframax tankers Maria Tsakos and Athens 2004, the company's first series of newbuilding Aframax tankers built at the Imabari shipyard in Japan to an independent shipowning concern.

Maria Tsakos has been delivered to the new owners on July 11th, while Athens 2004 is expected to be delivered in early October, 2007. We operated these vessels with great success and profit for almost 10 years, and would like to wish the new owners smooth sailings and lots of success.

These sales generated a $31 million capital gain, which would be recognized in the third quarter and an additional $31 million capital gain, which would be recorded in the final quarter of the year. As an added benefit these sales also released approximately $50 million in cash after repayment of debt associated with those two vessels.

As Nick has referenced on last quarter calls, we [started helping] newbuilding programs, we are well positioned to entertain offers for some or for first-generation newbuilds at very healthy prices.

The sales of Maria Tsakos and Athens 2004 are a clear illustration that our advantageous participation in the sales and purchase market delivers volume to our shareholders. The high quality of our 100% double-hull fleet, working in tandem with an increasing demand for quality products for world-class charters has allowed us to effectively maintain our balance charter profile.

Our chartering policy, which dictates that the majority of our vessels operate on time charters with profit sharing built in ensures that we are profitable if only the minimum rates are achieved, while still reaping the benefits of a continually healthy stock market. Should the market face a downturn, these long-term profit sharing contracts allow for TEN to ensure that this can continue growing and maintain a healthy dividend for our shareholders.

With currently 33 vessels with fixed time charter rates and time charters with profit sharing out of an operating fleet of 43 tankers and assuming only the minimum rates, TEN has secured 971 months of forward employment or 2.4 years per vessel and 681 million in revenue.

If you look at the presentation that we have on our website, if you can see on slide 8, this balanced, long-term, client-driven chartering policy has allowed us to secure the company revenue streams going forward.

The four deliveries this year that I referenced earlier were all immediately employed. The Sakura Princess entered a two-year time charter with a major oil trader for a minimum rate at a 50/50 profit share should the rate exceed the minimum. Taking into account only the minimum rate, Sakura Princess is expected to generate about 21.7 million in gross revenues over the charter period.

The Aegeas is employed on a three-year time charter with a major oil trader for a fixed minimum rate at a 50/50 profit share, should the rate exceed the minimum. Taking into account only the minimum rate the Aegeas is expected to generate about $21 million in gross revenues over the charter period.

The Byzantion entered a three-year time-charter with a European oil trader for a minimum rate at a 50/50 profit share should rate exceed the minimum. The Company expects the vessel to generate a minimum of $21 million in gross revenue over the duration of the charter.

The Antarctic was deployed very favorably in the spot market. Also the Vergina II, we successfully completed during the second quarter held conversion to double hull was fixed following a short period trade and repositioning in the spot market to a two-year fixed rate time charter to a State oil company. TEN expects the vessel to generate $23 million in gross revenue over the life of the charter.

Neo Energy our company's first LNG tanker, after successfully trading for a short period in the spot market was fixed for a period time charter to a major LNG entity at a profitable rate. We are very happy by the market reception our first LNG carrier had received and excited to participate in LNG transportation a young, challenging and developing market for independent owners with excellent growth prospects in the years to come.

Despite the seasonal lull of the third quarter, this year the spot market in July conformed with historical seasonality. We continue to see oil majors, State oil companies and commodities traders to aggressively fix forward both crude and product tankers and that we believe is a good sign for the progress of the tanker market for the years that follow.

Not only are we making building tankers but we have taken delivery since the beginning of the year, have full employment with five of them as explained above on period charters but also all three remaining 2007 newbuilding deliveries that TEN expects to take delivery from August until the end of 2007 as time charter arrangements starting from the day the shipbuilders deliver these tankers to them.

Bosporos due to be delivered to TEN on August 21, for example entered a three year time charter with a European oil trader for a minimum rate and a 50/50 profit share should rates exceed the minimum. The Company expects the vessel to generate a minimum of $21 million in gross revenue over the duration of the charter.

Finally, the two Panamax MR1 product tankers Selecao and Socrates have been fixed to a State oil company for three years to a fixed time charter. The Company expects the vessels to generate $57 million in gross revenue over the duration of the charters. On slides five and six, you can graphically see the current status of our employment policy and the worldwide trading pattern of our existing fleet.

Strong worldwide economic expansion is continuing, led in large part by China whose GDP growth was recently revised to 11.2%. Russia and India also continue to be major drivers. Even the U.S. GDP was revised upward to 2.8% in 2008, expected to rebound from an anemic 2% in 2007. What this means is that demand for seaborne products will remain high and shippers would stand to benefit.

More specifically oil demand remained strong despite oil prices creeping back to record highs. In 2008, world oil demand is expected to rise by a robust 2.5% to 82.2 million barrels per day with the OECD contributing roughly to a [third] 800,000 barrels per day of this demand growth. This does not reflect the expected growth in non-OECD demand primarily coming from China and the Middle-East.

The supply/demand balance continues to be in check despite the strong influx of newbuilding tankers, which is above historical levels and expected to remain so until 2010. We still expect that the mandatory phase out of single hull tankers will have an affect and also look to shipyard capacity strains as single hulls are converted to FPSOs and FSOs. In short we are cautiously optimistic that the supply/demand balance can be navigated, specifically by carriers with modern fleets and long term chartering policies like TEN.

The earning visibility that our policy provides should allow investors to hold our stock with confidence. For the remaining half of 2007, 87% has been fixed securing at least $160 million in gross revenues while for 2008, 67% of the available base has been fixed guaranteeing at least $226 million for that year. That type of visibility is what we strive to provide.

Overall we expect 2007 to be another healthy year with high fleet utilization rates, a straight market well above mid cycle levels and capital returns around the levels of 2006. The Company continued its impressive growth for the 55th consecutive quarter. Our dividend policy continues full speed ahead with $1.50 paid out so far this year in April with respect to 2006 operations. Overall the Company paid $2.75 dividend for the 2006 operation and that represents a 31% increase forward to $2.10 the dividend paid for the 2005 operations and the proof of our success is reflected in our stock price.

After breaking through the 50 barrier we were at almost $60 three months ago and today have chartered new territory above $70, $75. We believe that the market is beginning to see the true value of our entire fleet, both those fleets in the water and those still to be delivered. As a result, we are continuing to move towards a reasonable stock price in line with our net asset value. We will continue our hard work and we wish to thank the Board for their support, as well as all Tsakos shareholders who have held our stock over the years and welcome those new ones into our stock.

Also our thanks to all our shareholders and on-land personnel in TEN and Tsakos Shipping and Trading, allowing us to supplement our corporate performance with their able and constant service. We also thank the officers and crew on both our vessels to give their best, 24/7 and help us turn strategy and ideas into results and brand recognition that makes all of us proud to associate with.

As always, we welcome all of you to our headquarters in Greece, and hope to see many of you in the fall on our road shows.

At this time, I would like to turn the call over to Paul Durham for a review of the financials. Paul?

Thank you George. And thank you all for joining us today. Before I begin, please note that a summary of selected financial data is included in the press release for your reference, and now I will talk about more significant items occurring during the quarter and half year.

TEN earned net income of $37.5 million in quarter two 2007, compared to $33 million in quarter two 2006, an increase of nearly 14% over last year's second quarter. There were no vessel sales in [private] quarter period.

Diluted earnings per share was $1.96 on 19.1 million weighted average shares, compared to $1.73 from the same number of average shares for quarter two last year. For the six month period, net income was $81 million compared to almost $75 million last year, an increase in net income of 8% over last year.

Total revenue was $132 million compared to $105 million reported in 2006. That's the highest quarterly revenue that we have ever achieved, a reflection mainly of the continuous growth in the fleet, the average number of vessels increasing from [33.9] vessels in last year's quarter two to 42.3 vessels in quarter two 2007.

We also achieved nearly 98% utilization of the fleets compared to almost 97% last year. Days are higher this quarter relates to the Vergina II, 19 days and Propontis, 49 days, those vessels competing their respective work in drydock during the quarter. La Madrina also lost 11 days on [the fares].

Also, our average charter rates were better in the three months and marginally in the six months period mainly 2006. The average daily TCE per vessel for quarter two 2007 was approximately $30,000, compared to $28,600 in the previous year's quarter. Average rates for all categories being higher than or similar to last year's quarter two. For the six months, $30,800 was achieved compared to $30,600 last year.

During quarter two, there were two vessels in each of the categories VLCC, Panamax and Handysize that have their six month profit sharing averages calculated in quarter two, and therefore benefited from extra revenue, which related to prior quarters.

Total operating expenses in quarter two amounted to $26.1 million, compared to $18.2 million in last year's quarter two, due to the increase in the size of the fleet and to higher costs. The daily average cost per vessel increased by 9% from $6,659 to $7,266 in quarter two 2007. No change from the quarter one average. The weakening of the dollar impacted costs, mainly crew costs by 2%, and higher oil prices hit lubricants. The addition of an LNG carrier and two Suezmaxes also raised the average level of daily operating costs.

G&A expenses for the quarter were at $90,000, up from the second quarter of 2006, mainly due to higher audit and legal fees. Personal management fees rose from $1.8 million to $2.5 million, due to the increase in the size of the fleet and partly to fee increases. A further non-cash $1.3 million was amortized relating to issued stock grants. Taking these three categories together, our daily overhead cost per vessel amounts to $1,266 in the second quarter of 2007, compared to $893 in quarter two, 2006. The stock grant amortization accounts for virtually all of the difference.

Operating income for quarter two was $51 million, which if we exclude highest capital gains is the highest quarterly operating income achieved in the company's history to date.

Total finance costs for the quarter amounted to $14.8 million, compared to $5.7 million in quarter two 2006, mainly due to the increase in average loans for the quarter from $946 million to $1.4 billion between the two quarters. Average interest rates after taking account of the benefit of interest rate swaps, heavily increased from 5.5% to 5.6%. During quarter two we added $115 million net to our total debts to partly finance the four new deliveries in the quarter.

This brought our total debt to $1.45 billion and our net debt to capital ratio to 61.8% at the quarter end. Our leverage based on vessel values is only 42%. Currently we have nine vessels under construction at a total contract price of $512 million of which approximately $364 million still remains to be paid; $78 million between now and the year end, $95 million in 2008, $108 million in 2009 and $83 million in 2010.

Within quarter three as George has mentioned we shall take delivery of a Handysize product carrier Bosporos on August 21st. We shall immediately enter the two year time charter with profit share. Six vessels on time charter with profit share with six months average revenue determination will be accounted for at minimum rates only throughout quarter three. Although unlike quarter one the difference between these minimum rates and the current market rates are not likely to be so significant.

The vessels Silia T and La Prudencia will be in dry dock during quarter three for approximately 30 and 50 days, respectively. The Aframax Maria Tsakos went to a new owner on 11th of July providing a capital gain of about $31 million and after repayment of debt $25 million cash released. And this concludes my comments and now I'll hand the call back to Nikolas.

Well thank you Paul, thank you for your very good news. And now that we have completed the financial nitty-gritty we would like very much to open the floor and answer any queries or questions that you may have. Thank you very much.

[OPERATOR INSTRUCTIONS]. Our first question comes from Jonathan Chappell of JP Morgan.

Thank you. Good afternoon guys.

Hi, Jon.

Most of your or a majority of your newbuilding program is now behind you and it starts to slow on a relative basis as we look out at 2008, 2009. Nick can we get your insight about newbuilding prices as they stand today, reaching record highs despite maybe some weakening of the spot markets and the underlying rates you can earn. What do you view as far as newbuilding prices are concerned and the returns that you can get by investing in those ships with delivery out to 2010-2011?

Thank you, I mean as you know we have been, I would say lucky or wise to have -- to still have a significant newbuilding program in prices and what we call yet to build prices. And -- even our DNA six we could tell them today we have or now they are at least $10 million capital gain per vessel; even the ones that have been ordered down to 2010.

So, I think what you will not see from us happening as we speak is opportunistic practices or placements of newbuilding orders. We believe that -- BLTs was delivered 211 to 240 million might be on the expensive side. Of course in shipping you never say never. What you might see is newbuilding orders from outside by companies by long employment, strategic alliances, I mean as we have done with Nestek last year, as we have done with FLOPEC, the Ecuadorian State oil company. We are discussing with other major traders and oil companies in building ships for them against long term charters.

I don't think today we will be betting newbuilding orders, in order to get a capital gain, but we will do strategic newbuilding orders we will have. Actually the cheapest segment of the newbuilding market today comparing it is the LNG market. But again we are not planning to deal to an LNG without employing them, but if you look at it this is the cheapest segment of the let's say energy market.

Okay and Paul as these new ships come on and you take on the debt to finance the '08 and the '09 deliveries, how high is the debt-to-cap going to peak at? And given your time charter coverage what level are you comfortable with?

We've looked at this pretty closely, and we are monitoring this all the time and we believe we are going to reach a peak and plateau this year before we've taken these deliveries, even though we are going to take [debt] for much of the remaining outstanding [installments]. And this of course is based on our chartering policy that we know we are going to get the relevant cash required on a factor (inaudible) to grow with the investors coming on and more builders as per the market. So we feel relatively comfortable over the next two or three years that our overall debt will not exceed and if it does not by much but obviously $1.5 billion will gradually come down to about $1.3 billion by about 2010 and that our overall net debt-to-capital will peak at around 61% to 62% and then gradually come down, will plateau and then gradually come down in a couple of years to about 57% and then onwards down. We do not see our overall leverage increasing significantly from where we are now.

Okay. And in that analysis do you assume any more disposals of older assets to help pay down the debt? And do you have the Maria and the Athens proceeds for instance, in that analysis?

Maria and Athens proceeds are factored in and indeed -- so, we assume that other vessels will be going -- will not -- those aren't backed in, but we do assume that on a historic basis that we will be releasing two to three vessels per annum.

Okay. So -- and we would think about future vessel disposals as being late 90s, early 2000. I mean anything to pretty much boost the overall --?

Sure. If you look at our list of vessels, I mean obviously the next candidates are the Hesnes, Victory and the Vergina II.

The Vergina II will be pushed off a little bit now by this two-year contract, I would assume?

No, it's just still a credible candidate even with the charter.

Okay.

Yeah, the charter is a very healthy charter, so 15 -- we will pay a premium to get healthy Hesnes charter.

Okay. All right. Well, thanks a lot Nick and Paul.

Thank you.

Thanks.

Our next question comes from Doug Mavrinac of Jefferies & Company. You may pose your question, sir. Our next question comes from Natasha Boyden of Cantor Fitzgerald.

Thank you operator, good morning gentlemen. Paul, you mentioned in the press release that you are reacquiring the Aframax Olympia for a price significantly below fair market value? And Nick as well, can you elaborate on how you managed to do that?

Well, this was a -- hi, Natasha.

Hi.

This was a deal we did back in 1999, and we sold our good ship, the Olympia, for a significant capital gain at that time to a German KG. And we have -- we had the option to purchase it back seven years and a bit later. After -- and what looked at the time a very steep price, that's the way the market has moved. We paid it all about 30 -- less -- a bit less then $31 million to reacquire the vessel and subsequently the vessel was sold for [$61] million, as you know, the [Rio] Tsakos, one year older.

And that's how -- and I think we should not forget we still have two options -- very similar options on two ships which are the Cape Baker and the Cape Balboa, which I think -- we don't advertise openly, but we are intending if the market continues the way it's going to go today to actually exercise this option by October of next year. And again this was -- with this in 2002 we had made a significant capital gain at that time. We got -- an option is always a valuable thing to have. We never expect it again but an option about -- in the mid 40s for a Suezmax, so we have much work. But today we are -- we have seen an offer for a [sittle] vessel, the Silia, at $100 million. So those ships are actually priced higher. So, the market [for business] for another year and you would be pleasantly surprised with the significant, I would say, capital gains from those ships also.

So, pretty good deals both coming and going?

Yes, that's why we said that we -- the sales and purchase market where people do not pay that much attention to -- for us if you look at our track record, is an important part of the business.

Okay, great. Thank you for elaborating on that, Nick. Also, just to follow on to John's question, obviously, your leverage is fine, but given that you still believe your shares are trading below liquidation and given the fact the shipyards are full, have you considered repurchasing shares at this point or will you do that going forward?

Well, I think we believe that there is a fine balance between such as privatizing the company by buying all the shares back and keeping a liquid active stock as to what we have today. But, you are right we are -- we have a buyback program with an average buyback price of $37, and that was a year ago. We have -- thanks to our good shareholders -- our appreciation level must doubled that, so the company has made a huge investment by buying back its shares of what is today exactly 50% of today's value, and we are monitoring this with that excess liquidity. But, we find it more appropriate right now to reduce debt and keep the company lean and trim in order to look at the opportunities.

Great. Thank you. And just lastly, if you could give us your thoughts on the potential for OPEC possibly raising production closures later this year?

Well, any short-term anomaly as you know is healthy for the business. We expect that today's oil prices and with the winter approaching are becoming, I would say very steep and we expect an increase in the next meeting and the one after that, which of course will be helpful for having supply of transportable prudent projects in the market.

Yeah, thank you very gentlemen.

Thank you.

Our next question comes from Greg Lewis of Credit Suisse.

Yes good afternoon. My first question is about LNG, one of your competitors recently announced that they signed a contract to have a few vessels and it sounds like there is a more LNG developments -- LNG projects going forward. Is that something Tsakos is looking at or --?

Yes, thank you very much for the opportunity. As I said we are -- this is a very new 18 months old business, the LNG business. The transportation part of it I guess, I mean. And we are looking to expanding this business, we are satisfied with the results and we will remain with our company and the operation of the ships, as the ships so far operating at [COP] basis and you make the charts and leaving after one very successful operation.

And we are planning to expand in this trade not in an opportunistic way but as you correctly said talking to major producers and users in acquiring existing [projects] for them or even new business, which right now are the cheapest segment of the tanker product LNG newbuildings.

Okay great. My next question regarding the Vergina. I mean, that recent time charter looks to be at market rate. Has that impact, the ability to charter that vessel at market rates, did that impact your decision to keep the vessel or as Paul almost alluded to it almost sounds like not having that charter attached to it might make it easier to sell?

Well I think that the vessel has been fixed for two years at $32,500 a day and for a 1991 built vessel well above the -- I said, 10% above the market. The reason that the vessel is to be paid above the market is because it is trading in a very difficult trade which is the Caribbean [concentrate]. I think this employment is I think valid receipt and we have offers to sell the ship with a time charter alone.

Okay, great. And then one last question about operating expenses. What percentage of daily OpEx consists of lubricants?

Lubricants is about 10%.

Okay and what sort of budget increases do you have for lubricants over the next year?

In respect of prices?

Yes, I mean, do you anticipate lubricant prices going up 10%, 5%?

In the same respect as we budget for how high oil prices would go. Well we are assuming yes, but overall we budget [about] 5% per annum on all OpEx expenses. Now that is just a general almost a finger in the air. Anything all that the remainder that has more increased by 25% which is from last year. In fact as our own lubricant prudent is concerned of our total increase in OPEC costs of 9% a good half of that is due to the lubricants.

Now that's not only because of price. We have had a couple of technical problems in a couple of our vessels that has increased consumption. But excluding the consumption factor we will have to put an increase on lubricant prices somewhere in line with the expected increase in the price of oil. But as we've been seeing over the past few months that is a difficult thing to put your finger on. All we've seen is that it is going up.

Okay great, thank you.

Our next question comes from [Bill Fraser] of Greenhill Capital.

Congratulations, gentlemen, on another fine quarter. My question is on the LNG tankers, is that a one year time charter or is it longer than that?

Well it's initially it's like an ever green contract but approximately one year then because it is with a major end user it can go forward. Yes.

Okay so obviously you are satisfied with getting that chartered. The banks, are they tightening up their lending standards based on some of the sub-prime [less on] the U.S. on the mortgages. I guess --

We have not seen -- I think Mr. Chairman?

I don't believe this [test] is that our spreads are lowered that before all of the headlines about sub-prime mortgages and we will see how it plays out. But we think that high quality operators in our industry are not going to be more significantly impacted. We hedge much of our own interest rate risks with swaps, we've covered in excess of 70% now so we feel rather well protected against interest rate volatility and also against margin spread.

Okay, thank you, very much.

Our final question comes from [Burton McQueary of Stock Broker Club].

Hi, the other questions I'm sure were from analysts and people who can ask you very fine questions. I am not an analyst and I have simple questions. I have three and maybe you could answer them in sort of a reverse. I just want to talk about the stock split. Also I wanted to ask you about the -- it looks like the second quarter revenues and earnings were a little less than the preceding quarter and if you are going to expect that flattening for a while? And the last one would be the -- it seems like most of your contracts now are on a minimum charter basis with a 50/50 split. And I am wondering how that 50/50 is split. Do you get paid at the end of the three-year contract or two-year contract, or do you sort of work on a monthly basis on these revenues from them?

Yeah, hi, we have -- we get paid on a monthly basis, in some cases on a quarterly basis, depending on the logistics and one or two vessels it's on a six monthly basis, but the majority I would say it's on a monthly basis. We have seen -- I think this is quite a strong -- it has been a very strong growth quarter for us. Usually the second and third quarter are seasonally slower quarters on the stock market, that's as we said we have secured [another] for our total fleet almost 2.5 years employment and about 650 million -- $160 million of revenues. So, we expect [use] in the second and the third quarter to be a bit slower than the first and the fourth quarter, but it has been, I would say, in line or we have been pleasantly surprised with the second quarter.

And on the split, the Board is meeting in September and I think one of the issues -- corporate issues we are looking at is surprised us significantly moved to look at it and have a split.

I also want to make a suggestion, since you are the most probably successful company in the world over the last few years that you may want to change the name of the company from TEN to ONE?

That's sounds right. But, we have spent -- we have to find something that starts with a T -- because otherwise it will be very expensive to change the funnels on our ships.

And unfortunately that trade symbol ONE, it's now retired, but I don't think it's available; it used to be Bank One.

At this time there appear to be no further questions. I'll turn the call -- floor back to Nick Tsakos for further remarks.

Tom. Well, thank you very much for your interesting questions. We once again enjoyed presenting our results for you. We want to wish all of you an eventful and peaceful and relaxing August. We will make sure that we will not be peaceful and uneventful, we will try and make -- increase our shareholders' value in the heat of the August. And if any of you happen to be in Greece, please give us a call we would love to show you our headquarters and perhaps visit a vessel. Chairman?

Well, Nick, all I can say is keep up the good work and let's hope the second half of the year is as positive and rewarding as the first.

Thank you.

Thank you. This does conclude today's teleconference. You may now disconnect.